Adjusting Comps to Determine ARV

[Matt M.]

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)).  

[Mike H.]

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.