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Size adjustments when valuing piecemeal

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Roger Murdock

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I am appraising a downtown-type property that has two adjoining buildings on one lot. It is somewhat unusual in that it contains both a mixed-use (store and apartments) building as well as a warehouse (separate building). For the sales comparison approach, I used two separate sets of sales and then added the two building values to get the total value.

The question: How would you apply size adjustments in such a case? Say the mixed-use building is 4,000 SF and the warehouse is 2,000 SF, for a total property size of 6,000 SF. In analyzing the sales for the mixed-use building, suppose one of the comparables is 4,000 SF. The way I see it, this comparable should have a downward size adjustment applied since the subject as a whole is larger than this comparable. And the same goes for the warehouse comparables as well - size adjustments should be based on the subject's total size. Does anyone see it differently?

(Yes, I already checked USPAP........J/K......)
 

Lawrence R.

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The easy thing would be only use identical comps, LOL.

Otherwise I have no solid answer, and only conjecture...but since you don't have many posts responding, here goes....

You shouldn't do what you suggested...that would be like saying you have a rock that weighs 4 pounds, mixed with gold and copper, and you want to adjust downward b/c your comp is 20 lbs, except it is all cement. That won't cut it.

I would start by comparing the "most functional/usable/desirable" uses first. it would be safe to assume that the largest % of the adjustment should come from their differences in size. The market should bear that out in your analysis.

Then, just go down the list by order of desirability...

Or, compare some sales that are not mixed use, but have the same use as each of the buildings you have, adjust for a difference in functional utility, and extract an adjustment that way.

Both are very subjective, but sometimes we just have to be.

I am not an expert with mixed use, and frankly, I hope this post gets shredded so I can see what I need to learn.
 

Roger Murdock

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The easy thing would be only use identical comps, LOL.

Otherwise I have no solid answer, and only conjecture...but since you don't have many posts responding, here goes....

You shouldn't do what you suggested...that would be like saying you have a rock that weighs 4 pounds, mixed with gold and copper, and you want to adjust downward b/c your comp is 20 lbs, except it is all cement. That won't cut it.

With all due respect, I fail to comprehend your analogy.

The point is, if one were to base the size adjustments on each "part" of the property alone - i.e. to make the mixed-use adjustments based on the 4,000 SF size of the mixed-use building - then the total property value obtained by adding up both buildings would be artificially inflated; a buyer of the whole property (which is being appraised as one unit) would almost certainly pay less than two separate buyers would pay in total if they were two separate properties. By applying the size adjustments based on the total property size, this factor can be reflected properly.

(Take it as a given that in this market, larger properties sell at lower per SF prices than similar smaller properties.)
 

Lost Cause

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The question: How would you apply size adjustments in such a case? Say the mixed-use building is 4,000 SF and the warehouse is 2,000 SF, for a total property size of 6,000 SF. In analyzing the sales for the mixed-use building, suppose one of the comparables is 4,000 SF. The way I see it, this comparable should have a downward size adjustment applied since the subject as a whole is larger than this comparable. And the same goes for the warehouse comparables as well - size adjustments should be based on the subject's total size. Does anyone see it differently?
OK, based on the limited information given and if I were approaching it the way you are, I see it quite differently. You say you are comparing a 4000 SF mixed use improvement to another 4000 SF mixed use improvement and making a size adjustment based on space in an adjacent improvement. Your whole approach to this problem was to segregate the two parts, but you then turn around and use the aggregate in making adjustments. It certainly may be true that the value of the whole is not necessarily the sum of the values of the parts, but it would be more appropriate to address this once you have completed the analysis of the parts.
 

Roger Murdock

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OK, based on the limited information given and if I were approaching it the way you are, I see it quite differently. You say you are comparing a 4000 SF mixed use improvement to another 4000 SF mixed use improvement and making a size adjustment based on space in an adjacent improvement. Your whole approach to this problem was to segregate the two parts, but you then turn around and use the aggregate in making adjustments. It certainly may be true that the value of the whole is not necessarily the sum of the values of the parts, but it would be more appropriate to address this once you have completed the analysis of the parts.

I agree it could be done that way as well, but I think this way is simpler. They really both have the same effect.
 

Stephen J. Vertin MAI

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Which section of USPAP did you check?
Now that is funny:rof:

Marc:

Welcome to the forum. I have had to do what you have done. Especially if there were no mixed unit sales. I would use like size products (meaning like size to the component parts of the subject) and adjust the comparable like size units to the subject component parts. I would not adjust the comparable size to the whole (or total) subject size. It would defeat the concept of valuing the individual componets within the subject.

The sums of the parts refer to partial interest. Different concept.
 
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PropertyEconomics

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Now that is funny:rof:

Marc:

Welcome to the forum. I have had to do what you have done. Especially if there were no mixed unit sales. I would use like size products (meaning like size to the component parts of the subject) and adjust the comparable like size units to the subject component parts. I would not adjust the comparable size to the whole (or total) subject size. It would defeat the concept of valuing the individual componets within the subject.

The sums of the parts refer to partial interest. Different concept.

Would there be further adjustment for having "mixed" uses, where the components of value have been added together, in your experience?
 
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Roger Murdock

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New Jersey
Now that is funny:rof:

Marc:

Welcome to the forum. I have had to do what you have done. Especially if there were no mixed unit sales. I would use like size products (meaning like size to the component parts of the subject) and adjust the comparable like size units to the subject component parts. I would not adjust the comparable size to the whole (or total) subject size. It would defeat the concept of valuing the individual componets within the subject.

The sums of the parts refer to partial interest. Different concept.
I don't see how partial interest would be applicable to the value of one lot with multiple buildings on it, where the entire property is being valued as one unit.
 

PropertyEconomics

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I don't see how partial interest would be applicable to the value of one lot with multiple buildings on it, where the entire property is being valued as one unit.


I think he was referring to a prior post which called for sum of the parts ......
 
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