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Size adjustment question

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Alan Magill

Sophomore Member
Joined
Mar 3, 2005
Professional Status
Certified Residential Appraiser
State
Texas
I am in the DFW market and have always used a formula to calculate the living area adjustment. I use the market comparison formula most of the time. The number is generally half of the average price per square foot. Why do I see so many other appraisers adjusting for living area based on less than 30% of the average price per square foot. Keep in mind that I always try to bracket the subject and my method generally gives a tighter range of values. Was I tought incorrectly 10 years ago.

I am looking at a review in which the reviewer stated that our GLA adjustments for our area should be around $20-25 sq ft. Any thoughts.
 

Randolph Kinney

Elite Member
Joined
Apr 7, 2005
Professional Status
Retired Appraiser
State
North Carolina
I am in the DFW market and have always used a formula to calculate the living area adjustment. I use the market comparison formula most of the time. The number is generally half of the average price per square foot. Why do I see so many other appraisers adjusting for living area based on less than 30% of the average price per square foot. Keep in mind that I always try to bracket the subject and my method generally gives a tighter range of values. Was I tought incorrectly 10 years ago.

I am looking at a review in which the reviewer stated that our GLA adjustments for our area should be around $20-25 sq ft. Any thoughts.
Does your market price per square foot include land? If so, then you have something other than the marginal price difference per square foot of improvement.
 

Alan Magill

Sophomore Member
Joined
Mar 3, 2005
Professional Status
Certified Residential Appraiser
State
Texas
Does your market price per square foot include land? If so, then you have something other than the marginal price difference per square foot of improvement.


yes it does. If the land value exceeds 30%, I use a cost approach formula to calculate the living area adjustment. The formulas are macros that I am not smart enough to do on my own. I have been using them for almost 10 years. the macros were developed by my mentor.

It seems like the other appraisers that I have talked to use a generic number for the entire diversity of the metroplex. The number that this reviewer put in her report was $20-$25 per sq ft for DFW. I know for a fact that that is not correct. Homes that sell for $200/sq ft cannot be put in the same ballpark as those with $60/ sq ft.
 

Rufus

Junior Member
Joined
Apr 3, 2008
Professional Status
Licensed Appraiser
State
Indiana
I was taught 1/4 to 1/3 because the sale price includes land. This was a generalized rule and not set in stone. As others have said in recent threads, make all your adjustments except GLA and then try various numbers for square footage until you have the tightest range. This works best with more than three comps. Most of my reports have a minimum of six and the method is especially good if three are larger and three are smaller.
 

Alan Magill

Sophomore Member
Joined
Mar 3, 2005
Professional Status
Certified Residential Appraiser
State
Texas
I was taught 1/4 to 1/3 because the sale price includes land. This was a generalized rule and not set in stone. As others have said in recent threads, make all your adjustments except GLA and then try various numbers for square footage until you have the tightest range. This works best with more than three comps. Most of my reports have a minimum of six and the method is especially good if three are larger and three are smaller.

What percentage of the value of the homes is land in your area?
 

Rufus

Junior Member
Joined
Apr 3, 2008
Professional Status
Licensed Appraiser
State
Indiana
What percentage of the value of the homes is land in your area?

That depends on the area. It roughly ranges from 10% in some inner city areas to 50% in small lake front communities. The 1/4 to 1/3 is just a starting point with the final adjustment being determined by the paired sales concept within the grid.
 

Tim Hicks (Texas)

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Texas
I work in DFW and hardly use less than $35 unless it is a manufactured home appraisal. However, I let the market determine what the square footage adjustment should be on each and every appraisal. If some reviewer wants to argue, I point out how that specific market supports my number by showing it in the market grid. If you have a same size home as a comparable sale, the adjustment factor should be easy to determine. It is generally whatever it takes to bring the larger and smaller homes in line with the most similar sale. This goes out the window with rural properties on acreage because then lot values have to be considered.

It is not uncommon for me to use $60-100 per foot in high quality areas if the market supports that factor.

The market determines the price per foot adjustment, not some 10 year old formula or some reviewer.

If you adjust with confidence and support your adjustments with factual data, how can any reviewer tell you it is wrong?
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
All adjustments in the sales comparison approach, except the one for finance terms and concessions, should be market extracted.
 

leelansford

Elite Member
Joined
Mar 29, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
All adjustments in the sales comparison approach, except the one for finance terms and concessions, should be market extracted.

From "Appraising Residential Properties", 3rd edition (1999), The Appraisal Institute, p. 355:
"Perfect sets of comparables that vary in a single, identifiable respect are rarely found. Because properties that are sufficiently similar to the subject are usually limited in number, the decision to apply paired data analysis in a given situation is a matter of judgment. Often the sampling size may not be large enough to provide a solid statistical foundation for the appraiser's conclusions."

But, the lesson goes on to state: "Nevertheless, paired data procedures are important valuation tools that appraisers should use whenever possible."

However: "Appraisal is an art in which appraisers apply their judgment to the analysis and interpretation of data. Paired data analysis is a tool that an appraiser can apply to market data in SOME (note: my emphasis!) circumstances. When used in conjunction with other tools, this type of analysis supports and guides the appraiser's judgment, but it does not take its place."

I absolutely love it when I can support any particular adjustment by way of paired data analysis, but in the real world I just don't find it all that often.
 

Darrel Clark

Sophomore Member
Joined
Feb 15, 2007
Professional Status
Certified Residential Appraiser
State
Utah
In making adjustments for size, the numbers we use should be derived from the market. Yet, in reality, that is difficult or sometimes impossible to do – especially when the market is slow. I admit that for new homes in the same subdivision built by the same builder with similar quality it is easy to derive a square footage number. But, for older homes, there are so many variables it is truly impossible to isolate a square footage number.

So, in reality we use experience and some common sense to come up with adjustment numbers. When I started in the business 20 years ago, I recall that FNMA recommended using an adjustment that was between 50% and 25% of the above grade cost per square foot new as shown in the cost approach. I find that still generally works. For newer homes I use close to 50% of the cost per square foot new. For older homes, closer to the 25%. So, for high quality residences I could adjust $75 per square foot or more. For older, average to fair quality the number could be $25 or even $20 per square foot. That seems to work well in my area.
 
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