Are adjustments made when comparing similar sales to your home?

By October 8, 2014Appraisals

In developing an opinion of value, the appraiser considers recent sales of similar properties called Comparables. Rarely are two properties exactly the same, therefore the appraiser must account for differences between the properties that sold and the property being appraised. These differences are called “adjustments.” Adjustments are added or subtracted from the sales prices of the comparable to indicate adjusted sales prices. The adjusted sales prices of the comparables will reflect the probable range of value for the subject.  Some adjustments you’ll see are GLA (gross living area) differences greater than 100 SF (square foot), 1 car garage vs. 2 car garage, varying bathroom counts, quality or condition.appraisal management houses

It’s important to note the cost to complete an upgrade or improvement does not always equal added value to the home. The adjustments are derived from market data that supports what the typical buyer is willing to pay for these differences. A great example of this is an in-ground pool. A typical buyer will rarely pay what it cost to put in, especially in the northern part of the country where they can’t be utilized most of the year. Two very confusing adjustments since implementation of the UAD are those for quality and condition. The UAD requires the appraiser to utilize 1 of 6 options for these two items. Properties must be reported with the most accurate overall rating. This means that the property being appraised and a comparable may both be in overall C3 condition, however the comparable might have some inferior or superior upgrades. Although the overall condition rating is the same, there will be an adjustment to account for the differences in upgrades. In these cases, the appraiser needs to include comments clearly explaining this in the report. Ideally all features and amenities the subject has will be bracketed by the comparables selected. While this is not an appraisal requirement – USPAP, FHA, Fannie and Freddie do NOT require bracketing – it is typically an underwriting requirement for the lender. If bracketing is not possible, the appraiser should explain why in the report.


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