Adjustments to Comparable Sales – How to Determine an Accurate Value for the Subject (Part 3)

Lot Size: Adjustments for lot size are required when the comparable properties are outside of the following guidelines -

If the comparable lot size is smaller than the subject’s lot, the adjustment will be positive. If the comparable lot size is larger than the subject’s lot, the adjustment will be negative. Lot size adjustments should be based on average price per acre in the subject’s immediate market area. If a comparable is located outside of the subject’s immediate area and different land values command a different adjustment amount than the other comparables, an additional comment is required.

Location: If comparables are located outside of the requested guidelines (Standard recommendations are: 0.5 mile in urban areas, 1 mile in suburban areas and 5 miles in rural areas.), a comment is required to explain the similarity of these locations. If these locations vary in property values from the subject’s location, and adjustment is required to explain and reconcile that value difference. If the subject or comparable is located in close proximity to: commercial buildings, railroad tracks, freeways or other items that impact value, adjustments should be made to compensate for these differences. The amount of the adjustment will vary from location to location so knowledge and research of sales and listings in these areas is integral in deciding the appropriate amount.

View: If comparables have a different view than the subject (other houses vs mountain vistas) an explanation is required to explain if it will influence the price of the property positively or negatively. If the view does impact the value, an adjustment is required to explain and reconcile this difference.

Condition: If comparables are in different condition than the subject, an adjustment is required for the superior or inferior condition as compared to the subject property. Please see our blog entry on Calculating Repair Costs (Cost to Cure) for details on calculating accurate condition repair costs that aide in determining adjustment amounts. Don’t forget to include adjustments for any major upgrades or remodels that affect resale values.

Above Grade Room Count: Adjustments should be made when comparables are outside of the following guidelines -

The amount of these adjustments depends on the subject’s market and how much value an addition bathroom holds to the buyers in that area. Different markets with different buyers and different expectations drive the adjustment amount for these items, so knowledge of the local market is integral in deciding the appropriate amount.

Above Grade Living Area: Adjustments should be made when comparables are outside of the following guidelines -

A general guideline for determining the GLA adjustment for an average property is 35% of the average price per square foot. Simply take the average of sold comparables’ price per square foot and multiply by 0.35 (which is 35% of their average price per square foot). Now, take that answer and multiply it by the difference in GLA and you have the adjustment amount.

Basement (Below Grade) Square Footage: Adjustments should be made when comparables are outside of the following guidelines -

The below grade adjustments are typically about 50% of the above grade adjustment depending on the area. This means that a fully below ground basement area would likely receive an adjustment for roughly 17.5% of the sold comparables’ average price per square foot. Simply take the average of sold comparables’ price per square foot and multiply by 0.175. Now, take that answer and multiply it by the difference in below grade areas and you have the adjustment amount. This area of our form can also include the adjustments for additional below grade finished rooms. If the adjustment amount in this part of the form includes the per square foot adjustment + the room count adjustment, comments are required to explain the large adjustment amount.

Garage/Carport: Adjustments should be made for parking amenities when the comparable has more than +/- 1 stall OR the style of the garage is varied from the subject to the comparable (attached garage vs detached garage vs carport). The amount of this adjustment is driven by the value of covered parking within the subject’s immediate market area.

Porches, Patios and Decks: Comments should be supplied to explain if these features add or detract value. If these items are present and they do create a value difference, adjustments are required.

Pool/Spa: If a comparable is superior or inferior the subject property in pool or spa amenities, an adjustment is required. The amount of this adjustment depends on the market value of such items in the subject’s immediate market area.

Other: If there are any other items that do not fall into the other categories mentioned, add those notes and adjustments under the Other category. Items that are typically included under Other include but are not limited to: outbuildings, fireplaces, heating and cooling types, seller concessions, adjustments for market changes, fences and any other items that are present that affect value.

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About saraschlosser

Sara Schlosser is the Community Manager at InsideValuation.

3 comments

  1. Question: what is the source of these ‘guidelines’? Who has developed these?

    • These guidelines were developed by the National Association of BPO Professionals (NABPOP) in their BPO Standards and Guidelines. Additional supplemental information was taken from USPAP, Fannie Mae and various appraiser forums.

  2. Thanks. The reason I ask is I have a lender trying to enforce them on appraisal issues, and I wasn’t able to reference them in any Fannie documentation.

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