Be prepared for the future changes coming with the appraisal industry. No more will a leap of faith in adjustments be acceptable.
USPAP requires that the appraiser shows evidence in their work file supporting the analysis and conclusions.
Today this is a problem because, without evidence of the1004 form underwriters don't have any supporting analysis for these major final conclusions.
This program shows how the adjustments are calculated and will help the public and users of appraisals to understand this clearly. This program will save appraisers hundreds of hours of analytical work per year and help them provide better property evaluation services.
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Explanation of Appraisal Tool
This appraisal tool helps establish the market break down of the key components used throughout the appraisal analyzing for known variations. Such as, what to use for the size of the subject site in comparison to the others used in the appraisal process? This, plus the (GLA) Gross Living Area above grade and below grade finished area, are all physical numbers and must be accounted for.
By applying an adjustment developed within the market data used in the appraisal, these components can be correctly taken into the analysis process with absolute confidence of reflecting the local market and its influence on value components used in the appraisal.
These analysis adjustments for Lot, GLA, and Basement Finishing, have gone pretty much unexplained to any readers of the report, whether it be underwriters, investors buying the mortgage or the property owners who all desire a professional and educated answer.
By statistical analysis of the comparables an appropriate adjustment can be concluded which leaves the remaining somewhat abstract adjustments clearer to make with stronger supporting evidence to their true contributory value.
By observing the pictures on the comparables, now typically available with numerous interior and exterior views, the appraiser can see the condition and quality of construction of these in comparison to the subject and how it may affect the age due to updates and remodeling.
USPAP requires appraisers to use market driven data for the adjustments and to provide evidence as to these adjustments.
All professional valuators encompass statistical analysis in their research for estimating the value of the required items. Stockbrokers, Insurance Companies and Investors all have become aware of and rely on this tool for the value of items.
Before making any analysis, both the concessions and time/market adjustments must be made.
The land value adjustment is based on the square footage of the site which is converted into a unit value by applying a well recognized land technique method known for estimating excess land value between similar lots. This method works as follows: the first quarter of site is valued at 40%, second quarter at 30%, third quarter at 20% and the final quarter of the site at 10%. This 10% is converted into a unit value through the analysis and then applied to the comparables as a positive or negative depending on whether the subject is superior or inferior to the comparables.
Value adjustment is based on the breakdown of the total real estate into percentages for the six basic components: Land, Masonry/foundation, (GLA) Gross Living Area above grade, Basement Finishing, Garage & its foundation, and Miscellaneous. These components are all interactive with typical market ranges to reflect and adjust for the market.
The values that are abstracted are from the subject's market itself and reflected in a unit value based on size.
Miscellaneous has been further broken down to both interior amenities and exterior amenities. Interior amenities would be fireplaces, extra bathrooms, air conditioning and any other amenities within the structure. The exterior amenities include landscaping, driveways, decks, patios, porches, and outbuildings.
By applying this statistical method to the subject's GLA the square foot adjustment becomes obvious for use in the appraisal.
Also a basement finish adjustment per square foot is available if needed.
After analysis and entering these adjustments the appraiser can now make any remaining adjustment to the appraisal.
Conclusions are formed and adjustments to the values of the subject’s improvements and its site can be made. Then for supporting analysis enter the adjusted values on the comparables for further evidence of the value.
This method is based on the comparables used in the appraisal. and takes into consideration only the difference for the square footage above grade. The formula is market derived by taking the mean or average of the price paid per square foot of the comparables and using 25- 35% of that to represent the contributory value for differences in living space in my market. To determine appropriate price per square foot to be used in the adjustment one must first make reductions for the following which typically come to 65-75% and are addressed independently and adjusted elsewhere in the sales grid.
They are the land value, all improvements below grade, and all other improvements outside of the actual house structure.
The method is roughly 25-35% for land value, approximately 10-20% for foundation, and depending on quality 0-10% for interior finishing of lower level, again depending on quality and design 0-15% for garages, with remaining 0-15% for miscellaneous amenities which would include any other type of amenity which is individually adjusted for in the grid.
Note: All ratios are based on the comparables used in the analysis and must total 100%
The difference between reproduction cost new or replacement cost new of the improvements and the present worth of the improvements, both measured as of the date of the appraisal. In measuring accrued depreciation, the appraiser is interested in identifying and measuring the loss in utility experienced by the subject structure in its present condition, as compared to the utility it would have as a new improvement representing the highest and best use of the site. Accrued depreciation is sometimes referred to as diminished utility and inherently includes all aspects of physical, functional, and economic depreciation both curable and incurable directly through the market.
Modifications for known adjustments used in the square foot, basement finishing, baths, fireplaces, garages, decks, porches, heating and air conditioning, effective age, and lot size and lot amenities. Only two other main adjustments are left, the quality of construction and condition which both are residual driven and based on experience, knowledge and observation.
Excellent training tool for new appraisers.