Adjusting Comps

[Robert Butler]

I need some advice.  I evaluated a deal that confused me a little bit.  From my understanding, when adjusting square footage on comps, you adjust the value of the comp up if the comp has less sq ft than the subject and downward if the comp has more sq ft than the subject property.

What if the comps are less sq ft than the subject property, but the value of the comps sq ft is more than the subject property.  Wouldn't that skew the numbers?  

Any advice would be appreciated.

[Evan Wiesner]

@Robert Butler Adjusting the dollars per foot of comparables is never an exact science. I preach to my team the law of diminishing returns.... as you add square footage the dollars per foot decreases. And it works in both directions, but it's never perfect.

My suggestion is to find a way to "bracket" your comparables using gross sales prices. @Joe Villeneuve mentions sticking within a specific comparable size and he's absolutely right. But that's not always possible, especially if you're in a high gentrification area where there have been a lot of knock down rebuilds.

If you can't find enough by bracketing size and age, then you have to use logic. Use the dollars per foot as a starting point but adjust for square footage that is different (finished attics and basements are rarely worth the same... I value them around 50% compared to traditional first or second floor space) and then lean on the ancillary's of the properties. Covered parking, pools, lot size, and narrow your bracket by appraisal methods for the value differences in those items for your area. When you think you have a value, sit back and look closely at the nearest 3-5 comps higher and lower in value than yours and make sure your property fits.

And if you're still not finding a good number, take @Russell Brazil's advice and find a local broker.