Q2 vs Q3 formula to adjust?

[KHS445]

I would suggest investing in a cost service similar to Marshall & Swift. These services will provide you with an indication of the various differences in amenities and quality between various classes of property along with different methods of construction. Many times I refer to this information when considering different construction or building quality. For instance the base cost difference between an average quality wood framed vinyl sided home and a masonry sided home is about 3%. The difference between an average quality and a good quality wood framed home is about 28%. Unfortunately no structure is going to fit neatly into any category, but as you add and subtract for various differences one can begin to develop a sense of the cost difference.

I would never argue that a 28% adjustment should be made, but it does provide you with some guidance and then you need to consider your local market to see what, if any, adjustments are warranted. In my comments I will provide the M&S cost difference information as additional support to whatever adjustment I made or explain that despite the initial cost difference a market derived adjustment could not be determined/support.

 

[Joe Flacco]

What is wrong with arguing that a 28% adjustment should be made? If the adjustment is 28% it is 28%.

 

[Charley Horse]

In Michigan, assessors assign a quality rating (16 levels of quality) to the improvements when deriving the assessed value. Not that I agree with every assessor's opinion of quality as I don't with numerous appraisers, but the percentage difference between these ratings is what I use to derive my quality adjustments. Example.. although the subject and all the comps may be a "Q3" per UAD, based on the assessor's opinion of quality (per SAB) in addition to MY opinion viewing the comps relative to the subject could result within 5 different percentage adjustments within the Q3 rating. Be sure to apply the quality adjustment to the extracted value of the improvements (sale price minus site value) only.. I've reviewed reports whereby the appraiser actually applied the quality adjustment the aggregate sale price versus the contributory value of the improvements.

Since UAD, I've completed hundreds of reports whereby I have had significant quality adjustments within the same UAD quality rating and never had one report kicked back. As a trainee, you may want to take a couple assessor courses or connect with an assessor that would share with you how they assign quality ratings in your market.

Following is the explanation I put in my addendum to support how I derive my quality adjustments..

Quality adjustments were derived via the following quality rating schedule per the Michigan SAB Cost Guides which the appraiser as a
former County Equalization Appraiser has used for years; these ratings are derived via Marshall & Swift quality/cost metrics which were used
to rate the quality of the improvements for both the subject and comparables. The quality adjustments in the grid are derived by applying
the percentage difference to the extracted value of the improvements which is redundantly supported by both the appraiser and the
assessor's opinion of quality. It is the appraiser's opinion that the quality rating of the subject's improvements was approximately a Q3 (or
per the MI SAB, a BC) which was the basis for determining the quality adjustments used (if applicable) in the sales comparison grid.

 

[J Grant]

What is wrong with arguing that a 28% adjustment should be made? If the adjustment is 28% it is 28%.

The MARKET determines the adjustment ( what they sell for ), not a formulaic or math from the cost approach of 28%. That is why, ( read the certs on the URAR ) it says right in the certs our market value opinion is based on the sales comparison approach.

The cost approach can provide support for a quality rating, but that is different than the adjustment itself. The adjustment in a MVO for URAR is based on the sales, what is the market reaction to the extra cost and quality.

 

[Joe Flacco]

I would never rely on or consider anything assessor related other than size of the house.

 

[Charley Horse]

I would never rely on or consider anything assessor related other than size of the house.

The size of the house is the last element I would give credibility to in the assessment arena.... just as appraisers, there's good and bad assessors... I used to audit assessors and a some of them could teach appraisers how to appraise.

In my low density market, I often have to go to other counties to find relevant comps.... it's nearly impossible with few exceptions to do paired sales or derive a "market driven" adjustment which is why I will often use depreciated cost for some of my adjustments.

 

[J Grant]

4. I developed my opinion of the market value of the real property that is the subject of this report based on the sales comparison approach to value. I have adequate comparable market data to develop a reliable sales comparison approach for this appraisal assignment. I further certify that I considered the cost and income approaches to value but did not develop them, unless otherwise indicated in this report.

READ THIS !! IT is pasted right from cert 4 on the URAR.

Anyone who substitutes a formula from the cost approach or a formula from tax assessor for what is supposed to be a market derived adjustment on the SCA adjustment is in violation of the cert/ (and good appraisal practice) Folks can get away with it for a long time since many readers/users can not understand the difference /the "math" sounds impressive, but it is not correct and can be discredited in review.

The assessor info can be a source of interest, and the cost approach has a role in supporting the quality rating and /or why an adjustment is seen in the market, but the adjustment itself ( or lack of one) is supposed to come from the market and the sales, read the darn certs if you are doing lender work.

PAREA is sorely needed after all. and in fact all existing appraisers seem to need it too -I am also open to learning , but something is needed -reading the vast array of responses here, some which seem to not recognize the cert we sign or reasoning behind it, let alone the OP asking about a "formula"... (at least she has an excuse as a newbie/trainee )

 

[J Grant]

The size of the house is the last element I would give credibility to in the assessment arena.... just as appraisers, there's good and bad assessors... I used to audit assessors and a some of them could teach appraisers how to appraise.

In my low density market, I often have to go to other counties to find relevant comps.... it's nearly impossible with few exceptions to do paired sales or derive a "market driven" adjustment which is why I will often use depreciated cost for some of my adjustments.

There has to be some market driven reason to support applying a cost depreciated adjustment - I do not know your area or type of properties you are appraising, but if you are going to not relevant areas to find sales those sales may not be comps.... unless a buyer for the subject would also consider those areas /it is rural/very spread out.

Going back in time in to find sales in the subject's own area will show actual comps or at least sales having the same location influence, and from them a market reaction and a time /market condition adjustment can be made. Talking with local area RE agents can also be a source to check if a formula derived adjustment or far away sales adjustment is true for the area.

Just because buyers are paying X $ for a feature twenty miles away, what evidence is they are paying the same here- ...unless twenty miles away truly is the wide geo area a buyer for subject would consider.

A problem with a subject that is very large/ unique /atypical Q rated is this - if there are no relevant area sales, even a few years bac, and thus if one has to go so far away for "comps"...maybe the local market is telling you something, that there is no or little demand for the subject atypical /very large or Q rating in its area, which makes the subject is a super adequacy or over improvement.

 

[KHS445]

What is wrong with arguing that a 28% adjustment should be made? If the adjustment is 28% it is 28%.

Absolutely nothing if you can support it.

 

[Joe Flacco]

The size of the house is the last element I would give credibility to in the assessment arena.... just as appraisers, there's good and bad assessors... I used to audit assessors and a some of them could teach appraisers how to appraise.

In my low density market, I often have to go to other counties to find relevant comps.... it's nearly impossible with few exceptions to do paired sales or derive a "market driven" adjustment which is why I will often use depreciated cost for some of my adjustments.

There is nothing wrong with looking at estimated cost difference with the comps and the subject. I would never rely on the assessors opinion of quality.