Must You Prove All Adjustments?

[Ghost Rider]

COST DOES NOT EQUAL VALUE!!!!!!!

Does it happen occasioanlly when cost and value line up?? Sure, I've seen amenities where value assigned is less than the cost to construct said amenity, and where value is MORE than the cost to construct......

I would never consider cost an indicator towards value unless it is as part of the full cost approach.

 

[Rob Bodkin]

MH,

Sometimes cost does not equal value, sometimes it does. As in most of what we do, it depends. The cost of certain parts does have impact on value, positive or negative.

 

[George Hatch]

The great Cost debate rears it's head again. We've already been there and done that, and nobody's opinion is going to change, so I'm not interested in getting into a huge debate on it.

I use the cost as a starting point for some adjustments, because while there generally is no one-for-one correlation, there is usually a relationship between the cost and the contributory value. Obviously, we aren't really seeking (only) the actual cost of an element in any approach to value in an appraisal, not even for the Cost Approach. We instead are seeking the market's reaction to the element. In a market where lots are selling at $100,000, it doesn't matter in the cost approach what the actual sales price of the lot is, we only care about the market's reaction to that lot. The relationship between the typical cost and the value is directly tied to the utilty of the element in the market. In a market where pools aren't desireable, there is basically no relationship between the cost and the value to the typical buyer. In a neighborhood where every home has a pool and to not have one is a deficiency, the contributory value may even exceed the cost, again in the eyes of the typical buyer. By the way, I would not have used this as an example had I not personally seen it for myself.

Back to the question at hand, there will be very few occasions where an assignment has so much relevant data that every single adjustment that can or should be made will be supported within that dataset. More often, an appraiser will be forced to rely on secondary data, whether it's from a competing neighborhood, a competing size range in the subject's neighborhod, different age and quality range neighborhoods, or dated information. Appraisers use their judgment to make adjustments in the absence of specific data within a given assignment all the time, and we can do so by virtue of the elements of experience and education that contribute to that judgment. The 'trick' to it is to relate that judgment to the assignment at hand and convince the reader that the overall results are reasonable. This is where the use of some stand-back logic comes into play. Regardless of what the numbers say, there are some instances where the numbers can be a bit deceiving. Generally speaking, our intent is to seek the trend and objectively rank the subject within that trend to come up with a reasonable opinion. Since we are looking for that trend, there shouldn't be any one indicator that overrides everything else. Which is why no one sale should make or break an appraisal. IMO.

The controvery over what it takes to quantify adjustments contributes to why some appraisers prefer to take a more qualitative approach for some assignments. The more adjustments you're forced to make, the less you'll be able to support the end result.

 

[Jerry Still]

Mike, I have the Holy Grail!

Pssst...(the magic list exists). I'm looking at it right now, yellow as it is with age. Its titled "Basic-Adjustments - Based on past paired sales analysis and experience (not engraved in stone)". It was given to me in a secret ceremony of passage into the mortgage brokerage ownership world in another life of mine. The legend goes that It was passed from Fannie Mae to UW's to be able to check appraisers rang of grid adjustments (only an unconfirmed legend).

It has topics on the left side from top to bottom: LOCATION, with sub topics: Busy traffic street, Semi- busy traffic street, Backing to external obsolescence. QUALITY OF CONSTRUCTION, BV versus Alum., Alum vs Frame/Asbestos, Alum. vs Vinyl/Stone. Other Topics are: Age, Condition, Room Count Adjustments, Bath Count Comparisons, Square Footage Adjustments (per price range), Basement Area (Comparing Slab vs Crawl, Bsmt vs No Bsmt, WalkOut vs No WalkOut, Finished vs Unfinished), Heating & Cooling (FWA vs Elect,Gas HWBB, etc.), Garages( 1 vs 2 vs 3 etc.), Energy Efficient Items (windows,solar, etc.) Fireplaces, etc., and etc.,

It needs to be adjusted for inflation. It has four columns running from left to right: $30,000 to $50k, $60k to $100k, $100k to $200k, $200k to $500k, with different adjustments in each column depending on the price price range. Nothing on manufactured homes.

It came into my possession about 1988 although I didn't use it until I sold my interest in mortgage operation and opened an appraisal business in 1992. Someone has put a lot of time into extracting the data. I've double checked and tried to prove it wrong but threw the years that I and my staff used it in my little appraisal company we never had one single adjustment questioned. In the process for rounding the dollar amounts in the grids in seems accurate enough for government work!

(Mike, I always reply...there is no magic list). Yes, thats want I told my trainees as I trained them. I wanted them to learn how to do it the right way first. Years later when they graduated, I passed the "magic list" on to them, (some were pissed).

Mike, I'm sixty years young and finally learning to never... say never, and magic can happen!

Watchyourtopknot,

Florida B) Jerry

 

[Mike Garrett RAA]

Jerry, you lucky son-of-gun!

ERA Real Estate producted a little device that looked some what like a slide rule. It had adjustments for everything too. You selected the price range, spun the wheels for features...and Viola...instant price. Also instant BS :rofl: At least it took into consideration the fact that the value would be different in different price ranges.

I still have my brother's magic list too...but I refuse to admit it.

 

[Jungle Boy]

So, how long do you have to be certified, before you get your hands on one of those lists ? :blink:

 

[Mike Garrett RAA]

You must join the fellowship of the ring, climb the two towers and always refer to it as "my precious"! :rainfro:

 

[CANative]

No wonder I couldn't find it... I've been looking for it at Hogwarts using a stupid map that shows everything but a magic list.

 

[Dale Smalley]

I am looking at a property in South Miami that has a Tropical Lagoon for a back yard. Absoulutly beautiful setting and very private. There are no pairs of any kind for this but deserves some kind of value. The only thing I can come up with is to equal a pool adjustment and call it a day. But can I prove it?

 

[Terrel L. Shields]

The text book answer is ..."adjustments are the results of paired sales analysis". The fact of the matter is...."adjustments are made from the appraiser's experience and knowledge of the market as supported by data in the appraiser's work file and other appraisal work files".

I have mentioned this example several times. Very nice house, functionally correct, but built on 66 acres in a small school district. 15 mi. away it would sell for more or less cost - land value + 4000 SF x $90 or so. It is too big for the school district it is in. Nobody has houses that big here, or jobs that good. Biggest new house in the SD. Schools are important. Kid gets sick, you work for Wally World [ & in NW Arkansas everyone works for Wally, directly or indirectly], you don't wanna drive to Gentry to get the kid. You want in the Bentonville School district. Starting at $800+K is down to about $450K asking price. It will be to my appraised price soon, if it sells. On the market for 4 years.

I was pillared over the thing because I took a 25% discount for marketability. What market evidence could I bring? What support? Now the obvious. Would it have been politically and USPAPily correct to NOT make an adjustment that is OBVIOUS to me (but not so obvious to some other appraiser who have appraised it much higher) I would not have to defend my emperical adjustment. Some things are intuitive. Smalley described it best. (emphasis mine)

I am looking at a property in South Miami that has a Tropical Lagoon for a back yard. Absoulutly beautiful setting and very private. There are no pairs of any kind for this but deserves some kind of value. The only thing I can come up with is to equal a pool adjustment and call it a day. But can I prove it?

no, you cannot, but it is nevertheless there and in a court with a judge (judges understand making "judgments" without legal precedence) you will be heard sympathetically.