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Question About Comps.

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Marty Shaw

Freshman Member
Joined
Jul 2, 2003
I'm a noob so take it easy on me, please. :blink: Here's a scenario: Subject is on 1 acre, and a comp is on 2 acres; subject has a pool, comp does not. You take off $1,000 for the difference in acreage and add $5,000 for the pool to adjust value towards subject. My question is where do these numbers come from? How do you know the pool is worth $5,000. Why not adjust by $1,000 or $6,000?

-Marty
Confused, but learning (trying to, anyway).
 

Frank Lostracco

Junior Member
Joined
Mar 13, 2003
Professional Status
Certified Residential Appraiser
State
New Jersey
You need to go in the MLS and do some research. Compare previous sales in your marketing area to see what a pool is worth and what an acre of land is worth. All numbers that are used to make an adjustment need to come from the market.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
There is this magical list that is part of the appraiser's secret society. Until you become one of us you cannot have access to our list!

Your supervisory appraiser should be able to help you with adjustments. It is an art form not a science; however, the answer to your question lies in the mystical "pairs analysis". Use the force my jedi student, use the force!

Consider this......

Sale #1 a house on one acre sold for $100,000
Sale #2 a house on one acre sold for $100,000
Sale #3 a house on two acres sold for $120,000

What is the value of one acre of land?

This is simplistic but until you understand the concept you can't say what adjustment is necessary. Those adjustments come from the market and appraisers are trained to interpret the market.

Lets complicate the problem...

Sale #1 a house on one acre sold for $100,000
Sale #2 a house on one acre with a hot tub sold for $102,000
Sale #3 a house on two acres sold for $120,000

What is the value of the hot-tub?

Got that.. now

Our subject is a house on two acres with a hot tub....what is the indicated value of the subject property?

By Jove......I bet you got it! Welcome to appraisal 101!


May the farce be with you :rofl: :rofl: :rofl:
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Marty,

I hate to tell ya this, but learning what adjustments need to be made in any given market area is the responsibility of your mentor (who should be local!) to teach you.

It's not that we don't want to help, and maybe you're sitting at home typing and just want to dazzle the boss tomorrow with a nice clean report to review and sign off on based on advice you get from this forum, but if your supervisory appraiser isn't walking you through this stuff then I'd be suspicious about the quality of training you're getting.
 

Walter Kirk

Senior Member
Joined
Jun 24, 2003
Professional Status
Licensed Appraiser
State
New Jersey
Marty,
When I was learning appraisal back in the dark ages, I would ask my boss all kinds of questions like yours. What ever question I asked was always answered by the same question; What does the market tell you?

Your question is a part of the learning curve, you start to become a good appraiser when the basis for these adjustments comes from your experience, until then do lots of market research.
 

Marty Shaw

Freshman Member
Joined
Jul 2, 2003
Thanks for all the responses. Mike, you really should consider writing a book. Your answers always seem to be witty and informative. How many appraisal books like that are on the market?? Not many if there are any at all. You'd make a killing.
DeeDee, you hit the nail on the head. I thought I'd pick a few brains here on the forum and let me trainer think he got his hands on a prodigy. hey! it was worth a shot. :twisted:
 

KD247

Senior Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
Hi Marty,

Contrary to what many would like you to believe, there is not one simple answer to this problem. We are trying to predict the behavior (market response towards real estate) of human beings. We rarely have enough data to rely upon statistical methods and the data often suggests contradictory hypotheses.

It sounds as if you are making the assumption that there is only one "correct" adjustment for each variable. Usually, the best you can hope for is a reasonable explanation for the market reaction to differing properties. In some markets, a $1,000 pool adjustment may be just as reasonable and well supported as a $6,000 pool adjustment.

In the area I work in, pools used to cost about $10,000 and now they are typically $25,000 - $75,000. In some nearby areas, buyers will pay a premium for properties with a pool, and in some areas they will demand a discount for properties with a pool. In my reports, pool adjustments range from $0-$75,000. Many appraisers in this area use a straight $10,000 pool adjustment for all properties. Who's right? Who's wrong? Who knows?

You asked, "Where do the numbers come from?" As Mike stated, they come from sales data. The best sales data includes both sales that are exactly like the subject and also other sales that differ from the subject only in one variable. Usually this type of data is unavailable and the best data is that which brackets the subject's most important characteristics. I could be shot for saying this, but almost any adjustments that even out the adjusted sales prices are reasonable, providing that they make common sense and are supported by the general opinions of buyers, sellers, and brokers.

Classic appraisal theory assumes that the market is consistent in its reaction to property characteristics. It doesn't take long in this business to see that the market reacts differently in different times, in different areas, and for different combinations of variables. Sometimes the market reacts differently for no good reason at all. Some places have values that can be easily determined within 1% and other places have values that fall within ranges of up to 50%. It's up to the appraiser, through analysis of data and interviews with buyers, sellers, and brokers, to determine which variables are significant in a particular market and then to insure that those variables are reasonably represented in the sales comparison analysis.

Personally, I think that it's misleading to make adjustments for insignificant variables. In neighborhoods where it's difficult to be much more precise than, say, within 20%, I don't think it's appropriate to make a $1,000 barbecue adjustment on a $400,000 property.

If you can gather suitable data, you'll find that the adjustments are usually apparent. Bracketing the important variables is always the best bet. Unless the market relies on "factors" (e.g. $x per acre, $x per foot of water frontage, etc), their use can lead to ridiculous results!

In appraising, a value isn't the result of a formula, it's the prediction of a behavior. Try walking around a tract and asking, "How much extra would you pay for a house with a pool?" and you'll quickly find out how wide the range of buyers' behavior is.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
And now Koert has taken you to Appraisal 102...Advanced Pair Analysis or Adjust or Not to Adjust.
 

KD247

Senior Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
Mike,

Having just finished a big dinner with a few bottles of wine, I must have felt inclined to take somebody somewhere. Thanks for not picking on my ramblings!

Koert
 
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