Understanding comp adjustments

[Mike Kennedy]

Excellent Post Mile High.

 

[JSmith43]

Nate, if and when new construction sales revive, when you are looking at relatively new properties, you can look to new construction cost without too much depreciation as a guide to what the market will bear.

Example, if it costs $5,000 for a 3rd garage stall and, say 1/2 the buyers of that model opt for the 3rd stall, you have some support for the 3rd stall being worth about $5,000, when new.

Same process for a porch, etc. Keep in mind, adding a porch after the fact is usually not all that much more expensive than when building whereas adding a 3rd stall will involve roof trusses, etc.

It takes lots of variables out of the equation if there are similar model resales with a porch and without porch & note the price of the whole & think about any other significant variables. We all know that a house painted funny, one that smells like an old dog with bad breath, or one that had reluctant renters in obsession at time of marketing are going to skew the results.

Lots of good posts here. I saved some to read later in depth.

The "list" is BS, and my gullibility detectors go off when I read that annual Realtor magazine survey of remodeling projects, but I enjoy looking at the purported regional differences. I hep they keep offering it.

 

[Mile High Trout]

Thanks Mike. I need a lifeline - AMC's have rendered my skill set to be practically worthless.

 

[Jill Kinnaird]

Thanks Mike. I need a lifeline - AMC's have rendered my skill set to be practically worthless.

Nice response to the question! Your 'skill set' is not worthless, 'experience' and 'pride of workmanship' are priceless commodities. Those seeking 'cheap' reports, analysis etc... are 'running the show' so to speak right now however, the ability to face yourself each morning knowing you are providing an honest service to the best of your ability will outlast the current market.....it always does. Remember the late 70's? How about the 80's? The economy, like most things, is cyclical. Best advise for a lifeline would be to expand your grasp on technology; get to know regression analysis, go to classes or teach yourself how to do something you've always wanted/needed to know about this business, become 'the expert go to guy' for a specific market segment. These all take time. Don't stop learning....You never know where it may lead.

 

[Mile High Trout]

Thanks Jill. That's good advice I've heard several times before, but fail to heed as of yet.

It's just tough to walk away from the regular mortgage borrowers who need me to be there for them. But if the lenders won't let me inject myself into the process unless I work for 1/2 fee, I've got to reconsider my position.

 

[Terrel L. Shields]

When an appraiser is making adjustments to comps what are some baseline numbers or percentages that they use for making adjustments?

EXAMPLES of what I am looking for
Bedroom Adjustments
Bathroom Adjustments
Garage Adjustments
Pool Adjustments
Fireplace Adjustments
Fence Adjustments
Yard size adjustments
Year build adjustments
Etc, Etc, Etc

In reality, a lot of appraisers do have a "list" in their head...appraising is heuristic... common sense, etc. But having said that, how do I do it?

Every so often (often when a situation presents itself and I think should be updated) I do a series of regressions and sensitivity analyses to try and identify the drivers of value.

So very often I find (in my market) that SF reflects the 'value' better than say, number of bedrooms. So I don't adjust for bedrooms, unless i have an exceptionally large house with few bedrooms, or only 1 bedroom or too many small rooms...appraised a 2200 SF house once that had 8 bedrooms, 4 in the converted garage to accommodate a large family. I look at those on a case by case basis.

Age, SF, site value, garage are major value drivers... But condition is probably the most difficult to measure (quantify) Once I identify the main drivers, I tend to play with the regression or use a sensitivity (paired sales) method and see if I can isolate a reasonable adjustment.

Fireplaces... FPs often reflect a certain quality level, and outside resort areas, I find they are market invisible but may be a hint of being average or good quality homes. Everyone built with a FP in the cold 70s. Nobody really wanted them during the warm 90s except as decoration... granite countertops...ditto. They reflect a certain quality level more than a specific "adjustment".

Fencing? 99% of the time it is invisible. Pools? very difficult since we have few in the market, most are some value, a few are a lot of value...Lot size?.. hmm in a suburban setting, I have tried and tried to make sense of it. But 1.2 acre or 1.6 acre in the same subdivision? I find the lots were often similarly prices prior to construction and cannot find any good support for an adjustment.

So I guess the answer is... it depends. sorry I can't do better. This isn't a very math rigorous business. It's all about judgment.