Question completing new 1025 Form

[Robert Gonsalves]

Hello;
This question was asked in a prior post but I still do not fully understand the answers?
In filling out the new 1025 Form under Sales analysis one adjusts for difference to subject for each comparable and the total goes down to "Adjusted Sale Price of Comparables". Next, one calculates "Adj. Price Per Unit, Room, Bdr., for each comparable and enters these figures in the appropriate spaces below each comparable. The next calculation is the one I have questions about. These are listed as "Value Per Unit $___ x ____ Units + $ ____. etc. The program seems to automatically enter the number of units, rooms, GBA, and bedrooms, from the subject. How does one calculate the VALUE Per Unit, Per room, Per GBA, and Per bedrooms for this section. I have seen examples where appraiser's take examples from each comparable and then reconcile this in the Summary of Sales Comparison Approach Comment Section. I have also seen appraisers that use the final opinion of value for the subject to calculate the per unit price here by dividing Units, Rooms, GBA, bedrooms into the Final opinion of vale to derive at the Values per unit, per room, per GBA, per Bdr. Any comments or views on this would be appreciated. Robert

 

[Michael Schendel]

If you look at the top of the comparable grid there is a break down of all of those items you are asking, per room, per unit etc. I use those numbers (which should be bracketed) along with active, pending and under contract listings from the market area to determine what that number should be for each item at the bottom

When I took my class on 2-4 units, the instructor said those breakdowns are to help the underwriter view the value on a smaller scale. To help ensure the aprpaiser is in line with adjustments according to each of those areas.

 

[Otis Key]

What is the opinion of value that you're going to express in you final analysis? Is it the opinion of the price per room? Price per SF? Price per unit? Price per Unit?

Just remember what your're doing and to correlate what you finally express in the appraisal work product that you send out. If it's going to price per unit/sf/bedroom, then correlate it that way.




Hint: Opinion of value is market value.

 

[CANative]

Also keep in mind that if you have to make adjustments to any of the comparables, then the forumulas at the bottom of the form are incorrect because in essence the comparables have become the subject.

The formula is presented as: Adj SP / (Comp # units) (comp GBA) (Comp rooms) (Comp bedrooms)

The correct formula is: Adj SP / (SUBJECT # units) (Subject GBA), etc

As an example: subject has 2,500 SF, comparable has 3,000 SF. Comparable sale price of $250,000 was adjusted down by $25,000 for size ($50/SF of GBA -- I'm making these numbers up). The adjusted sale price then becomes $225,000.

Incorrect: $225,000 / 3,000 (comp GBA) = $75/SF of GBA $75 x 2,500 = $187,500

Correct: $225,000 / 2,500 (Subj GBA) = $90/SF of GBA $90 x 2,500 = $225,000

Using the incorrect formula and applying $75/SF of GBA to the subject's GBA would produce a value of $187,500 -- significantly lower than the indicated $225,000.

Reversing those numbers, the subject has 3,000 SF and the comp has 2,500. Sale price is $225,000 and is adjusted up by $25,000 (same made up numbers). Adjusted value is then $250,000.

Incorrect: $250,000 / 2,500 = $100.00 $100 x 3,000 = $300,000

Correct: $250,000 / 3,000 = $83.33 $83 x 3000 = $250,000

In this case, you would be over-valuing the subject by using the incorrect formula.

And, it is further compounded by including each of the other comparable sales so that the final number is something from thin air.

To override the stupid Fannie Mae form, you have to manually calculate the numbers and enter them in the cells. Be careful, because if you go back and change something in the grids, the numbers below will recaluclate to the incoorect forumla.

The final set of calculations (Value per room, unit, GBA, bedroom) is a reconciliation of the data.

 

[Robert Gonsalves]

Hello Again;
I would like to Thank Everyone for there comments. Especially Greg, for your comments on properly adjusting for adjusted values of units, rooms, GBA, and bedrooms. I remember this from your last post about 1025 forms and understood it then. I would like you to elaborate on your comment "the final set of calculations (value per units, GBA, rooms, bedrooms) is a reconciliation of the data". To find values for the final set of calculations do you chose one from the adjusted values per units of three 3 comparables which best supports your final opinion of value and than state this in your comments?
Thanks Again, Robert

 

[CANative]

do you chose one from the adjusted values per units of three 3 comparables which best supports your final opinion of value

That would be peeking now, wouldn't it?

Use what makes most sense. Bracket maybe (always safe.) Perhaps use the ones in sales grid column which is most like the subject and required fewest adjustments. I don't know how to choose scientifically and I am probably the worst person to go to on advice concerning this wretched form. I do maybe 2 or 3 a year... if that many.

Scott Kibler is a wiz at these. Maybe he will post something.

 

[Shea Koch]

In response to your questions

Somebody in another post said if the 1025 was for a refi, those areas should be left blank or N/A. Is it a refi or sale?:new_multi:

 

[DTB]

Also keep in mind that if you have to make adjustments to any of the comparables, then the forumulas at the bottom of the form are incorrect because in essence the comparables have become the subject.

The formula is presented as: Adj SP / (Comp # units) (comp GBA) (Comp rooms) (Comp bedrooms)

The correct formula is: Adj SP / (SUBJECT # units) (Subject GBA), etc

As an example: subject has 2,500 SF, comparable has 3,000 SF. Comparable sale price of $250,000 was adjusted down by $25,000 for size ($50/SF of GBA -- I'm making these numbers up). The adjusted sale price then becomes $225,000.

Incorrect: $225,000 / 3,000 (comp GBA) = $75/SF of GBA $75 x 2,500 = $187,500

Correct: $225,000 / 2,500 (Subj GBA) = $90/SF of GBA $90 x 2,500 = $225,000

Using the incorrect formula and applying $75/SF of GBA to the subject's GBA would produce a value of $187,500 -- significantly lower than the indicated $225,000.

Reversing those numbers, the subject has 3,000 SF and the comp has 2,500. Sale price is $225,000 and is adjusted up by $25,000 (same made up numbers). Adjusted value is then $250,000.

Incorrect: $250,000 / 2,500 = $100.00 $100 x 3,000 = $300,000

Correct: $250,000 / 3,000 = $83.33 $83 x 3000 = $250,000

In this case, you would be over-valuing the subject by using the incorrect formula.

And, it is further compounded by including each of the other comparable sales so that the final number is something from thin air.

To override the stupid Fannie Mae form, you have to manually calculate the numbers and enter them in the cells. Be careful, because if you go back and change something in the grids, the numbers below will recaluclate to the incoorect forumla.

The final set of calculations (Value per room, unit, GBA, bedroom) is a reconciliation of the data.

My software is not indicating an adjusted price per square foot. It shows price/ GBA

Comp 1 $ 489,000 2676 GBA 182.74
Comp 2 $ 480,000 2452 GBA 195.76
Comp 3 $ 466,500 2480 GBA 188.10

Subject GBA 2588 X 185 Indicated value 478,780

Is there more to this section than that? Done dozens in the last couple months.

The price/ GBA already accounts for the adjustments. The market made the adjustment at time of sale, didn't they?

Edited to calrify "this section"

 

[CANative]

I have hesitated to respond because you have done dozens in the last couple of months and I only do a couple a year. And my area has very few multi-family sales and none are ever similar.

There also may be a difference in how diffeent software packages do the math.

The GBA works correctly. It divides the (unadjusted) sales price by the square footage of the GBA. The issue is the section at the bottom of the grid where the forumula is the price per unit based on the adjusted price of the comp. (forumula Adj SP comp / # of comp units, rooms, bedrooms)

If the comparables are dissimilar and require adjusting, then they are no longer the comps, they are the subject. But the calculator wants to adjust the dissimilar comp units by the adjusted sales prices.

If the adjusted prices are equalized to the subject (i.e. the comps become the subject), then the subject's number of units should be used in the calclulation, not the comp units.

My concern over this methodology is that it seems like backing into a value or simply a reiteration of the data in the grids. But that's also kind of what a GRM is, isn't it?

Does this make sense at all?