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This may sound ignorant, but.

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Ashley Craven

Freshman Member
Joined
Sep 15, 2006
Professional Status
Appraiser Trainee
State
Michigan
I have questions about the adjustment process. I primarily work on commercial reports as a trainee, and I am trying to grasp the most basic principle in appraising. I have tried to research the Lum Library on the Appraisal Institute website and pick appraisers brains, and I'm getting two conflicting schools of thought on the matter.

Idea #1- all adjustments must be extracted from the market via paired sales analysis.

This idea seems really wonderful in theory, but is basically useless due to the market I reside in. I am lucky to find three properties that have sold in the last three or four years that are somewhat similar, let alone identical enough to extract out any sort of data for the adjustment process.

Idea #2- adjustments are more or less subjective, and it takes time and experience.

This makes more sense than the first idea (though it seems like it violates USPAP)? Its nice to know that I think a property having 'X' characteristic is more valuable, but how do I get a dollar or percentage after deciding the characteristic to be superior (or inferior)? I do not have enough experience in the industry to make these conclusions. Also, even if I did arbitrarily pick a number it sure doesn't leave much for me to write in my explanation of adjustments :)
 
I have questions about the adjustment process. I primarily work on commercial reports as a trainee, and I am trying to grasp the most basic principle in appraising. I have tried to research the Lum Library on the Appraisal Institute website and pick appraisers brains, and I'm getting two conflicting schools of thought on the matter.

Idea #1- all adjustments must be extracted from the market via paired sales analysis.

This idea seems really wonderful in theory, but is basically useless due to the market I reside in. I am lucky to find three properties that have sold in the last three or four years that are somewhat similar, let alone identical enough to extract out any sort of data for the adjustment process.

Idea #2- adjustments are more or less subjective, and it takes time and experience.

This makes more sense than the first idea (though it seems like it violates USPAP)? Its nice to know that I think a property having 'X' characteristic is more valuable, but how do I get a dollar or percentage after deciding the characteristic to be superior (or inferior)? I do not have enough experience in the industry to make these conclusions. Also, even if I did arbitrarily pick a number it sure doesn't leave much for me to write in my explanation of adjustments :)
Ashley, welcome to the forum.

While it seems that the two ideas are mutually exclusive, they are not. Paired sales are obviously wonderful, but are really the exception instead of the rule. All adjustments, whether based on paired sales or not, still boil down to the appraiser's judgement, especially on the commercial end.

Keep taking classes, keep reading, keep picking appraisers brains. Eventually, things will start to make a little more sense.
 
There is nothing ignorant abou asking questions to expand your understanding. Pared sales are sometimes difficult to find and you may have to adjust for time as well as other factors.

Try expanding your search, looking for say warehouse sales within the past ten years, this will allow you to detect patterns and trends which you can use to develop an adjustment. Is it complicated? sure it is but that's why the client is paying you. As you gain experience it will get easier.
 
experience is the key....

Since you are "paying" for experience as a trainee... I would definately ask your supervisor for guidance.
 
Appraising is both science and art.

A competent appraiser has a wealth of experiences to draw upon. Just as the market for real estate is not a perfect market, neither is the appraiser.

Both "Idea #1" and "Idea #2" are correct. But, you ask, how can this be?

Adjustments ARE extracted from the market, only some are better supported than others. As a single simple example, an appraiser may observe that in a certain neighborhood, the market appears to pay approximately $7000 to $12,000 more for a 3-car garage vs. a 2-car; how tightly the appraiser can fine-tune the adjustment may depend upon the appraiser's experiences and good judgment. Thus, your "Idea #2" comes into use! Only very rarely will the market data be such that the appropriate adjustment is but a pin-point!

I will tell you that appraisers who never--or, very seldom--take the time to really analyze transactions and talk to market participants to learn what influences value, never really develop good judgment.

As an old (I was told that he was, at that time 20+ years ago, the oldest person then to have earned his MAI) appraiser once told me: "ANYONE can appraise the 'easy' ones!" By extension, what he meant was that it takes a really good (a.k.a., competent, experienced) appraiser to develop and communicate a credible appraisal of a "semi-complex" property. Thus, what you DO NOT want to be is "anyone"; work at your trade, become better educated, and associate yourself with others who act and think as professionals.
 
Thanks so much for all of your responses. I hear horror stories about the liability appraisers take on, and I want to make sure that by the time my signature goes on the line, my conclusion can be as accurate as possible!!
 
The true "paired sale" is hard to come by. However, the idea of comparing your data against each other to develop your adjustments is both reasonable and relatively easy to do. Grid your data up, use an iteration process with adjustment factors for the primary attributes and see how narrow you can adjust your range of indicators whilst still maintaining consistency. If your data is reasonably comparable to start with this process will quickly show you if an adjustment factor is unreasonable.

BTW, there's nothing wrong with an appraiser also referening their experience with other similar properties as contributing to their opinions about ratings, rankings and adjustment factors. If an AVM comany can tout their "whole market analysis" as a strength then appraisers should also be able to acknowledge that the other data and comparisons they've collected over the years in their prior work has contributed to their professional judgement.
 
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