No Adjustments In Sales Comparison?

[SanDiegoBrian]

I have an appraiser I work with, he is in New York City, I am in San Diego. He is writing a report on a multi-level apartment building than I am reviewing. In his Sales Comparison approach he states 'he determined no adjustments were necessary' and his sales grid shows all zeros. Then, on a summary page, he weights each of his 7 sales 14.5% and computes a result.

I told him that he can't use a simple average of the sales; he needs to analyze them. He says he did analyze them and they don't need any adjustments. How would you respond to him?
Thank you.
Brian

 

[J Grant]

I would not respond to him personally, I would respond to the appraisal ( the work).

In your review, do you agree the sales needed no adjustments? If you feel some of them needed adjustments because of features commanding $ in the market, state that, Do you agree each of the sales should be weighted equally? If you feel any of the comps should have been weighted ore ( such as more similar to subject /more recent ) that is the your basis for disagreement with the results.

 

[Deleted member 77547]

I'd tell him he can't use a simple average on the sales approach, that they should be weighted. Which one most closely represents the subject? Unless all comps were exact model matches with the subject then something would likely need an adjustment. GLA adjustment? bedroom count? In my review experience when someone didn't adjust for something it was because 1) they didn't know how to extract it from the market or 2) they didn't know how to explain it; or 3) just lazy. What does the reconciliation say?

 

[Gobears81]

I've seen appraisers omit adjustments entirely in their adjustment grid on both residential and commercial (with the commercial appraisal that comes to mind being on a pre-printed form), even though stark differences were noted. I don't particularly like that approach, but one could argue that they are effectively doing a qualitative analysis, acknowledging that differences were largely factored into the reconciliation. Unfortunately, some readers of appraisals think that the lower the number of adjustments, the more reliable the analysis, and I think some appraisers play into that by minimizing their adjustments or even not making one. Unit mix is an element of comparison that often warrants fairly significant adjustments for apartment appraisals. Not sure if the appraiser is analyzing on a price per unit basis, but if the subject consists entirely of 700-square foot, 2 bedroom, 1 bathroom, units, whereas a sale has 50% 1-beds and 50% 2-beds, that could warrant an adjustment. Even if the comparable sale has all 850-square foot, 2-bedroom, 1-bathroom units, an adjustment might be appropriate.

 

[hastalavista]

How large is the unadjusted range (I assume the unit of value is $/unit)?

While your review SOW can affect exactly how you handle this, the first question is, is the value indication credible as presented; i.e., does the number make sense based on what you are required to review?
If it does make sense, then the issue is (in my opinion) poor application of the methodology used in the reconciliation of the indicated value. If it doesn't make sense, then the reconciliation is not the primary issue.

I have five apartment buildings and with no adjustments, the $/unit ranges between $250k to $265k. They are all overall simialr; unit mix, location, condition, etc. Such a spread would not be unusual in such a scenario.
Perhaps no one sale is significantly superior than any other one. What would be the logical expectation in such a scenario? Assume market conditions have already been addressed, the expectation would be that the value be somewhere in the middle because there is, based on what the report is indicating, no reason to go to one end or the other.
The mistake the report has made is in its explanation of its rationale. The methodology of reconciliation requires the appraiser to apply his/her judgment and what the report implies is that it substitutes a rote calculation for that judgment.

Had the report said something like,

"In the grid analysis, no adjustments were necessary. Each comparable is similar to the subject and any one is as good and reliable an indicator of value than another. In my reconciliation of the value indication by sales comparison approach, I considered each comparable equally and reconciled to the mid-point of the range."​

Would there be an issue? There wouldn't be one for me (assuming I agreed that the comparables required no adjustments and the value indication was credible).

In my review work, I'd talk to the appraiser and point out the issues I see with implying that the reconciliation was formulaic-driven rather than judgment-driven, and suggest an alternative statement in the reconciliation and give my reasons. The appraiser could agree or disagree. If they agree, great. If the disagree, then I'd note the disagreement in my review and state that notwithstanding the application of a rote-calculation, the indicated value concluded in the sales comparison approach is credible.
And then I'd move on.

Like I say, your review SOW may not allow that.

Good luck!

 

[TRESinc]

it's possible that the comps required no adjustments. i have done a number of condos over the years that were apartment-styled and all identical matches.

 

[Digger88]

appraisal reviewing... the funnest job you could think of until you actually do it.

 

[residentialguy]

I'd tell him he can't use a simple average on the sales approach, that they should be weighted.

Please show me that requirement. If they are all similar, he can weight them all similarly.

 

[residentialguy]

one could argue that they are effectively doing a qualitative analysis, acknowledging that differences were largely factored into the reconciliation

Absolutely could argue that. I would suggest that other appraisers learn how to do this, as well.

 

[SanDiegoBrian]

How large is the unadjusted range (I assume the unit of value is $/unit)?

...I have five apartment buildings and with no adjustments, the $/unit ranges between $250k to $265k. They are all overall simialr; unit mix, location, condition, etc. Such a spread would not be unusual in such a scenario.
Perhaps no one sale is significantly superior than any other one. What would be the logical expectation in such a scenario? Assume market conditions have already been addressed, the expectation would be that the value be somewhere in the middle because there is, based on what the report is indicating, no reason to go to one end or the other.
The mistake the report has made is in its explanation of its rationale. The methodology of reconciliation requires the appraiser to apply his/her judgment and what the report implies is that it substitutes a rote calculation for that judgment.

Had the report said something like,

"In the grid analysis, no adjustments were necessary. Each comparable is similar to the subject and any one is as good and reliable an indicator of value than another. In my reconciliation of the value indication by sales comparison approach, I considered each comparable equally and reconciled to the mid-point of the range."​

Would there be an issue? There wouldn't be one for me (assuming I agreed that the comparables required no adjustments and the value indication was credible).


Good luck!

Comparable Sale 1 $360.29 x 14.29% = $51.47
Comparable Sale 2 $273.65 x 14.29% = $39.09
Comparable Sale 3 $318.37 x 14.29% = $45.48
Comparable Sale 4 $332.92 14.29% $47.56
Comparable Sale 5 $275.21 14.29% $39.32
Comparable Sale 6 $325.64 14.29% $46.52
Comparable Sale 7 $366.89 x 14.29% = $52.41
Total: 100.00% $321.85
Rounded: $320.00
x
67,470
$21,590,400
Rounded: $21,600,000