Q2 vs Q3 formula to adjust?

[Horse gal]

Is there a formula to justify the difference between q3 construction home and a superior q2 construction home in the grid. My supervisor does not know and never does this. I have been finding it necessary within our area market.

 

[Joe Flacco]

You can think of the difference in replacement cost between the ratings and also compare sales of properties with different ratings. You know like Q3 might be like $200 per SF to build and a Q2 might be like $300 per SF to build. So if you have a 5,000 SF house, then in terms of replacement cost, the adjustment might be like $500,000. That is what the cost is saying the adjustment is but then you would also want to see what actual sales are saying the difference is. And then you can reconcile the two ways of looking at it.

 

[Horse gal]

You can think of the difference in replacement cost between the ratings and also compare sales of properties with different ratings. You know like Q3 might be like $200 per SF to build and a Q2 might be like $300 per SF to build. So if you have a 5,000 SF house, then in terms of replacement cost, the adjustment might be like $500,000. That is what the cost is saying the adjustment is but then you would also want to see what actual sales are saying the difference is. And then you can reconcile the two ways of looking at it.

Thank you for the expedient reply. Good info.

 

[Russ Kitzberger]

There are several ways to support an adjustment.
Sales Comparison (inferred or paired sales or statistics)
Cost
Income

Ideally, you will have sales data by paired sales.
You can cost manual to calculate both a q2 and q3, then depreciate each, then support the adjustment using the difference.
If you are in an area that has sales/income data, you can develop a capitalization number, GRM, etc. Determine the difference in income for each quality property, then multiply the difference by the GRM to form an adjustment.

 

[Michigan CG]

Please don't post the same question in multiple forums. I have combined your threads into one.

 

[EddieB]

Please don't post the same question in multiple forums. I have combined your threads into one.

Maybe the OP should start a thread in search of another mentor

 

[ucbruin]

Or the experts on this site could provide a cogent supportable answer to the question....

 

[TMG]

Use comparables, not adjustments.

i.e. if you can use Q3 comps, the better off you are.

 

[Overimprovement]

Is there a formula to justify the difference between q3 construction home and a superior q2 construction home in the grid. My supervisor does not know and never does this. I have been finding it necessary within our area market.

1. Make sure you have a firm understanding of the differences between a Q2 and Q3 home. Consult cost guides and UAD definitions as needed. Please note I did not end the sentence by saying "in your market". Because a Q2 home is Q2 in Beverly Hills, Nome, AK, South Beach, and Ottumwa, Iowa. The difference in prices of those homes is driven by location, cost to construct, and other factors, but Q2 is Q2.
2. Once you are sure you can properly identify and label Q2 vs Q3 homes, then a good starting point is identical location and GLA homes that are Q2 vs Q3. Eliminate as much of the differences as you can, so that only quality is different--as much as possible anyway.
3. Not to pile on, but a supervisor/mentor really ought to be able to better assist you in this. If they are deficient in this, which honestly is pretty basic, one has to wonder in what other items they are deficient. They should be asking the question of their peers, IMHO.
4. Like condition, quality ratings are meant to be holistic. There is a difference in the quality of a home that is borderline Q2/Q3, and one that is Q3/Q4. I am not afraid to get more granular in my quality ratings--but understand the more granular you get, the more subjective things become, because it is a lot harder to derive and support adjustments for smaller elements of quality, like countertop type, flooring quality, ceiling height, trim level, etc.
5. Like TMG mentioned, if at all possible, stay with Q3 comps. Even if it means going back in time or farther out in distance. Quality/Condition adjustments are sort of the last resort, at least to me.

Good luck!

 

[J Grant]

Is there a formula to justify the difference between q3 construction home and a superior q2 construction home in the grid. My supervisor does not know and never does this. I have been finding it necessary within our area market.

A simple but effective way to extract an adjustment for a particular anything ( in this case Q construction quality) is put all your comps on the grid, adjust for all the key differences, view, sf , pool etc, and what is left is the line item Q2 or Q 3 differential. The comps themselves then show the adjustment, and applying the indicated adjustment should narrow the price range of the adjusted sales. If after making adjustments for the other features, Q 2 houses sold for 50- 75k more, than an adjustment in that range would be applied.

If a Q 2 houses are not selling for more or only marginally more $ than Q 3, it is possible that Q2 is a super adequacy for the market. Normally we see a Q2 house selling for higher prices, but your specific market area indicates a premium ( or no premium ) buyers put on it.

If it costs $300 a sf to build Q2 and $200 a sf for Q 3, yet market is not returning the cost in any meaningful sales prices then you have a super adequacy in the SCA and would apply functional obsolescence in the cost approach. But if market is paying more for the Q2 it is simple then to adjust for it. Try to find similar comps of course not needing that adjustment.

Your supervisor sounds lacking- but it is hard to find supervisors , so keep asking questions and take courses Online courses can be good lots to choose from.