Sequence of Percentage Adjustment in the Sales Comparison Approach

[Rational Estimation]

Sequence of Percentage Adjustment in the Sales Comparison Approach

Does anyone know the proper sequence of percentage adjustment in the sales comparison approach? I have been using two different sources to prepare for my AT test next Saturday; however, the two sources are providing different adjustment techniques.

The first source is from a book, I’m hoping most of you are familiar with, called “QUESTIONS & ANSWERS” by Fisher and Tosh, and the second is from a software program that I was told is the best, “CompuCram.”

-"Questions & Answers" book- financial, conditions of sale, market conditions, location, and physical adjustments are all adjusted seperately for question number 8 on page 67.

-"CompuCram"- The Location and Physical adjustments are not seperate but net adjustments, questions “Exam-471”, “Exam-495” and “Exam-497.”

Can someone please help? :Eyecrazy: I want to pass my test, and I calculated a difference of almost 20K between the two different techniques on one question.

Thanks- Nick

 

[Mr Rex]

The grid is in the order its in for a reason.

 

[Hamlet]

Mr. Rex speaks wisdom, Nick. Look to your adjustment grid and you will find that which you seek.

Welcome to the AF.

 

[Rational Estimation]

Ill Make this more clear

Concidering percentage adjustments, are LOCATION & PHYSICAL adjustments made as a net adjustment from the Market adjustment or are all of the percentage adjustments made seperately? ex..

Financial, conditions of sale, market conditions, location, physical
or
Financial, conditions of sale, market conditions, then net adjustment of location & physical

 

[Rational Estimation]

Financial, conditions of sale, market conditions, then location & physical together as a net adjustment

 

[Rational Estimation]

I'm unfamiliar with the grid. what is the grid?

 

[Smokey Bear]

The 'grid' is referring to page 2 of the Fannie Mae 1004 form where comparables are listed and adjusted. https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/1004.pdf

 

[Metamorphic]

You guys are making a GREVIOUS mistake if you think trainees know or are familiar with the grid. In all the BE I took I never saw a full printed out form. The closest they come in the test books we used is just little portions of them presented out of context.

Its a HUGE flaw in the BE IMHO that you never have to handle and work with the forms.

 

[Rational Estimation]

I should have known....thanks

letter received from CompuCram-

"You had inquired about the way CompuCram was calculating Location and Physical differences and you are correct. Location and physical differences are analyzed independently. However, when the adjustments are applied as percentages, some text sources illustrate that once the comparable is adjusted for cash equivalency and market conditions, adjustments for location and physical characteristics/differences can be combined since the cumulative percentage adjustment is applied to the same adjusted sale price. In other words, the result would be the same if the adjustments were applied separately. Some texts present the process in this manner and some do not. The explanations to these questions will be slightly modified for clarity in a future revision/update. I appreciate you taking the time to bring this to our attention and pointing out the potentially misleading content." (CompuCram, Associate, JH)

I underlined, in the sentence, what I beleive is wrong. I've been told from higher sources that location and physical percentage adjustments should not be adjusted from the same adjusted sales price. Then the letter states "the results would be the same if the adjustments were applied seperately," and I believe that's wrong. Please educate me if I'm wrong.

Nick

 

[ZZGAMAZZ]

IMHO the "sequence of adjustments" is a cruel trick (question)--much like the foundation of so much of what we do as appraisers.

Absolute rather than relative adjustments are the norm in most if not all residential adjustments, to the extent that the typical appraisal software doesn't even include a percentage adjustment option.

Consequently, the sequence of adjustments is meaningless because the line item adjustments are made relative to the unadjusted selling price rather than to the sequential adjustments in descending order of importance depicted on the grid.

A $10,000 adjustment for sales concessions near the top of the grid results in a negative adjustment of $10,000, which has the identical impact of a $10,000 adjustment for garage parking spaces near the bottom of the grid.

As always I'm sure that others probably have a more sophisticated way of dealing with this issue but the "sequence" is virtually meaningless in my world. This line of questioning typically leads one to consider a logical linear regression model in which all of the variables are 'adjusted' simultaneously, but we're a dumb nation with inadequate math skills, and who would be willing to create and re-create the regression model for each successive assignment...wait...that's the basis of the AVM notion...and the reason that ours is a dying profession that will end when an appropriate AVM is developed that incorporates the necessary variables.

p.s. Nick: The more you experience the Forum, the more you will realize that ours is a very imprecise industry. The same guys who sold $10,000 tulips in Denmark sold the notion of "Public Trust" as the basis of our profession so they wouldn't have to devote the effort necessary to establish a core of rationale techniques. (my bad)