Looking for your opinion on adjustments

[Terrel L. Shields]

I find that "adjustments" tend to change slowly over time as a practical matter. Certainly, in most of the market I do, change in adjustments change no faster than the time "Market Conditions" do.

OTOH, I find age (effective age) and SF adjustments are highly dependent upon the sales I use. In some cases, those don't change, but in many cases, they are highly variable with the available comps. I have a small town I've done 8 or 9 new constructions, with the earliest sales being the basis for the adjustments of the latest sales. These have been consistent for over a year. Same SF adjustment. Same with most new subdivisions. But older homes in long developed areas? Some houses the same age will have an $80/SF adjustment and some will have a $100/SF adjustment for very similar houses.

 

[TerryRohrer]

I find that "adjustments" tend to change slowly over time as a practical matter. Certainly, in most of the market I do, change in adjustments change no faster than the time "Market Conditions" do.

That is pretty much what I see.

 

[Mike Ault]

They contributory value of some over-improvements is easy to demonstrate. Find a sale in a $150,000 neighborhood with a $75,000 swimming pool and determine how much value the pool added versus sales of neighboring homes without one. Then do the same study in a $500,000 neighborhood and see how much value the $75,000 pool added. Do that a couple times and you can be confident when discussing various ROI percentages in different market segments and applying the overimprovement label to them.

 

[Surf Cat]

They contributory value of some over-improvements is easy to demonstrate. Find a sale in a $150,000 neighborhood with a $75,000 swimming pool and determine how much value the pool added versus sales of neighboring homes without one. Then do the same study in a $500,000 neighborhood and see how much value the $75,000 pool added. Do that a couple times and you can be confident when discussing various ROI percentages in different market segments and applying the overimprovement label to them.

I agree with you on this. However, it's a little trickier with GLA.... appraising the non-conforming, white elephant of the neighborhood even after going back 2, 3 years trying to find something, anything of similar size makes everything wonky within the report.

 

[Mike Ault]

I agree with you on this. However, it's a little trickier with GLA.... appraising the non-conforming, white elephant of the neighborhood even after going back 2, 3 years trying to find something, anything of similar size makes everything wonky within the report.

Seems like I always get the biggest house in the tiny little town where it says "Welcome to Dumpville" on both sides of the sign.

 

[Fnbpos]

this could also be handled via a functional adjustment, thus allowing the appraiser to apply a consistent GLA adjustment factor.

1) Google describes DE as an economist. Please advise of the reference that you provide

2) Kinda curious: how did you have an opportuity to create the course content?

2) The FNMAE Cost Approach dialogue box includes the "less" cell that presumably reflects the "total anticipated economic life" as new. ACI software defaults to 50 although it can easily be revised; however, why is the M&S defult 60 years when most, or all, typical SFR's last much longer, if I am understanding the concept correctly?

this could also be handled via a functional adjustment, thus allowing the appraiser to apply a consistent GLA adjustment factor.

What is the functional issue here ? I did not say the 4900 sqft house was an over-improvement - nor did I say there was a quality issue either. Quite a few assumptions are being made here - not sure why.

Let's try this: Isolated subdivision - no competitive comps for more than 5 miles (non-rural area). 200 Homes, 100 homes have 2500-3500 GLA and 100 homes have 4000-5000 sqft GLA Otherwise, they are all the same quality and amenities, etc, no other adjustments but GLA. Paired sales analysis for a GLA adjustment within the 2500-3500 reconciles at $100/sqft. A paired sales analysis within the 4000-5000 reconciles at (+-) $140/sqft. Pairing the 2500-3500 group with the 4000-5000 group yields a reconciliation of $125. Circumstances dictate that one of the larger homes is going to have to be used - likely as a comp 4, 5 or 6 - and will be adjusted at a different rate - $125 - not the $100 supported within the subject's GLA tier.

So, if you want to say - "I'd never use that larger comp" then so be it - I'm fine with that. I'm only demonstrating an issue that can come up now and then. I seen many an appraisal with a large home used that "comped-out" higher than is should have because the tiered sqft adjustment was not applied (and there is no functional issue). I work in a market with some of the highest prices in the country - often you have an assignment with 6 comps over a 3 year period and that is it - work with what you have. Haven't had a reviewer challenge it yet (only used it a handful of times) - and these higher-end properties go through a gauntlet of reviewers.

 

[alebrewer]

What is the functional issue here ? I did not say the 4900 sqft house was an over-improvement - nor did I say there was a quality issue either. Quite a few assumptions are being made here - not sure why.

It's disappointing when you respond to a post in an effort to help, then get pilloried for it. Take a deep breath and assume for just a moment that everyone's not out to get you. My comment was that functional differences that are the result of changes in preferences and tastes over time could be handled with a functional adjustment (assuming the market even has a preference) instead of an age adjustment. Chill dude.

I could give a rat's @$$ how someone else does their work. I only sign my reports.

 

[J Grant]

What is the functional issue here ? I did not say the 4900 sqft house was an over-improvement - nor did I say there was a quality issue either. Quite a few assumptions are being made here - not sure why.

Let's try this: Isolated subdivision - no competitive comps for more than 5 miles (non-rural area). 200 Homes, 100 homes have 2500-3500 GLA and 100 homes have 4000-5000 sqft GLA Otherwise, they are all the same quality and amenities, etc, no other adjustments but GLA. Paired sales analysis for a GLA adjustment within the 2500-3500 reconciles at $100/sqft. A paired sales analysis within the 4000-5000 reconciles at (+-) $140/sqft. Pairing the 2500-3500 group with the 4000-5000 group yields a reconciliation of $125. Circumstances dictate that one of the larger homes is going to have to be used - likely as a comp 4, 5 or 6 - and will be adjusted at a different rate - $125 - not the $100 supported within the subject's GLA tier.

So, if you want to say - "I'd never use that larger comp" then so be it - I'm fine with that. I'm only demonstrating an issue that can come up now and then. I seen many an appraisal with a large home used that "comped-out" higher than is should have because the tiered sqft adjustment was not applied (and there is no functional issue). I work in a market with some of the highest prices in the country - often you have an assignment with 6 comps over a 3 year period and that is it - work with what you have. Haven't had a reviewer challenge it yet (only used it a handful of times) - and these higher-end properties go through a gauntlet of reviewers.

Using a much bigger house as a comp for a smaller subject, the bigger comp should normally have a larger downward SF adjustment, and adjust lower, not higher than other sales.. I might assume that it passes reviewers on the front end by a client if it makes value, because some clients will tolerate hinky methods to get there. An appraisal can be forensically reviewed later. The question is how it would fare then.

IDK if a bigger sale should be used - if your subject is 3500 sf, then a 4000 sf comp is within a reasonable range. If your subject is 2500 sf, then 4000 sf is typically not a comp.

 

[Zoe]

Using a much bigger house as a comp for a smaller subject, the bigger comp should normally have a larger downward SF adjustment, and adjust lower, not higher than other sales.. I might assume that it passes reviewers on the front end by a client if it makes value, because some clients will tolerate hinky methods to get there. An appraisal can be forensically reviewed later. The question is how it would fare then.

IDK if a bigger sale should be used - if your subject is 3500 sf, then a 4000 sf comp is within a reasonable range. If your subject is 2500 sf, then 4000 sf is typically not a comp.

True, unless you get into rural areas sitting on acreage and that is all you have. Still staying closer in GLA is better even if you have to adjust big for difference in land value.

You probably don't do many rural appraisals on single family. Your typical buyer may be more concerned with GLA than land size. But some buyers focus more on land size than GLA if they want to be in a rural area.

 

[J Grant]

True, unless you get into rural areas sitting on acreage and that is all you have. Still staying closer in GLA is better even if you have to adjust big for difference in land value.

You probably don't do many rural appraisals on single family.

I do small semi-rural hobby farms (5-acre size typical)

If one is appraising rural/multi-acreage properties, I might assume the greater value is in the land. That would make the size of the house and a GLA adjustment will have far less impact on the value. If the site is 30 acres (for example ), the site size is usually of primary importance to a buyer - if the house is smaller, it can always be expanded later. In any event, with rural acreage, if most of the value is in the land, using a bigger sf house comp and its adjustment will have only a minor impact on value. It also had a reason for being used - a similar multi-acre site size.

The OP references a 200-house subdivision. They did not specify lot size, or if the lots for 4000 sf houses are bigger than the lots for 2500 sf houses in the subdivision.