What is the correct order of adjustments that are made in the sales comparison approach?

must adjust for:
1. Property rights conveyed (fee simple, partial interest)
2. Financing terms (interest rate, concessions, down payment - w/ comparables, atypical financing needs adjusted to property)
3. Conditions of sale (Arms-Length?)
4. Expenditure made after purchase (deferred maintenance, roof, etc.)
5. Market Conditions (what, where, when in life cycle, supply and demand, demographics, foreclosure rates, new construction, etc.)
6. Location - huge influence on value since RE is fixed location
7. Physical Characteristics (site, view, design, quality, age, condition, rooms, GLA, GBA, functional utility, porch, garage, heating/cooling type, energy efficiency)
8. Economic characteristics
9. Use/Zoning (parcel allowing 20 units per acre worth more than one that only allows 10)
10. Non Realty Components of value (personal property and business assets - ex) furniture in hotel)

Sets with similar terms

fee simple, bundle, sell, lease, exclusively, Mortgage, Give, will, trust, any, none

Many texts imply that fee simple is the most common form of ownership in residential properties. However, most properties have a mortgage and therefore are no longer held in fee simple. Nevertheless, when we appraise properties that are subject to a mortgage, we typically appraise the fee simple interest; that is, we disregard the mortgage in the appraisal and we appraise the property as if free and clear of the mortgage or any other liens.

Many other properties have leases or some other form of encumbrance. If there is anything that takes away from the complete bundle of rights, an interest is no longer fee simple, but some sort of partial interest. Sometimes these are described as fractional interests.

For example, rights conveyed by a quitclaim deed may or may not include the total bundle of rights to make it equivalent to a fee simple title. In a quitclaim deed the grantor, or conveyor of the rights, simply says I'm going to give you all the rights I have - if I have any rights at all, they are all yours. It is possible that such a conveyance could not be used for a valid comparison in the sales comparison approach.

Generally, however, when valuing partial interests, we discover that the ___________ of a ____________ interest is _______ than the ______ rata share of a fee simple interest.

For example, the value of a 1/3 ____________ may be considerably less than 1/3 of the ____________ value of the property.

For example, let's look at a small chain of five pizza parlors. The properties are owned jointly by three general partners and each has a 1/3 interest. A recent appraisal of the market value of all five properties has been obtained, and the opinion of value was $3,000,000.

We cannot automatically assume that the value of a 1/3 share is therefore $1,000,000. The market value of the 1/3 share would presume a typical purchaser who would be knowledgeable of the facts in the situation.

You must record the type of property rights for the subject and all comparables on the Uniform Residential Appraisal Report (____________). There is a box for this information in the Value Adjustments section, just below the box for location information.

For residences, the entry in this box may be "Fee Simple". But if it is not, note the variance and assign an appropriate value to it, based on data obtained from the market. For example, if Comparable 1 sold for $220,000 but did not include timber rights, you would search for other comparables with timber rights and compare prices. Comparable 2 was nearly identical to 1, and included timber rights. It sold for $250,000. It would be reasonable to conclude that timber rights were worth $30,000.

In the report, you would explain the adjustment for the lack of timber rights on Comparable 1, and that you derived the adjustment by pairing to Comparable 2.

Lenders are ___________ to offer loans _______________ with a mortgage, because homes provide very good security, unlike boats or airplanes for example, because they stay in one location, typically appreciate in value, and have long lives compared with most other assets.

Over the last decade, though, lenders, investors, and the general public have learned that despite these advantages, mortgage loans still carry a great deal of risk, especially in declining markets.

Financing terms typically impact the interest rate or the payment amount of the mortgage.

_________ concessions usually are a _______-time ____________ that can ____________ the sale _________ as well.

For example, in a slow market or with a seller who is anxious to make a deal, various sale concessions may be employed. Perhaps the only way a buyer could afford the property would be to take an FHA loan which requires three points in addition to the down payment. The seller could agree to pay these three points for the buyer. The parties may or may not then increase the contract price accordingly.

Let's assume that the negotiated price was $100,000, and the buyer and seller are both content with that price. To make the deal work, the contract could be amended to read $103,000, and the seller would agree to rebate the three points to the buyer at the closing as a sale concession.

If you investigated this transaction and intended to use it as a comparable sale, you could make a $3,000 adjustment in the sales comparison grid for cash equivalency. Thdis means that it really was a $100,000 sale plus a $3,000 sale concession. In other words, if there had been no sales concessions, theoretically this property would have sold for $100,000.

Suppose the current prevailing interest rate for mortgages is running about 7%. In order to sell the property more quickly, a seller may be willing to pay a sale concession in which they would make a lump sum payment of $5,000 in order to buy down the interest rate from 7% to 5% for the first three years of the loan.

In this example, you would need to make an adjustment for that sale concession, if you used it as a comparable sale. Assume the property sold for $200,000, but that out of that sale price the seller gave $5,000 for a __________________. You would likely subtract $5,000 to equate it to a market value sale of $195,000.

Adjustments for sale concessions are not always made on a dollar-for-dollar basis. Through research and analysis, an appraiser may determine that the sale price was affected by an amount greater than, or less than, the actual cost of the concession. At that point, the appraiser should make the adjustment to the sale price that reflects what the property would have sold for without the concession.

Let's look at what USPAP says about the concept of _______________ ___________:

"A type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser as applicable in an appraisal.

Comment: Forming an opinion of market value is the purpose of many real property appraisal assignments, particularly when the client's intended use includes more than one intended user. The conditions included in market value definitions establish market perspectives for development of the opinion. These conditions may vary from definition to definition but generally fall into three categories:

"1. the relationship, knowledge, and motivation of the parties (i.e., seller and buyer);
2. the terms of sale (e.g., cash, cash equivalent, or other terms); and
3. the conditions of sale (e.g., exposure in a competitive market for a reasonable time prior to sale)."1

Note that this is not a specific definition of value that would be used in an appraisal assignment, nor is it intended to be. USPAP cautions appraisers to use the specific definition of market value that would be applicable in an assignment. For example, for a mortgage appraisal that is to be purchased by Fannie Mae on the secondary market, the appraiser should use Fannie Mae's definition of market value. In another assignment for an ad valorem assessment appeal, the appraiser should use the definition of market value that is used by the local municipality or taxing authority.

FHA addresses the topic of sales and financing concessions in more general terms. In HUD Handbook 4001.1, it states:

"Sales or Financing Concessions. Account for and adjust for any special sale or financing terms, including sales concessions, nonmarket financing terms, points, buydowns, closing terms and swaps/exchanges. The most common scenario involves the seller paying points in the form of settlement help to the buyer. To reflect the amount, adjust the sales price of the comparable sale downwards. Typically this amount will not exceed six percent of the sales price for typical transactions."

In Handbook 4000.1, it says:

"Report the type of financing such as _______________________, FHA, or ___A. etc.
Report the type and amount of sales concessions for each comparable sale listed. If no concessions exist, the appraiser must note "none."
The appraiser is required to make market-based adjustments to the comparable sales for any sales or financing concessions that may have affected the sales price
The adjustments for such affected comparable sales must reflect the difference between the sales price with the concessions and what the property would have sold for without the concessions"

_____________ areas typically go through _______ distinct ___________ of their ________ cycle:

---____________________ - Lots of new construction and development activity, speedy sales, increasing prices, a "seller's market"
---___________________ - Slowing down of new construction, prices remain steady and high, excitement is cooling
---_______________ - Prices start to fall, new construction halts, more existing homes flood the market, creating a "buyer's market"
---_________________________ - Prices have bottomed, sales stagnate, and hopefully the area receives new interest and renewal

An appraiser must determine the boundaries of the area of influence, whether they be neighborhood, district, or market area, surrounding the subject property, in order to decide what other properties can be considered reasonable comparables.

A market area is an area in which other properties effectively compete for the favors of a potential buyer. There are no hard and fast rules. A market area does not necessarily coincide with a town, village, subdivision, or other designated or mapped area.

A market area could be as small as a block or two or as large as a county, a state, or several states. In this context we are considering residential properties. Certain commercial or industrial properties might have a market area that is nationwide or international in scope. Even some exceptional residential properties could have appeal to potential purchasers from all over the country or all over the world. Think of a mansion in Beverly Hills or a private island in the Caribbean.

Because the boundaries of a market area are indeterminate, we have to brainstorm each new assignment and determine what comprises the market area for that specific property. Perhaps a residence in a suburban development is competing with all other properties within a half-hour commute from a city.

A resort home might be competing with other resort properties within a two-hour circle of a main population center. On the other hand, a newly-constructed house may be competing with just a few other new homes in the same development.

We start our quest by proceeding out from our subject property in all directions. If it is an area with which we are not that familiar, this may entail getting in the car and driving around. It could also entail using satellite maps or online mapping programs that give us the ability to view photos of properties from street level. If it is a familiar area, we may mentally make a journey to all four points of the compass and think about what we would pass along the way.

We have to extend our search far enough to include all value-affecting influences. Remember again that some of these are social, economic, governmental, and environmental. This can include a number of different factors.

Once we have satisfied ourselves that we have fulfilled our search requirements, then we can figuratively draw boundaries around the area of influence. That is the market area.

Example: Comparable 1 is located on an arterial highway, while the subject is not. The market recognizes a difference in desirability because of the increased traffic and noise along the arterial highway. Therefore, we must make an adjustment to equalize the properties for location.

We locate another sale, Comparable 3, which is very similar to Comparable 1, except that it is not located on an arterial. Comparable 1 sold for $208,000, and 3 sold for $214,000. The adjustment we will make for the arterial location will therefore be +$6,000; because if Comp 1 was NOT on an arterial, it could be expected to sell for $214,000.

Note: The Uniform Appraisal Dataset (UAD) has protocols for reporting location for the subject and comparables for appraisals prepared for Fannie Mae and Freddie Mac lenders, as well as FHA and VA lenders. Rather than rating location as "Good", "Average", "Poor", etc., the UAD requires that locations be rated as B, N, or A (Beneficial, Neutral, or Adverse) and appropriate descriptors provided. As stated previously, this course is intended to provide general procedures that apply to appraisals for a variety of different intended uses; therefore coverage of the individual protocols of the UAD is beyond the scope of this course.

Each parcel of real property is unique. When initially constructed, houses vary in site, site improvements, quality, layout, and materials employed.

From the moment it is occupied, a house becomes unlike any other. Owners begin customizing and decorating, turning a house into a home. Almost all of the things they do (or don't do) either add to, or detract from, value.

Let's look at the most common physical characteristics of residential property improvements, and investigate how they impact an estimate of value using the sales comparison approach. Specifically, we will cover:

Design and appeal
How to estimate quality
Condition versus age
Counting rooms
Square footage
Basements
Energy efficiencies
Garages and carports
Appliances
Porches, decks and other structures

Here we will make adjustments for any significant differences between the site of the subject property versus the sites of the comparable properties.

On the site adjustment line in the sales comparison grid, we enter the area of the site for the subject and the comparable properties. This area should be stated in appropriate units of comparison, depending upon the size of the property and the typical units of comparison that would be utilized by buyers and sellers in that market area. If it is a large parcel, use acres. If it is a small parcel, then the area could be stated in terms of square feet. (If the appraisal report is prepared using the UAD, there are specific protocols for reporting site sizes in acres versus square feet.)

The actual dollar amount of individual adjustments for differences in the site size needs to be determined by market comparisons. Site sales need to be researched and analyzed. We need to find sales of vacant sites that are similar as possible to the subject property in terms of value-creating forces such as topography, utilities, etc.

Then, through the use of paired data analysis, we can reconcile and isolate site value per acre, or other appropriate unit. This analysis goes beyond simple arithmetic.

Let us assume we've found a representative sample of sales of sites that are similar to the subject property and in the market area. These similar properties are between two and four acres and have been selling at the rate of $30,000 per acre.

Our subject property has three acres. Comparable Sale 1 has two acres. The math tells us that Comparable 1 is inferior and should be adjusted +$30,000 to make it equal to the subject property.

However, the real question is, "How much more would a typical purchaser be willing to pay for the subject property just because it has three acres instead of two acres?" The answer is - probably something less than a full $30,000.

Remember, we're appraising a single-unit residential property, and the site value is a relatively small component of the overall value of the property (in most cases). An adjustment needs to be made to reflect the contributory value of having an additional acre of land. In some markets, this may be significant and in other markets it may make little, if any, difference in the overall value of the real property. An appraiser's analysis of the market will help him or her determine if an adjustment is necessary, and if so, how much.

We may find sales of comparable properties that are very similar, except for a difference in site size, and can then extract the value attributable to difference in site size through a paired analysis. We can also start with comparable properties that have several significant differences and then make adjustments for the other items. Then if there is still a difference in the sale price we can attribute it to the difference in site.

Example: Comparable 1 sold for $240,000 and Comparable 2 sold for $228,000. They were very similar except that Comparable 1 had a three-car garage and four acres of land whereas Comparable 2 had a two-car garage and three acres of land. Through a paired data analysis we are able to ascertain that the contributory value of a three-car garage versus a two-car garage is $4,000.

The difference in sale price between the two properties is $12,000. If $4,000 is accounted for by the difference in garage spaces, the remaining $8,000 must be attributed to the one acre of additional land.

Finally, remember the caveat that we are only supposed to make adjustments for significant differences. For example, the market may not recognize the difference between 3.6 acres and 3.8 acres. If a typical purchaser would not be willing to pay more for the slightly larger lot, then we should not make an adjustment.

Beneath the Site field on the URAR is the View field. Here we will enter the type of view (e.g., mountain, ocean, lake, other houses etc.) Use terms that are as descriptive as possible. There are specific UAD protocols for this form field as well, which involve selecting B, N, or A (Beneficial, Neutral, or Adverse) and then selecting appropriate abbreviations from a computer-generated list.

Views may vary greatly, so it is not always easy to attribute a value. Do your analysis carefully, because views may be worth a great deal. Some buyers may prefer a western view to a southern one. Or a particular city view may be worth more if it includes an extraordinary feature, such as the Golden Gate Bridge or Statue of Liberty.

Of course the view from the subject property or a comparable property can be a negative factor as well. The view might be of the backside of the shopping mall or the nearby landfill.

If you make a substantial adjustment, for example a $30,000 adjustment because of the panoramic hilltop view, then it deserves an explanation. In the comments of the sales comparison approach or in the addendum, go into detail about this view. Be sure to include photographs in the report as well. The same goes for the situation in which we have a negative factor attributable to a view.

List the design, or housing style of the subject property and the comparable sales. Use standard terminology such as ranch, Cape Cod, split-level, etc. If the style is unusual, make an effort to classify it as succinctly as possible. For example, it may be a New England Colonial or a Classical Revival.

Appraisers make adjustments for design and style infrequently, and even then only for cases when a property is significantly different from comparables and its neighbors. These adjustments tend to be highly subjective and hard to separate from other measures such as quality.

However, sometimes it is necessary to use sales that are not of similar design, and you need to explain this in detail in the report. Remember, there is a question now on Page 1 of the URAR that asks "Does the property generally conform to the neighborhood (functional utility, style, condition, use, construction, etc.)?"

If you answer "no" to this question because the subject property is of a non-conforming style, then you need to address this point in more detail. Explain why or why not you made an adjustment for style, and how much of an adjustment you made.

Gross building area (GBA) is different from gross living area (GLA). GLA is used for single-family residences, while GBA is used for 2-4 family properties, as well as some other types of properties. The primary difference between GBA and GLA is that GBA can include finished below-grade area, while GLA does not.

In their Selling Guide, Section B4-1.4-14, Appraisal Report Review: Layout, Floor Plans, and Gross Building and Living Areas, Fannie Mae addresses GBA, stating:

"Gross building area:

is the total finished area including any interior common areas, such as stairways and hallways of the improvements based on exterior measurements.

is the most common comparison for two- to four-unit properties.

must be consistently developed for the subject property and all comparables used in the appraisal.

must include all finished above-grade and below-grade living areas, counting all interior common areas such as stairways, hallways, storage rooms, etc.

cannot count exterior common areas such as open stairways."

Rooms that are below grade are noted separately on the URAR form, and must be finished (having ceiling, walls and floor).

The Fannie Mae Selling Guide states that it is important to be consistent, and compare above-grade area to above-grade area, and below-grade area to below-grade area. Fannie Mae also states that an appraiser may deviate from this approach if the style of the subject property and/or any of the comparables does not lend itself to this type of comparison. In this case, the appraiser must explain the reason why he or she deviated from this guideline, and clearly describe the comparisons that were made.

Example: In some parts of the country with steep terrain, it is very common to find multi-level homes with perhaps two or even three levels that are not fully above grade. It may be difficult to separate out what is valued as basement and what is valued equal to above-grade living area. These living areas and rooms generally add value equal to above-grade area, especially when there is a view. For this reason it is permissible for the appraiser to include the finished living area below grade with the GLA. This would require explanation, and usually you would only do this if there is a good reason - perhaps the floor areas could not easily be separated out from what would be the lowest basement level, from other levels that may also be built into the hillside.

Typically, if there is a finished basement area, we would try to ascertain its contributory value per square foot or per finished room by doing a similar paired sales analysis.

In this category of the URAR form, you note whether the home "fits" with the use for which it was constructed.

Functional utility is defined as

"The ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards; the efficiency of a building's use in terms of architectural style, design and layout, traffic patterns, and the size and type of rooms."

Are the rooms big enough? Are there enough bathrooms? Do you go through a bedroom to get to another bedroom? Are the stairs too narrow to get furniture and people up and down? Is the design appealing? In other words, if it is meant to be a home, would it have inutility that would impact its value as compared to other homes? Determine whether functional utility is adequate or inadequate, or rate it fair, average or good for the subject and all comparables. Enter this information in the URAR form.

If there is a difference in functional utility, do a paired sale analysis to determine a value amount for the adjustment, if possible, and enter it into the grid. The amount of an inadequacy adjustment could possibly be the estimated cost to cure the problem, particularly if the adjustment can't be directly extracted from the market.

Energy-conservation features should be noted in a home, as they can add considerable value. These include solar panels, high R-factor insulation, double or triple-paned windows, and other elements of so-called "green design." Even passive solar features, such as more windows on the south side and fewer on the northern side, can make a difference in northern climes.

A high efficiency furnace would typically be dealt with under the Heating/Cooling line, even though it does have better energy efficiency.

Conversely, a home with single-pane windows and no insulation might also require an adjustment for inefficiency, which can be made on the Energy Efficient Items line or the Functional Utility line in the sales comparison grid.

If the market recognizes no difference in value for energy efficient items (e.g., one house has a high-efficiency furnace and another does not, but both houses sell for the same price) then no adjustment should be made for energy-efficient items.

Note whether the subject and comparables have a garage or carport, and the size (one-car, two-car, etc.). If both the subject and a comparable have garages, note what type they are such as two-car attached garage, two-car detached garage, or two-car attached carport.

Many new houses are being constructed today with three-car garages, though you rarely see three cars stored inside. The extra space is useful for storage and for items such as riding lawn mowers, ATVs, snowmobiles, and boats.

Three-car garages may bring a premium and require a larger adjustment. In other cases, two-car garages may be the norm and a single-car garage may call for a substantial reduction.

The URAR form is completed, in its entirety, by the appraiser. Once the report form is completed and transmitted to the lender/client, the appraiser must retain a copy in the workfile. This workfile copy can be an electronic copy or a paper copy, but it must be a "true" copy, i.e., an exact replica of the report that was transmitted to the client, including signature(s).

The Uniform Standards of Professional Appraisal Practice (USPAP) requires appraisers to identify an appraisal report as an Appraisal Report or a Restricted Appraisal Report by prominently stating which option is used in the report. The Appraisal Standards Board of The Appraisal Foundation has expressed the opinion that the content and detail level of the URAR form is consistent with an Appraisal Report.

The appraiser must provide his or her description and analysis of the neighborhood, site and improvements. The appraiser must provide the lender with an adequately supported opinion of market value and a complete, accurate description of the property. The sales comparison analysis should include at least three other comparable properties, and should provide specific sale or financing concession information for them. In addition, the appraiser must attach the standard required exhibits listed in the Fannie Mae Selling Guide or the Freddie Mac Seller/Servicer Guide.

Remember that the URAR form is designed only for use in reporting appraisals on single-unit residential properties for mortgage lending. Appraisals for other intended uses (divorces, estates, condemnation, etc.) should not be reported on this form.

The Fannie Mae Selling Guide, Section B4-1.2-06, Appraisal Forms and Report Exhibits, includes a list of required exhibits for an appraisal that includes an interior and exterior inspection:

A street map that shows the location of the subject property and of all comparables that the appraiser used.
An exterior building sketch of the improvements that indicates the dimensions. (For a unit in a condominium or cooperative project, the sketch of the unit must indicate interior perimeter unit dimensions rather than exterior building dimensions.) ... A floor plan sketch that indicates the dimensions is required instead of the exterior building or unit sketch if the floor plan is atypical or functionally obsolete, thus limiting the market appeal for the property in comparison to competitive properties in the neighborhood.
Clear, descriptive, original photographs that show the front, back, and a street scene of the subject property, and that are appropriately identified. (Photographs must be originals that are produced either by photography or electronic imaging.)
Clear, descriptive, original photographs that show the front of each comparable sale and that are appropriately identified. (Fannie Mae does not require photographs of comparable rentals and listings.) Generally, photographs should be originals that are produced by photography or electronic imaging; however, copies of photographs from a multiple listing service or from the appraiser's files are acceptable if they are clear and descriptive.
Interior photographs, which must, at a minimum, include the kitchen, all bathrooms, main living area, examples of physical deterioration (if present) and examples of recent updates, remodeling, and renovation (if applicable).
Any other data-as an attachment or addendum to the appraisal report form-that are necessary to provide an adequately supported opinion of market value.

Near the bottom of the sales grid is a box called "Net Adjustment (Total)." This is where you add up all of the adjustments for each comparable, both positive and negative, and determine the total net adjustment. (Actually, appraisal software programs automatically make this calculation for you, and display the results in a box on the form.)

Net adjustment is defined as:

"The sum of the positive and negative adjustments made to a comparable sale price."

Remember that positive and negative adjustments can offset each other when calculating net adjustments. It is also possible for the net adjustment to equal zero.

Example: if you have a positive adjustment of $10,000 and a negative adjustment of $8,000, the resulting net adjustment would be +$2,000.

The net adjustments between the comparable sales can be compared, but they are not an absolute measure of comparability. You could have positive adjustments totaling $20,000 and negative adjustments totaling $21,000. The resulting adjustment would be -$1,000. This relatively small net adjustment might lead a reader to conclude that it is a very good comparison to the subject property, even though that might not necessarily be the case.

gross adjustment is defined as

"The total adjustment to each comparable sale price calculated by adding the absolute values of all positive and negative adjustments."

The total gross adjustments may be a better indicator of the comparability of a comparable sale. In the example on the previous page (positive adjustments of $20,000 and negative adjustments of $21,000) the total net adjustment was only $1,000, whereas the total gross adjustment would be $41,000.

NOTE: In the previous (June 1993) version of the URAR, the fields for total net and gross adjustments did not appear. However, over time, most of the software companies added this field as an option, and many appraisers chose to display these items. When the current URAR (March 2005) was released, it included fields for net and gross adjustments, pre-printed on the form.

Let's examine Comparable Sale #1, and the rationale behind the adjustments.

This sale occurred 3 months ago, and property values are increasing at a rate of 1% per month. (We used simple interest, rather than compounding, as it would not make a meaningful difference over such a short period.) Because property values are increasing, this is a positive adjustment.

This property has a river view, and is superior to the subject in that regard. A negative $10,000 adjustment is made to this comparable for view.

The condition of this property is fair, as it had some deferred maintenance and needed repairs. Because the comparable is inferior to the subject, a positive adjustment is made.

This property is 74 square feet smaller than the subject, and required an adjustment for gross living area. This adjustment is made based on $75 per square foot (74 x $75 = $5,550.) Because the comparable is inferior, this is a positive adjustment.

This property does not have air conditioning, while the subject has air conditioning. A positive $1,500 adjustment is made to this comparable for air conditioning.

This property has a small older rear deck, and is rated "fair" as a result. A positive adjustment was therefore necessary. (Typically, this feature would be specifically stated in the grid as "deck" or "covered deck" and/or "large deck" instead of being rated as "average" and "fair.")

This property has two gas fireplaces, and the subject has only one fireplace. Because the comparable is superior to the subject, a negative adjustment is made.

The sales indicate an adjusted range of $308,130 to $310,155. In this case, reconciliation would be relatively simple, and would likely involve the appraisal reconciling to $309,000 or $310,000, based on the relative strengths of comps 2 and 3, which are similar to the subject in view and condition.

As you consider the data you have used in the sales comparison grid, ask yourself three questions:

Do I have a sufficient quantity of comparables to justify a value conclusion? (With unusual properties, it's not uncommon to need six or more!)
Is my data of reliable quality? (Does it reflect standardization of measurements and reputable sources of data?)
Is each comparable appropriate? (Does each reflect an arm's-length sale that occurred on the open market?)

Presumably you will now have at least three indications of value. Let's suppose they range from $150,000 to $160,000. NEVER AVERAGE! That doesn't mean that in this case you can never arrive at a final value of $155,000.

But applying a simple arithmetic mean is not the correct procedure here. Anybody could add up the three numbers and divide by three. We were contracted to perform a professional service, in which we utilize our own professional expertise, experience, and reasoning. Also, if we were to just average the results, it implies that all three comparable sales are equally meaningful and pertinent. That is usually not the case.

As part of the reconciliation, we need to go back and re-analyze all of the comparable sales. We need to identify which are the strongest sales and the weakest sales.

One way to rank the sales is to look at the number of adjustments that were necessary. A perfect comparable would require no adjustments. A weak comparable would require many significant adjustments.

One method of comparison is to look at the amount of net and gross adjustments for each comparable. Because the prices may vary, the net and gross adjustments are expressed in terms of percentages; which equalize the differences.

Remember what we said previously, though, that net adjustments can be deceiving. The gross adjustments will tell the story of the real magnitude of the adjustments needed to equalize a comparable with the subject property.

As stated above, another measure is the number of adjustments made to each comparable. Every adjustment represents a significant difference between the comparable and the subject property. The more adjustments needed, the less comparable the properties. That may be a general rule; however, we need to look more closely. A comparable that requires only two adjustments, but they are large, subjective adjustments that are not well-supported, may be less reliable than a comparable with four, small, well-grounded adjustments.

A lot of what needs to be done in the reconciliation process is more intuitive than mathematical. There's no substitute for experience and knowledge of a particular market area.

We may have two comparables that adjust to virtually the same price. However, you might just have a feeling about one of them that something funny happened in that transaction, but you just can't pin it down. You may have done extra research and verification of the details, but it just doesn't feel right. You lack confidence in the result. You may want to discard such a sale if you have the luxury of an adequate quantity of other reliable sales.

Usually, we weight the comparable sales according to our belief in their strength and validity. This may be a subconscious process in which we believe the two adjusted sale price properties are on the high end of our range of values, and therefore we will finalize the value opinion on or near the top end of the value range. Some appraisers go to the extent of a more formal weighting process where they might assign, for example, 50% of the weight to Comparable 1, 30% to Comparable 2, and 20% to Comparable 3.

It is possible under USPAP to produce a final opinion of value as a range of numbers; such as $190,000-$195,000. However, in most appraisals for lending intended use, the client desires a single-point estimate.

The last part of the sales comparison approach in the URAR form provides 7½ lines in which to summarize the factors that we have been discussing.

In the very last line of the approach we have to make that commitment and state our indicated value by sales comparison approach.

A comparable sale required the following adjustments: +8,000, -4,500, +5,000, -2,000, -1,000. What is the net adjustment?

A) +4,500
B) +5,500
C) +8,500
D) +20,500

In your sales grid, you made adjustments of +$4,000, +$3,500, - $1,500, + $7,000, and - $2,000. How much is your net adjustment?

A) +$11,000
B) -$11,000
C) +$18,000
D) -$18,000

What are the steps in the sales comparison approach?

What is the number one rule of adjusting properties when using sales comparison approach?

What are the elements of comparison in the sales comparison approach?

What is the sales comparison approach formula?