Two line basement adjustements?

[Mike Garrett RAA]

I have been teaching that technique for years. Many appraisers still lump everything onto one line and then wonder why underwriters and reviewers question their adjustments.

Consider this. Two homes side by side ... one has a 500SF basement that is 70% finished. The other one has a 700SF basement that is 95% finished. How would you adjust these if you didn't use two lines? Lets say that the first one is my subject property and the second one is the comp.

One line one of the below grade area for the comp I would have 700SF 95%Fn. There is a difference of 200SF and I might adjust that at, say, $15 a square foot or a -3,000 FOR SIZE DIFFERENCE ONLY.

Now I am going to deal the the difference for finished area.
My subject has 350SF finished into 2Rm,1Bd,1BA. The entry would be 2Rm,1Bd,1Ba. The comparable has 665SF finished into 3Rm,2Bd,1Ba for a difference of 315SF. I might adjust the finish at, say, $10 a square foot or a minus adjustment of $3,150 rounded to -$3,200.

By using this method, the appraiser can account for both size difference and the difference in the amount of finished area. Many times, IN MY MARKET, the total adjustment (in this case $25 a square foot) might just be the same as I used for above grade (GLA) thus eliminating the argument..."you didn't count my walkout basement as living area and we spend all out time down there in the family room".

Two other things I typical do are: If it is a walkout, I do my adjustment for that under Functional Utility (very next line)...so I can really have three different adjustments for below grade areas. You could also separate walkout, garden level, and standard basement areas on this line. The other thing is to explain how I make my adjustments in my addenda so that no one has to ask the question you just did.

I also feel I should add this comment. Reviews should be done by very experienced appraisers who have seen just about every thing there is to see when it comes to residential appraising. USPAP says an appraiser or reviewer should be competent in property type, location, and methodology. Too often, lenders and AMCs send out reviews on the basis of the lowest bid. Most really experienced appraisers are too busy and have fees too high to get those review assignments. I knew of one appraiser, a trainee with less than 1 year experience, doing reviews IN MY MARKET for a company in DENVER. The supervisory appraiser never ever looked at the subject or the comps. Bad situation for everyone concerned.

 

[George W Dodd]

Ditto. Two adjustments, one for size and one for finish. Although I've made a third adjustment on occasion when the basements for daylight and subterranean.

 

[Walter Skaggs]

Mike,

I appreciate your very clear example / explanation.

I understand your comments regarding reviewer's experience and I take the competency rule seriously. I suppose my question has exposed a chink in my competency armor that I was previously unaware. While I've been appraising for over 10 years my training and a significant portion of my experience has been in an area without basements. I've consulted with a couple of my local peers on this issue and was unable to gain any substantial guidance regarding basement adjustments.

I should also note that the basement adjustments in the original work fell within the range of those I have been able to glean from the sparse data available and I deferred to those adjustments. However, there was no explantion of how this adjustment (or any other) was derived. This situation has caused me question my methodology thus far and consult my peers via this forum to improve my competency.

 

[Bill_FL]

Walter, you got some pretty good advice here. That is how I have always handled basements adjustments as well. Well, when I lived in an area that had them.

 

[Mike Boyd]

I use the two spaces to explain the basement. (1300 sf finished, 2 bdrms, 1 bath, den. ) then I make a single adjustment. We have very few basements in our market area and most of those are walk-outs or daylight basements.

 

[Richard Carlsen]

We make two adjustments if called for. Upper line is for basement/no basement or size of basement or walkout feature, etc. The second line is for any finish or lack of finished in the basement level. Since our market loves basements and sees finished basements as living space, some of our adjustments are necessarily rather large.