Appraisers and real estate agents often ask what adjustments I use and/or how I support my adjustments. The answer is that most properties require a different adjustment that is specific to its market (e.g. size, location, condition, etc.) and there are many different ways to support any individual adjustment. No one method for supporting adjustments is perfect. Appraisers should select the method or methods that will produce credible results for the given assignment and available data.
I recently appraised a roughly 1,200 square foot 1970s ranch home on a city-sized lot in a Portland suburb wherein the quantity and quality of the available data was particularly good. For this reason, I was able to have a little fun and support my appraisal adjustments for this one assignment in many different ways. Here are the multiple approaches and real data for supporting my Gross Living Area (GLA) adjustment. (Information that may identify the subject or comparable sales have been redacted for confidentiality.)
Simple Linear Regression
Indicated GLA Adjustment
$51 or $60
0.00648 or 0.0082
None of the above methods for supporting an adjustment are without limitations and there are many more ways an appraiser could support an adjustment. Although this is an example where data sets are particularly plentiful, the example shows that information does exist outside of textbooks for supporting adjustments; and when multiple approaches are combined and reconciled, a strong case for the appraiser’s conclusion can be made. An appraiser won’t always need to go this far to support one adjustment, but if that one adjustment is crucial to the outcome of the appraisal or the appraiser believes they will be challenged on this adjustment, then the appraiser should expand and explore multiple methods for support.
Did I leave anything out or do you want to join in the conversation? Let me know in the comments below.
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