• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Sacramento Appraisal Blog | Real Estate Appraiser

Real estate appraisals for divorce, estate settlement, loans, property tax appeal, pre-listing and more. We cover Sacramento, Placer and Yolo County. We're professional, courteous and timely.

  • About
  • Appraisals
  • Order
  • Ask Ryan
  • Areas
  • Classes
  • Press
  • Trends
  • Share
  • Contact

canned adjustments

4 questions to ask when giving real estate value adjustments

December 8, 2015 By Ryan Lundquist 16 Comments

Let’s talk about adjustments. Last month I wrote about being a trigger-happy real estate adjustment giver, and I had some great feedback. One appraiser told me she is going to stop adjusting for some of the very minor stuff like fireplaces and covered patios, and an agent told me his list of adjustments was basically the one I shared as an example of what not to use. It’s great to hear of growth like this, and I love the honesty, yet I think anytime we start talking about adjustments, it can also make us feel insecure because we begin to question everything we are doing. So for the sake of growth and conversation, let’s kick around the topic a bit more. I’d love to hear your take in the comments (or send me an email).

giving real estate adjustments - by sacramento appraisal blog - image purchased and used with permission from 123rf dot com

4 questions to ask when giving real estate value adjustments

Does the adjustment represent how buyers behave? When valuing a property, we adjust the comps when there are value-related differences compared to the subject property. The adjustments are not about what one buyer would pay, but rather what a representative buyer in the market might pay. In other words, if you lined up a group of 100 interested and qualified buyers, and they would pay a difference for that certain feature, we then adjust by that difference. Remember, there is always going to be one buyer who is going to love a feature, and pay way more because of it, but we have to ask, “How much is the market going to pay for this?” Example: House shaped like Darth Vader’s light saber.

Does the adjustment seem reasonable? Take a step back from the adjustment you are giving and just ask, “Is this reasonable?” If you’re giving a $500 fireplace adjustment, does that really seem like a reasonable adjustment, or is it purely made up? Does a $10,000 location adjustment for the busy street really represent what the market is willing to pay? Or does a $25,000 condition adjustment between the fixer and remodeled home make reasonable sense? This is a big question to filter our adjustments through, and I recommend getting into the habit of asking it. By the way, I find sometimes when it comes to condition, the adjustment might be more like 20% instead of $20,000.

Is the adjustment supported? It’s easy in real estate to pull out a list of canned adjustments and start giving them whenever we see any difference between a comp and the subject property. So we see a built-in pool and automatically give a $10,000 adjustment for the difference. Yet we need to do some research in the neighborhood. Is there a price difference between similar homes with and without pools? At times our canned adjustment at $10,000 might actually make really good sense, so it’s perfect to use, but other times we might see a different story of value. It’s easy to get stuck giving that $10,000 adjustment in every case, but this is where we need to let the market speak to us. Research the sales and let them set the tone. This means the adjustment might look different in each valuation. Maybe you’ll have no adjustment at all for a pool if there really isn’t a discernible price difference, while other times you might adjust twice as much as you normally do because the pool is something special and it looks like buyers paid a premium for it. Remember, the goal ought to be to find other homes that actually don’t need any adjustments at all because they are truly comparable. I know that’s a fat chance, but keep that in mind.

Does the adjustment fall in the range of value? As much as we’d like to think there is one perfect and precise adjustment out there to give, it’s most likely we will see a range of value emerge. For example, if we surveyed a neighborhood and found homes with built-in pools were tending to sell between $8,000 to $15,000 higher in price, we have to make a decision. What should the adjustment be in the case of the subject property’s pool? If it’s an older pool, maybe we end up giving a value adjustment closer to $8,000. But if it is a higher quality newer pool we might reconcile the adjustment closer to the top of the range.

I hope this was helpful.

Questions: What is question #5? Anything else to add?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Share:

  • Click to share on Twitter (Opens in new window)
  • Click to share on Facebook (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)

Filed Under: Appraisal Stuff, Resources Tagged With: appraisal group in sacramento, canned adjustments, growing in real estate, Home Appraisal, House Appraisal, house appraisers in Sacramento, how appraisers make adjustments, how appraisers work, how to give adjustments, pool adjustment, real estate adjustments, reasonable, Sacramento Appraisal Blog, sacramento appraisal group, the market

Being a trigger-happy real estate adjustment giver

November 3, 2015 By Ryan Lundquist 8 Comments

It’s easy to get trigger-happy with making value adjustments. Appraisers do this and so do agents. This means whenever we see a difference between two homes, it’s tempting to give some sort of value adjustment. After all, there has to be one, right? Let’s talk about that.

being trigger happy with real estate adjustments - sacramento appraisal blog

My List of Adjustments (that I used to use): First off, here is the list of adjustments I used to give when I first came into the appraisal industry many years ago. Please DON’T blindly use these adjustments or any list of adjustments (unless they make sense to use). I’d like to say I was giving these adjustments because they were market-derived, but I was really giving them because that’s what I was taught to do. Are these legit?

the adjustments I used to give - please do not use these

The Problem: The problem with a list of adjustments is they won’t make sense for every house, price range, neighborhood, or market. Will the adjustments be the same at $100,000 as they would at $1,000,000? Nope.

Adjustments I would’ve given years ago: I did a condo appraisal recently, and here is an example of what my appraisal might have looked like years ago (unfortunately).

example of adjustments - do not use these - sacramento appraisal blog

I adjusted $5000 to Comp 2 for being located on the first floor since the subject is upstairs (it’s noisy on the first floor, right?). I also adjusted $500 for each year of age difference, a $30 per sq ft for square footage, and $5000 for the subject having a garage. What’s wrong with these adjustments though? Well, first off they are all made-up. Maybe they work, maybe they don’t. How do I know there is an issue with the adjustments in this case? Well, all other competitive sales besides the ones here are around $125,000, and the canned adjustments I gave make my comp adjust out to $136,500. That’s a tell that something clearly isn’t right. Most of all, let’s keep it simple. Do buyers really pay $500 for each year of difference in the age? Or do buyers really pay $5000 for the difference between upstairs and downstairs? In this case probably not.

Here are the adjustments I actually gave:

example of adjustments - do not use these - sacramento appraisal blog 2

Why I gave no adjustments:

  1. Square Footage: The slightly different square footage really didn’t matter for the value. As I compared the 836 model and 890 model, they were selling at about the same price. I know this is a minor example, but there is a very real temptation to try to fill any difference with a value adjustment because it seems like there should be one. Yet sometimes the best thing to do is give no adjustment if that’s what it seems the market does. See this graph to compare both models (pay attention to the most recent sales). A similar instance is when we see an open floorplan at say 1500 sq ft compete very readily with a larger boxy floorplan that is maybe closer to 1700 sq ft. Our initial instinct might be to think the 1700 sq ft home is worth more, but sometimes we have to look at the market and let the market speak to us about value instead of bringing in adjustments right away.
  2. Garage Adjustment: It’s understandable to make garage adjustments any time we see a difference in garage count, but in this case properties with and without a 1-car detached garage were selling at about the same level. It’s easy to bust out a knee-jerk $5,000 or $10,000 garage adjustment, but in this case the garages were far away from the actual property, so occupants were using their nearby carports for parking instead, which seemed to lessen the value of the garage. The garage was probably still a marketing point, but I couldn’t justify giving a canned adjustment, so I didn’t give one.
  3. The Big Picture: All the comps adjusted out to $125,000 to $127,000 whether they were slightly larger or smaller and whether they had a garage or not. In this case I reconciled the value to $127,000 because the subject property was on the second floor (generally more appealing) and it did have a garage (still a marketing point). I didn’t give any actual adjustments in the report, but in a sense I adjusted for the value of the components in the final reconciliation since a buyer would consider the subject property as more of a complete package, and thus pay toward the higher end of the market range.

Three Takeaways: 

  1. Would Buyers Make this Adjustment? I know the example above is an easy one, but even when a property is challenging we need to still ask the basic question of whether a value adjustment makes sense or not. If you lined up a group of interested and qualified buyers, would they really make the adjustment or not? One of the best ways to know is to begin digging into neighborhood sales. We might hear an owner say, “I paid $70,000 for the rear landscaping, so the adjustment is $70,000.” The key would be to find homes that are similar with decked-out landscaping. When sales already have similar features, they tell us what the market has been willing to pay. What we don’t want to do is guess by using only homes with very average landscaping. This is when we start to say, “Well, I think the adjustment is probably $15,000 or $20,000”. Maybe, maybe not. What have properties with similar features actually sold for?
  2. Focus on the Big Stuff: I recommend not giving small adjustments and instead focusing on the bigger items that probably drive value more such as square footage, condition, upgrades, market conditions, and location. Let’s not get bogged down giving $500 fireplace adjustments, $500 year adjustments, and $1000 covered patio adjustments.
  3. Your Canned List: It’s easy for any of us to get into a habit of giving canned adjustments. If you have a list of adjustments you tend to give, next time you are giving them, ask yourself if the market really behaves that way. If not, maybe it’s time to stop giving them?

Speaking at AI: I actually got to speak on a panel at the Appraisal Institute’s Fall Conference in San Francisco a few weeks ago about this very topic. What an honor!

me speaking at AI in SF

I hope this was helpful (I promise not all posts will be longer like this).

Questions: What else would you add? What is takeaway #4?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Share:

  • Click to share on Twitter (Opens in new window)
  • Click to share on Facebook (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)

Filed Under: Appraisal Stuff, Resources Tagged With: appraiser in Sacramento, boiler plate, canned adjustments, example of adjustments, giving adjustments, home appraisers, little black book of real estate, Sacramento appraisals, where adjustments come from, why do appraisers given adjustments

Primary Sidebar

Connect with Ryan

 Facebook Twitter LinkedIn YouTube Instagram

Subscribe to Weekly Post

* indicates required

Search this site

Blog Categories

  • Appraisal Stuff (407)
  • Bankruptcy (3)
  • Divorce (4)
  • Estate Settlement (6)
  • FHA Appraisal Articles (56)
  • Internet (53)
  • Market Trends (476)
  • Photos from the Field (126)
  • Property Taxes (70)
  • Random Stuff (231)
  • Resources (566)
  • Videos (161)

Blog Archives: 2009 – 2021

Lundquist Appraisal Links

  • Appraisal Order Form
  • Appraisal Website
  • Rancho Cordova Appraiser Website
  • Sacramento Appraisal Blog Sitemap
  • Sacramento Real Estate Appraiser Facebook Page
  • Twitter: Sacramento Appraiser (@SacAppraiser)
  • YouTube: Sacramento Appraiser Channel

Most Recent Posts

  • My new sewer line adds huge value, right?
  • The housing market nobody predicted
  • Real estate trends to watch in 2021
  • You carried me & a spreadsheet for Christmas
  • Real estate drama (and a market update)
  • Goodbye California. Is everyone leaving?
  • How much are buyers paying above the list price?
  • What would happen to the housing market if we went on lockdown again?
  • Overpricing, multiple offers, & hot ranges
  • Why your home isn’t worth 16% more today

Disclaimer

First off, thank you for being here. Now let's get into the fine print. The material and information contained on this website is the copyrighted property of Ryan Lundquist and Lundquist Appraisal Company. Content on this website may not be reproduced or republished without prior written permission from Ryan Lundquist.

Please see my Sharing Policy on the navigation bar if you are interested in sharing portions of any content on this blog.

The information on this website is meant entirely for educational purposes and is not intended in any way to support an opinion of value for your appraisal needs or any sort of value conclusion for a loan, litigation, tax appeal or any other potential real estate or non-real estate purpose. The material found on this website is meant for casual reading only and is not intended for use in a court of law or any other legal use. Ryan will not appear in court in any capacity based on any information posted here. For more detailed market analysis to be used for an appraisal report or any appraisal-related purpose or valuation consulting, please contact Ryan at 916-595-3735 for more information.

There are no affiliate links on this blog, but there are three advertisements. Please do your homework before doing business with any advertisers as advertisements are not affiliated with this blog in any way. Two ads are located on the sidebar and one is at the bottom of each post. The ads earn a minor amount of revenue and are a simple reward for providing consistent original content to readers. If you think the ads interfere with your blog experience or the integrity of the blog somehow, let me know. I'm always open to feedback. Thank you again for being here.

Copyright © 2021 Sacramento Appraisal Blog