Branford, CT · Member since 2013 · 33 posts · 2 votes
In my area, you rarely find sold comps that are similar to your subject property. Either they're very different in sq ft, style, too far away, etc. As a result, you almost ALWAYS need to adjust the comps in one fashion or another. Can a seasoned flipper please tell me how they place an adjustment for the following: square feet, # baths, # beds, finished basement, garage, etc. I'm particularly interested in the 1st four - namely square feet, baths, beds, and finished basement. I'm located in the northeast and for homes in a first time buyer neighborhood, it's not uncommon for price/sq ft to be around $175/sqft. So, would you use that amount in the adjustment? For instance, let's say I had two identical houses in every way except sqft. One is 1400 sq ft and sold for $200K. The other is your subject property and only has 1200 sq ft. Would you adjust the first comp down by $35,000? (200sqft X $175/sqft)).
Not a seasoned flipper but here is where I would suggest those numbers might come in around. Again, this may be an area thing though. I'm assuming that an extra bathroom in a 500k house gets more of an adjustment than a bathroom in a 150k house. But I don't know. I've never had a 500k house. :-)
As odd as it is, no. None of the appraisals I've ever received have done some sort of per square foot calculation as an adjustment. I've seen some comps where the different in square footage was over 400 sq ft and then adjusted the appraisal on it $7,500. It was crazy.
I recently had one appraiser comp out a 4/2, 1,800 sq ft against 3 houses with less than 1,200 sq ft and didn't give more than 7,500 for the adjustment. Even though the price per square foot was over $100/sq ft.
So, for sq footage, I would say the adjustment would be between 5 to 10k tops. If its really big, they simply won't use it as a comp.
For basements, finished vs unfinished will make a difference. 10k for unfinished. 15k to 20k for finished - but the amount of finished space matters too.
Garage - 7,500 for 1 car, 10k for 2 car Bathrooms - 2,500 for 1/2 bath, 5k for full bath.
Bedrooms - Nothing. The appraisals I've been getting have not given me one penny of an adjustment for having an extra bedroom. The first time I saw it, I called to complain. How can a 4bdrm house not have more value than a 3bdrm. Nope. They wouldn't budge. And I've had that occur on 3 houses in a row over the last year. No adjustment for the added bedroom.
Now they say they try to grab 4 bedroom comps if the subject property has 4 bedrooms. So technically, you should be getting a higher number for a 4 bedroom. But if you have a 4 bedroom, 1400 sq ft home and they can only find 3 bedroom, 1,400 sqft homes, you're not getting an adjustment for the extra bedroom - at least not in my area.
Depends on updates to each home and other factors, like age of roof, with/without pool or covered patio, year built, location (close to airport or high traffic), etc.
Not a seasoned flipper but here is where I would suggest those numbers might come in around. Again, this may be an area thing though. I'm assuming that an extra bathroom in a 500k house gets more of an adjustment than a bathroom in a 150k house. But I don't know. I've never had a 500k house. :-)
As odd as it is, no. None of the appraisals I've ever received have done some sort of per square foot calculation as an adjustment. I've seen some comps where the different in square footage was over 400 sq ft and then adjusted the appraisal on it $7,500. It was crazy.
I recently had one appraiser comp out a 4/2, 1,800 sq ft against 3 houses with less than 1,200 sq ft and didn't give more than 7,500 for the adjustment. Even though the price per square foot was over $100/sq ft.
So, for sq footage, I would say the adjustment would be between 5 to 10k tops. If its really big, they simply won't use it as a comp.
For basements, finished vs unfinished will make a difference. 10k for unfinished. 15k to 20k for finished - but the amount of finished space matters too.
Garage - 7,500 for 1 car, 10k for 2 car Bathrooms - 2,500 for 1/2 bath, 5k for full bath.
Bedrooms - Nothing. The appraisals I've been getting have not given me one penny of an adjustment for having an extra bedroom. The first time I saw it, I called to complain. How can a 4bdrm house not have more value than a 3bdrm. Nope. They wouldn't budge. And I've had that occur on 3 houses in a row over the last year. No adjustment for the added bedroom.
Now they say they try to grab 4 bedroom comps if the subject property has 4 bedrooms. So technically, you should be getting a higher number for a 4 bedroom. But if you have a 4 bedroom, 1400 sq ft home and they can only find 3 bedroom, 1,400 sqft homes, you're not getting an adjustment for the extra bedroom - at least not in my area.
Thanks for the responses. Mike, I appreciate you breaking it down the way you did. Very helpful and exactly what I was looking for.
My only remaining question has to do with sq ft. Why is it when adjusting your comps for sqft, the price used to make the adjustment is so much lower than what actual sq ft prices are? Does anyone know why and how you should determine the price to use?
Matt, you're not depreciating the adjustment, if you add the cost of new construction for additional area, that amount needs to be viewed to the age and condition, style, quality of construction and functionality to the subject.....your addition of another room isn't brand new.
There is no way really to compare the value of adjustments from other markets to another market. Adjustments are the values shown in that market of the subject. The approach can be the cost - depreciation x the area. If an appraiser isn't adding value for additional room, the market may not support the additional bedroom, but should as to the sq. ft., I'd suggest they are conservative and lazy.
Adjustment values will be unique to a market, a fireplace for example will be more valued in MN. to MO. then to FL. The type and style of the amenity is considered, gas or wood, the size, design and materials will look at cost of construction. A stone F/P floor to ceiling with a 4' opening may be worth 10K or 50K and a gas F/P sheet rocked in with out a mantel might be $1,000 or $1,500.
Bathrooms will be considered including the quality and grade of fixtures, a contractor grade faucet won't be the same as an imported Italian fixture, wide value ranges exist for toilets and showers or tubs. So, it's not just a sq ft adjustment.
Your adjustment is to represent the market more than actual costs less depreciation as that can still be much higher than what an amenity will bring in the market. This is simply from experience and reviewing market prices. A concrete porch may not be any different than a similar size deck. Beauty is in the eye of the beholder, knowing what most homebuyers prefer is really key, what they are willing to pay for......energy efficient windows, solid wood doors, recessed lighting.....all may be pleasing but the question is will the public be willing to pay more and if so, how much more? Your analysis is subjective and objective, it's an art as well as a science.
Do enough comparisons and you'll see patterns emerge, trends and value sought in your local market.....if it is an active market. Good luck :)
Regarding your question onstage sample calculation, if the 1400 sq. ft home was at $175 per sq. ft, then would you adjust the 1200 sq. ft home by $175 X 200? The answer is probably not. The closer the size of the comp to the subject property, the smaller the adjustment and the more accurate it will be, however, as Bill eluded to, each and every market is different and as such, there is no one size fits all. You do need to keep in mind that as the home size gets bigger, the price per sq. ft goes down (as in quantity discount). For beds and bath discrepancies, again, it depends on if it is a 3 bed 2 bath comp and a 4 bed 2 bath subject or a 2 bedroom 2 bath subject. The 3rd bedroom will have a much greater value than a 4th over a 3rd. Same with baths, the second bath will be of much greater value than the 3rd bath.
Making these adjustments is almost an art form and takes both practice and a very detailed knowledge of your local market.
Will, good advice...If you were determining ARV for a colonial but the only recent sales in the last 6 months w/in a half mile are capes and ranches, which are equally popular in this area, would you use these comps OR widen your search and/or go out 9 to 12 months to find comps that are colonials?