Q2 vs Q3 formula to adjust?

[glenn walker]

I rarely see any Quality of Construction adjustments in reviews. It's all Q4 or all Q3 because the appraiser knows that will go through UCDP with no Red-Flags- " Shucks" I better convert my old S & L Cheat sheet to UAD- the Q4 is Average and a Q3 is Good and a Q2 is Beverly Hills. Better yet make them all Q4 and only adjust for conditions

 

[Andee]

A twist to this question...what constitutes a Q1 vs. a Q2? Are we talking someone went in and actually built the cabinets in place after they felled a tree/trees, sliced the lumber, and created a cabinet base box and doors/drawers, was on site turning spindles from same felled tree/trees for the bannister, and cut and shaped all the moldings? Or is it they just didn't go to Home Depot and Lowes and ordered actual hardwood cabinets from a cabinet making company? I deal with McMansions in my area and from one subdivision to the next you never know what your going to end up with. In fact the house I'm working on now has 1 chandelier in the wine room that was over $100K, so are we talking actual cost of improvements or quality of construction? I can find that same designer look, not same exact chandelier for less than 2% of that cost. So because this owner paid over $100K, is it Q1, or because of the unusual design and designer finish. Seriously, walking into a house, we don't know how much people paid for their build-out, I just got lucky with this house because it's new construction and they handed me an itemized list of everything, with some pictures, of what went into this house.

 

[J Grant]

A twist to this question...what constitutes a Q1 vs. a Q2? Are we talking someone went in and actually built the cabinets in place after they felled a tree/trees, sliced the lumber, and created a cabinet base box and doors/drawers, was on site turning spindles from same felled tree/trees for the bannister, and cut and shaped all the moldings? Or is it they just didn't go to Home Depot and Lowes and ordered actual hardwood cabinets from a cabinet making company? I deal with McMansions in my area and from one subdivision to the next you never know what your going to end up with. In fact the house I'm working on now has 1 chandelier in the wine room that was over $100K, so are we talking actual cost of improvements or quality of construction? I can find that same designer look, not same exact chandelier for less than 2% of that cost. So because this owner paid over $100K, is it Q1, or because of the unusual design and designer finish. Seriously, walking into a house, we don't know how much people paid for their build-out, I just got lucky with this house because it's new construction and they handed me an itemized list of everything, with some pictures, of what went into this house.

Read the Q levels on UAD definitions states what a Q 1 is - intrinsic to build quality... not about a chandelier (which can be removed ) or adding fancy upgrades to an otherwise Q3 or Q 2 house.

The Q levels relate not just to interior finish but to the architecture itself, custom and/or extraordinary quality throughout ;
Get from library or browse online issues of Architectural Digest or the high $ RE listings From Sothebys and look at the houses, we can educate our eye since we may not see it often in person.

I live in an area with pockets of great wealth but even there even the high value houses are typically Q 2, I have done a few where I called it Q1 and those houses richly deserved it...if there is not a jump in quality level, why would it deserve a different UAD rating? That is imo the question of all UAD quality ratings when we look at a house, we can adjust within a Q rating becase some Q3 for example are better than othesr...but for a house to be lowered or raised to the next level rating , we have to educate our eye for relative levels of build quality and detailing/features.

Also interior trends come and go with upgrades put in even 10-15 years ago already dated in some cases... tour quality builder models is a source because new home builders are very up to date on the latest trends in any price range.

 

[Joe Flacco]

Q1 to me is at least $500 per SF replacement cost. Builders like Toll, NVR and Centex are Q4-Q3 quality builders. Probably every market has local / regional builders that work in either Q4-Q3 range or within the Q3 range or within the Q2 range. You won't find a Q2 quality product from a builder who's base model is a Q4. The difference in quality has a lot to do with things you don't see like construction methods.

The builders generally stay in their lane.

 

[GWISC]

I believe the OP may think that all Q1's are equal to all Q1's, and Q2's to Q2's, and so on etc.. There can be a range within each rating. Sometimes a house is at the bottom of the Q2 rating and would be similar enough to a house rated at the top of Q3 likely resulting in no adjustment if one were used as a comp for the other. Often, higher Q rated properties, in my area, have costs that are not fully recovered in resale due to taste-specific upgrades, such as a $100K chandelier in a wine cellar.

I know of a somewhat recent sale of a house that was less than 5 years old that sold in the mid $800k range in my area. I asked the listing agent what was the total cost of construction with land at the time it was built 5 years ago. The answer: Not quite double the current selling price. The sale was arms-length per the agent and so was not simply dumped on the market. It was originally listed at it's total original cost, but languished for about a year on the market with multiple and gradual price reductions before it finally sold. It was a Q1 house. If you were to extract from a cost manual the cost difference between a Q1 and another Q rating, it would miss the fact that the Q1 house had super adequate upgrades for the area. A calculation based on cost differences would potentially result in too large an an adjustment when compared to a sale with a lower Q rating. It is the appraiser's job to find out how much of the overimprovement, if any, is recouped in the market. Sometimes it is significant, sometimes it is not.

Basically OP, there is no calculation. I would talk with agents for each sale you use and ask them if certain features and upgrades added to the price of a property they just sold. They are a great resource for what buyers are thinking at the moment.

 

[Terrel L. Shields]

but the adjustment itself ( or lack of one) is supposed to come from the market and the sales

Actually the statement

I have adequate comparable market data to develop a reliable sales comparison approach

Does not mean you only rely upon sales data. Income data and cost data are also "market data". So a cost related adjustment is fine. An income related adjustment is fine. However, I agree this is no simple formula.

The C or Q ratings are incremental - very large increments. Assuming 50% and below C6, then the other five are 10% differences. If you develop an extraction method of your sales, then you should be able to render an opinion within reason, of any differences although I would not want to tend towards any adjustment more than half way points between quality levels...ignoring the Mansion ($4,000,000 etc.) where there is a lot more difficulty in making that determination since the RCN of one might be $500.SF and another $800/SF.

 

[J Grant]

Actually the statement

Does not mean you only rely upon sales data. Income data and cost data are also "market data". So a cost related adjustment is fine. An income related adjustment is fine. However, I agree this is no simple formula.

The C or Q ratings are incremental - very large increments. Assuming 50% and below C6, then the other five are 10% differences. If you develop an extraction method of your sales, then you should be able to render an opinion within reason, of any differences although I would not want to tend towards any adjustment more than half way points between quality levels...ignoring the Mansion ($4,000,000 etc.) where there is a lot more difficulty in making that determination since the RCN of one might be $500.SF and another $800/SF.

You pulled the words "market data" from its statement that enough market data exists for a sales comparison approach. Which is not the intent of the statement.

Income and cost data are "market data" but they are still not SALES market data.
The SCA is about SALES . We can contrast and compare relative price return of sales prices to cost of the income approach. We do that in order to determine if the subject is a super adequacy nor not. If we do not compare the cost to a SCA we can never know if the market of buyers sees a subject quality or size etc as a super adequacy. And as we know, cost , including depreciated cost can return 100% same on sale, or less $ on sale or more $ on sale. Unless you use actual sales, how can you know?
Therefore lifting a cost result /formula and sticking it in the SCA grid as the adjustment lacked actual market reaction/ sale comps support. The impressive sounding explanation cost/depreciation comments might be accepted by a client. and might be acceptable for non lending use. But if for lender use and appraisal is challenged later on review good luck with that.

 

[Terrel L. Shields]

they are still not SALES market data.

The statement does not reference Sales Market data, it references MARKET data

 

[sputnam]

There is no formula. It's part of what you have to extract from the market.

 

[Artemis Fowl]

You pulled the words "market data" from its statement that enough market data exists for a sales comparison approach. Which is not the intent of the statement.

Income and cost data are "market data" but they are still not SALES market data.
The SCA is about SALES . We can contrast and compare relative price return of sales prices to cost of the income approach. We do that in order to determine if the subject is a super adequacy nor not. If we do not compare the cost to a SCA we can never know if the market of buyers sees a subject quality or size etc as a super adequacy. And as we know, cost , including depreciated cost can return 100% same on sale, or less $ on sale or more $ on sale. Unless you use actual sales, how can you know?
Therefore lifting a cost result /formula and sticking it in the SCA grid as the adjustment lacked actual market reaction/ sale comps support. The impressive sounding explanation cost/depreciation comments might be accepted by a client. and might be acceptable for non lending use. But if for lender use and appraisal is challenged later on review good luck with that.

What is a market?

https://www.soas.ac.uk/cedep-demos/000_P538_MSA_K3736-Demo/unit1/page_06.htm

"Rather it refers in an abstract way to the purchase and sale transactions of a commodity and the formation of its price. Used in this way, the term refers to the countless decisions made by producers of a commodity (the supply side of the market) and consumers of a commodity (the demand side of the market), which taken together determine the price level of the commodity ... the term is detached from any particular geographical coverage."

Cost, Income, Sales...all related. Cost tables are derived by observing SALES of those components. A cost approach actually uses "sales market data". An income approach uses "sales market data".