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#310128 - 10/18/09 03:10 PM Adjustments Question
jbt4re Offline
Major Contributor

Registered: 03/04/07
Posts: 2032
Loc: SWI
First off, I know adjustments numbers vary by region. My question is how detailed do you get when having to make adjustments? Standard adjustments are pretty much bedroom, baths, garage spaces. Do you adjust for lot size, location of lot in subdivision or neighborhood, amenities in neighborhood, DOM in stable market, etc?

When does it start to cross the line into appraisal?
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#310135 - 10/18/09 04:49 PM Re: Adjustments Question [Re: jbt4re]
Vermont Offline
Major Contributor

Registered: 04/12/08
Posts: 6279
Loc: Vermont's North-East Kingdom
This is relevant to an argument I'm having with eml right now. I BPO'd an 1843 1200 SF on 2.75 Acres with a Pond and Greenhouse on a Dead End Road surrounded on 3 sides by a 3000 Acre State Forest/WildLife Area.

Eml says that their "guidelines" require that this property be valued or bracketed by other: "Old"; "Small"; "Non-REO"; homes sited on moderately large lots. I cannot adjust upward for the unique aspects of this setting . . . . all of which I had considered to make it more valuable, but they insist that if another one "just like it" didn't sell in the past 6 months, no value may be placed on these characteristics. I consider the Subject being contiguous with a Wildlife Area to be akin to being adjacent to a lake, a golf course, or ski slope; but I cannot add any value for it.

PS: I asked for a copy of the "Guidelines" last Thursday, and as of yet, they have failed to materialize has anyone ever seen a copy?.


Edited by Vermont (10/18/09 06:15 PM)
Edit Reason: Added PostScript
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Dale C. Hittle of GOLDEN RULE PROPERTIES in Glover, Vermont
Where We're Always Striving To Put Together "THE FAIR DEAL"

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#310142 - 10/18/09 07:15 PM Re: Adjustments Question [Re: jbt4re]
Analog Man Offline
Major Contributor

Registered: 07/22/07
Posts: 1970
Loc: Tampa Bay
Originally Posted By: jbt4re
First off, I know adjustments numbers vary by region. My question is how detailed do you get when having to make adjustments? Standard adjustments are pretty much bedroom, baths, garage spaces. Do you adjust for lot size, location of lot in subdivision or neighborhood, amenities in neighborhood, DOM in stable market, etc?

When does it start to cross the line into appraisal?



I think your last sentance is the $64,000 question. I personally do the standard adjustments that you first mentioned. Possibly an adjustment if the subject is on a double lot or vice-versa. (Yes, I know adjust the comparable not the subject!) More than that, I figure it is what it is. What do they expect for $50 on average???
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Music is the only sensual pleasure without vice. (Samuel Johnson, English Poet 1709-1784)

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#310150 - 10/18/09 08:02 PM Re: Adjustments Question [Re: jbt4re]
northtxbroker Offline
Major Contributor

Registered: 05/18/07
Posts: 1864
Loc: Texas
Originally Posted By: jbt4re
First off, I know adjustments numbers vary by region. My question is how detailed do you get when having to make adjustments? Standard adjustments are pretty much bedroom, baths, garage spaces. Do you adjust for lot size, location of lot in subdivision or neighborhood, amenities in neighborhood, DOM in stable market, etc?

I'll adjust for the first group and then lot size, depreciation for older sales in heavily depreciating markets, location (golf-course, lake view, etc.), SqFt, year built (if relevant), etc.

Originally Posted By: jbt4re
When does it start to cross the line into appraisal?

The number of adjustments you make is not what determines whether you have an appraisal or not. The purpose of the report determines when something becomes an appraisal, and that's going to vary state-by-state. In TX, I don't need an appraisal license to perform an appraisal if the transaction is not a federally related transaction. Also, I can give an opinion of value if it is not referred to as an appraisal and is done in the ordinary course of business (defined by Texas as recommending a list price or purchase price of a property). There's nothing that states if you make X number of adjustments, poof!--you have an appraisal.

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#310317 - 10/19/09 10:12 PM Re: Adjustments Question [Re: northtxbroker]
shana Offline
Major Contributor

Registered: 11/07/07
Posts: 1602
Loc: Nevada
generally you should adjust for differences in lot size, condition, room count, GLA, etc. it's considered an appraisal when you say it's an appraisal and it's performed in accordance with USPAP...so for a BPO it's a good practice to say it's NOT an appraisal.


Edited by shana (10/19/09 10:15 PM)

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#330998 - 03/13/10 03:05 PM Re: Adjustments Question [Re: jbt4re]
Don Price (Pine) Offline
REO-BPO-R.E. Mod
Major Contributor

Registered: 03/12/08
Posts: 3330
Loc: Pinehurst, NC
I am not mocking Vermont, more like issuing a warning to some of our newer members and the less experienced. Vermont's price schedule probably will not work in your area. Read Vermont's comments - they actually explain things well as far as he goes. but it is somewhat reflective or similar to lists even appraiser's maintain.

Originally Posted By: Vermont
....., just for the fun of it, and so that other people will have something to mock:

Additional GLAAG = $80 per SF
Additional GLABG = $50 per SF
Add'l Bedrooms = $2000 each
Full Baths = $3000
Half Baths = $1500
Fireplace = +/- $3000
Private Well or Septic $3000 to $5000 each
Decking = $1000 per 100 SF
Garage Stalls = $6000 per Stall
Acreage $2000 per Acre, or 50 per SF
Flood Zone = $20,000
Year of Construction = $800 per Year
Private Road = $5000 per 100 Running Ft
Quality of View = +/- $5000
Quality of Construction = +/- $10,000
Architectural Appeal = $15,000
Functional Utility = +/- $10,000

and apply the same adjustments to the Comps in that Report, where necessary. I would use a higher or lower schedule IF I was dealing with a much better, or lesser quality neighborhood. The schedule breaks down when Comps have to be drawn from dis-similar neighborhoods.

Does that help ? Use ONLY the ones that actually apply to your Comps . . . . Not All!

Originally Posted By: Virginia Broker
I want to be as accurate as possible

Admirable; but remember, a BPO is only an "Opinion". Opinions cannot be Accurate, Right or Wrong . . . . because you're entitled to your own opinion. Adjustments usually just help you arrive at an opinion which might be more reflective of "Your" Market and the values that the other Actors in your Market place on these differences among properties.


Without giving away the farm - this might warrant a new thread - again, There is so much more that makes the use of any list a noose when applied in an untimely manner.

This thread seemed appropriate enough, so now can people add to the foundation from this point????

I even noticed shana gave accurate info - lol.
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#331014 - 03/13/10 07:38 PM Re: Adjustments Question [Re: Don Price (Pine)]
OverTheEdge Offline
Veteran Member

Registered: 08/24/08
Posts: 1008
Loc: Middle of Ohio
OK this is over simplified but here is the basic point I start from. Subject is the base - if the comp you use is different from the subject adjust the comp. Lot size, number of bedrooms, number of baths, sq ft, garage spaces, basement. I even adjust if the subject is located on a busy corner, has a tiny back yard, crappy floor plan too. I am fighting an appraisal right now - my bpo is $20,000 less then the appraisal - house is in a flood plain but I used comps that also were in flood plains - some houses in the subdivision are not in a flood plain and some are. Flood insurance just for the structure starts at $450 a year and goes up to $1700. I say that effects value and I told the AM to check the appraisal - are all of his comps in a flood zone? Anything that the subject has that the comp does not adjust and then the reverse - if the comp has something the subject doesn't adjust. I hope that helps.
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#331015 - 03/13/10 09:02 PM Re: Adjustments Question [Re: OverTheEdge]
Don Price (Pine) Offline
REO-BPO-R.E. Mod
Major Contributor

Registered: 03/12/08
Posts: 3330
Loc: Pinehurst, NC
Originally Posted By: OverTheEdge
OK this is over simplified but here is the basic point I start from.

Subject is the base - if the comp you use is different from the subject adjust the comp. Lot size, number of bedrooms, number of baths, sq ft, garage spaces, basement. I even adjust if the subject is located on a busy corner, has a tiny back yard, crappy floor plan too.

I am fighting an appraisal right now - my bpo is $20,000 less then the appraisal - house is in a flood plain but I used comps that also were in flood plains - some houses in the subdivision are not in a flood plain and some are. Flood insurance just for the structure starts at $450 a year and goes up to $1700.

I say that effects value and I told the AM to check the appraisal - are all of his comps in a flood zone? Anything that the subject has that the comp does not adjust and then the reverse - if the comp has something the subject doesn't adjust.

I hope that helps.


Edge - I agree:

Start with a subject.
Adjust the comparable.
Adjust for "Lot size, number of bedrooms, number of baths, sq ft, garage spaces, basement. I even adjust if the subject is located on a busy corner, has a tiny back yard, crappy floor plan too." Most times I adjust for more then that, how about you?

The rest is kind of where I am lost. I agree - homes in flood zones in the same proximity and with the same characteristics would be best. Were you comps close in proximity, within 15%+- of all characteristics - or max of 20% or less in 1 or 2 adjustments / price?

$20,000 may be a big difference or it may be typical - depending on the average sale of properties that are good comps. What are we talking about, a $60,000 home or a 856,523.27 home?

I'm not sure what the cost of insurance has to do with anything - but if you can convince the grader, more power to you.

I also do not think you meant to say: "Anything that the subject has that the comp does not adjust and then the reverse - if the comp has something the subject doesn't adjust." [Anything that the subject has that the comp does not adjust {adjust the comp}, and then the reverse {{?} Nope - not going to do that} - if the comp has something the subject doesn't adjust {{?} meaning adjust the comp} Never a reason to adjust the subject - right??

Question for forum members - how do you adjust for .5baths, baths, bedrooms, room count & sq'? Everyone is welcomed to explain how you do it - no 2 will be identical - so don't worry wink
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Don Price
Pinehurst, NC

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#331018 - 03/13/10 10:01 PM Re: Adjustments Question [Re: Don Price (Pine)]
Analog Man Offline
Major Contributor

Registered: 07/22/07
Posts: 1970
Loc: Tampa Bay
Originally Posted By: Pine
Question for forum members - how do you adjust for .5baths, baths, bedrooms, room count & sq'? Everyone is welcomed to explain how you do it - no 2 will be identical - so don't worry wink


I was taught in appraisal school which was later confirmed by my supervisor appraiser that you should never adjust for GLA and at the same time for bedroom count. Meaning if the subject is a 2/1 1,000 GLA home and you have a 3/1 comparable at 1,150 GLA, you either adjust for GLA or for bedroom count, but not both. That (in this case) is known as a double negative adjustment which is incorrect. I have followed that protocol since day one, and have never been questioned because of it.

BTW, I did hold my FL appraisers license from 2004 to 2006, but let it expire for various reasons as I have explained in the past here on the MB.
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Music is the only sensual pleasure without vice. (Samuel Johnson, English Poet 1709-1784)

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#331020 - 03/13/10 10:30 PM Re: Adjustments Question [Re: Analog Man]
Don Price (Pine) Offline
REO-BPO-R.E. Mod
Major Contributor

Registered: 03/12/08
Posts: 3330
Loc: Pinehurst, NC
So Brad - what if your subject is a 3/2.5 3,000' home across the street from a comp that is a 4/2.5 2695'?? For this purpose everything else is identical. Subject and comp are typical for subdivision.

Anyone - Brad - How would you adjust this.


Then the next Subject is a 2/2 1300' and the home next door is a comp that is a 3/2 1168'?? For this purpose everything else is identical. Subject and comp are typical for subdivision.


Include the reasoning behind the adjustments smile


OK - To help complete the circle - what if the subject is a 2/1 1345', and the comp next door is a 3/2 1205'?? Everything else is identical and typical for the subdivision.

Adjust what, and why smile


Been there done that - got the worn out t-shirt wink

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Don Price
Pinehurst, NC

Pinehurst NC Real Estate | Fayetteville Real Estate | Blog | Join active|rain

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#331022 - 03/13/10 10:47 PM Re: Adjustments Question [Re: Don Price (Pine)]
OverTheEdge Offline
Veteran Member

Registered: 08/24/08
Posts: 1008
Loc: Middle of Ohio
Sorry Pine - made sense in my head - but I did mean adjust the comps - not the subject.
Maybe I am wrong about flood insurance but here is how I see it. This is an reo property, most likely buyer is a first time buyer. If you are looking at two similar houses in the same subdivision - one needs flood insurance and one does not - which one do you pick? If you have to pay the minimum flood insurance which would be $450 a year - or $ 37.50 a month - that eats up $8000 worth of a buyer's buying power. If you want to be competitive with the houses that don't need flood insurance then it needs to be priced lower. I am looking at it from a buyer's perspective - and I know one house down the street needed flood insurance for $1400 a year. I really think it makes sense - am I wrong?
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#331023 - 03/13/10 11:04 PM Re: Adjustments Question [Re: OverTheEdge]
Don Price (Pine) Offline
REO-BPO-R.E. Mod
Major Contributor

Registered: 03/12/08
Posts: 3330
Loc: Pinehurst, NC
Wow, you really thought this out. Assuming( wink ) your numbers are correct - is it your thought you need to adjust for the $8,000?

Then my questions are, what if they are a cash buyer? Do we also check credit scores to see what a buyer may qualify for? Do we need to check mortgage rates for the day we complete a BPO??

If not, then why would there be an adjustment for the cost of insurance??

Now there are issues in location you probably need to adjust for but, it is still better to get comps in the same flood zone and close in proximity, if possible, IMHO.

You can also go back several years and get an average percent of difference between in & out of the flood zone, during the same time periods, and apply that as a location adjustment to the comps. Again, nothing beats a heads up comp with little to no adjustments, and I have never had even 1 wink
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Don Price
Pinehurst, NC

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#331024 - 03/13/10 11:13 PM Re: Adjustments Question [Re: Don Price (Pine)]
thereoguy Offline
Member

Registered: 08/12/09
Posts: 130
Loc: USA
Here's some ballpark adjustments that we use, but they vary greatly depending on the property. For example, the adjustment for 1 level variance in condition is far greater for two homes priced around $300K (one average, one good) than it does for two homes priced at $40K (one fair, one poor). Likewise, 100 sq ft variance on a couple 3000 sq ft homes has much less impact than 100 sq ft on two 1000 sq ft homes. That being said, here's our general guidlines.

GLA- Divide the price per sq ft by 3 and multiply by the variance. (Trick a local appriaser uses)

ie- Subject is 1000 sq ft. Comp 1 is 900 sq ft and has a price per sq ft of $90/sq ft. Multiply $30 x 100 = $3000 adjustment

Age- $200 per year, more or less depending on the age of the property. Generally no adjustments for properties over 60-70 years old.

Rooms- $1000 per bedroom, $1500 per 1/2 bath, $3500 per 1 bath

Lot size- No adjustment for >1/2 acre variance, after that we, in large part, use some percentage of the assessed land value. (Not a very sientific method I know.)

Garage- $5000 full, $2000 per extra space
Fireplace- $1500-3000
Pool-$1500-3000
Patio/Deck-$1000-1500

Condition variance- $5000 per level (very generic rule)

All of these are held to very loosly because the reality is that each of these things has a very different impact on the value of a nice $300,000 suburban home and a $40,000 craphole.

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#331026 - 03/14/10 12:12 AM Re: Adjustments Question [Re: Don Price (Pine)]
Analog Man Offline
Major Contributor

Registered: 07/22/07
Posts: 1970
Loc: Tampa Bay
Originally Posted By: Pine
So Brad - what if your subject is a 3/2.5 3,000' home across the street from a comp that is a 4/2.5 2695'?? For this purpose everything else is identical. Subject and comp are typical for subdivision.

Anyone - Brad - How would you adjust this.


I personally put more weight on GLA than bedroom count. The only exception to that would be if the property is located in a tenant dominated neighborhood, where the subject's primary value is based on rental income. Thus I would give the comparable a $18,300 upward adjustment for having less GLA based on $60/sqft.

Originally Posted By: Pine

Then the next Subject is a 2/2 1300' and the home next door is a comp that is a 3/2 1168'?? For this purpose everything else is identical. Subject and comp are typical for subdivision.


An upward adjustment of $6,500 based on $50/sqft given the same reasoning as example number one. Again, this is assuming the subject is in an owner occupied dominated area. It is my experience that the larger two bedroom homes have larger bedrooms, thus equally outweighing the smaller three bedroom home due to smaller rooms. An exception would be if the subject is one of the few 2/2s in the area, if so the house has a functional obsolescence for the neighborhood that needs to be addressed and commented on.



Originally Posted By: Pine

OK - To help complete the circle - what if the subject is a 2/1 1345', and the comp next door is a 3/2 1205'?? Everything else is identical and typical for the subdivision.

Adjust what, and why smile


Based on $50/sqft, a $7,000 upward adjustment is being used with this comparable due to having less GLA. A $5,000 downward adjustment however is also being implemented with this comparable due to having a second full bathroom.

Obviously all my adjustments mentioned in this post are just general adjustments and thoughts, as the amount of an adjustment for GLA or bathroom count will vary tremendously depending upon local market conditions, and the general characteristics of the subject's neighborhood and its conformity.

BTW - Mills would love all those comps no matter what due to their proximity to the respective subject properties wink
_________________________
Music is the only sensual pleasure without vice. (Samuel Johnson, English Poet 1709-1784)

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#331029 - 03/14/10 12:59 AM Re: Adjustments Question [Re: Analog Man]
Don Price (Pine) Offline
REO-BPO-R.E. Mod
Major Contributor

Registered: 03/12/08
Posts: 3330
Loc: Pinehurst, NC
Wow Brad - pretty detailed - I was thinking more in theory rather then working out a problem, but cool. I know this is helping many newbies.

Anyone see anything different or see any other considerations to be dealt with and accounted for?
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Pinehurst, NC

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