Non-realty components as an initial adjustment?

[Gobears81]

It's been taught that non-realty component adjustments are to be made at the same time as location, age, etc./ after market conditions and other initial adjustments. But, I'm using a sale which has a large intangible asset component and there were sizable downward adjustments made for other factors, resulting in a massive downward adjustment. FWIW, if i were to adjust for non-realty components before physical adjustments, it is in line with the other sales, but if I include the adjustment at the same time as the others, it is a huge outlier.
Thoughts?

 

[Terrel L. Shields]

I try to adjust land, improvements, F & F, and intangibles separately.

 

[Gobears81]

I try to adjust land, improvements, F & F, and intangibles separately.

Do you typically isolate the real estate value before making the adjustments?

 

[TerryRohrer]

It seems to me that the non-realty items need to be addressed before making market conditions adjustments. Same with concessions. If you do it otherwise, you are implying that market conditions change for non-realty items and "concessions" (which have no market) at the same rate as real estate (assuming you don't have comps from which you can measure market conditions adjustments separately for each). I seldom get too concerned about what is taught when in the trenches trying to get an assignment out the door. And, I don't recall which text, but I think it was the joint effort by the Appraisal Institute and The American Society of Farm Managers and Rural Appraisers, "The Appraisal of Rural Property" (Second Addition) that included a dissertation about how there are times when you need to make all the other adjustments in order to clarify the data enough to identify and hopefully measure market trends. I didn't agree when I read it (being more of an idealist in my youth), but now often make the other adjustments I have more confidence in before comparing the adjusted sales against sale dates in order to identify trends and/or to measure the rate of change.

 

[TerryRohrer]

Here is an old thread touching on the subject (no clue what is going on with the AF today...normally this would be a link to the thread instead of the content of the thread):

K

Thread 'changing the sequence of adjustments'

Jul 22, 2008

I'm reveiwing a report that uses "pg 443 of the Appraisal of Real Estate, 12th ed" to change the sequence of adjustments using market data. I have researched every book I own on appraisal, borrowed books, searched online appraiser forums, asked guys in the office, and now I'm asking anyone out there. In fact, I just completed the AI class on sales approach...nothing i can find on this topic.

Example of appraisal comp..simplified...combined transactional adj for illustration only.

Sales price 90,000
Transactional Adj +5000
Adj Sales Price 95,000

Physical Adjustments
Size +5,000
Adj...

• krnole2002
• Replies: 12
• Forum: Urgent - Help Needed

 

[Gobears81]

Here is an old thread touching on the subject (no clue what is going on with the AF today...normally this would be a link to the thread instead of the content of the thread):

K

Thread 'changing the sequence of adjustments'

Jul 22, 2008

I'm reveiwing a report that uses "pg 443 of the Appraisal of Real Estate, 12th ed" to change the sequence of adjustments using market data. I have researched every book I own on appraisal, borrowed books, searched online appraiser forums, asked guys in the office, and now I'm asking anyone out there. In fact, I just completed the AI class on sales approach...nothing i can find on this topic.

Example of appraisal comp..simplified...combined transactional adj for illustration only.

Sales price 90,000
Transactional Adj +5000
Adj Sales Price 95,000

Physical Adjustments
Size +5,000
Adj...

• krnole2002
• Replies: 12
• Forum: Urgent - Help Needed

That was a good thread. There used to be quite a few intelligent appraisers posting on this side of the website.

After reading through, it seems that non-realty components could or should be adjusted for conditions of sale/ market conditions, and depending on the circumstances, property rights/ terms of financing. Though, if a conditions of sale adjustment is warranted, the intangible value component seems to be more disproportionately affected.

It appears that non-realty components should be a sixth initial adjustment, especially if that adjustment is limited to residual intangibles or atypical personal property. For the example that I mentioned in the first post, 60% of the value was residual intangible assets, and it required a 25% net downward adjustment for effective age, land to building ratio, etc. By not isolating the non-realty adjustment, the adjusted unit price is half of what it should be. This seems to an oversight/ something that they should cover more closely in courses.

 

[Terrel L. Shields]

Do you typically isolate the real estate value before making the adjustments?

Almost always

 

[TerryRohrer]

After reading through, it seems that non-realty components could or should be adjusted for conditions of sale/ market conditions, and depending on the circumstances, property rights/ terms of financing. Though, if a conditions of sale adjustment is warranted, the intangible value component seems to be more disproportionately affected.

In my view, there is nothing set in stone here. I think Fred's (Steven Santora) point, that some things get stated as fact when they are often simply just personal preference is valid.

I think the absolute necessity is to ensure all adjustments are in the same order. That will tend to self-correct errors within the process. One thing I would keep in mind is where the justification for adjustments come from. In other words, if your value of the non-realty components are based on current data, adjusting for market conditions adjustments first would be more appropriate.