Appraisers go through a sequential adjustment process. It is important that adjustment are made in the proper order. First come transactional adjustments, followed by market condition adjustments, location adjustments and finally physical elements of comparison.
Appraisers are typically looking to make adjustments for conditions that may have affected the overall property value first. After the appraiser has determined the “normal” (net) sale price, they will make adjustments for individual property features. Most appraisal reports contain a “sales comparison grid.” This grid is typically laid out in the correct order the adjustments are being made.
Transactional adjustments are made first. Transactional adjustments come from differences in ownership, financing terms and conditions of sale. For example, if the seller paid $5,000 in seller concessions to the buyer of the home, we might adjust -$5,000 from the sale price of the comparable to get the real net, or normal sale price of the property.
The next step for most appraisers is to make any market condition, or time, adjustments. For example if we are using a much older sale, the market may have increased overall in value from the sale date of the comparable. In this instance, we would make a positive adjustment to the comparable for the increase in value due to market appreciation. This adjustment would be made to the sale price of the home, minus the seller paid concessions.
Next an appraiser will typically make location adjustments. Location adjustments could be made for positive or negative external influences. For example, one property may be located along a busy road which is typically seen as a negative influence. Another property may be located backing to a golf course which is typically seen as a positive influence on value.
Any adjustments for the physical elements of comparison are usually the last step in the appraiser’s adjustment process. Physical adjustments are differences in the properties, such as site size, quality, condition, room count and finished living area above and below grade.
Making adjustments in an appraisal report in the proper sequence is important. If an appraiser makes adjustments in the wrong order and they are making some adjustments based on percentage, the adjusted value of the comparable could be misleading. For example, any adjustments made for financing are usually made as a percentage of the overall sales price. Any adjustments made for market conditions or time should be made based on the total price after any adjustments have been made for financing.
If you are looking for a professional property appraisal in your area, be sure your appraiser is knowledgeable and professional. If you need a property appraisal for a mortgage, purchase, pre-listing, tax appeal or estate settlement, Appraisal Partners can help. Our on-line ordering tool is simple.