2005-02-02 P&R Packet - Laserfiche WebLink

Home Browse Search

r ADruSTMENT ANALYSIS The sales comparison approach requires adjusting and analyzing comparables to derive a value estimat~ for the subject. The various sale prices are adjusted after identifying relevant adjustment factors and after quantifying the effect of a difference between the comparable and subject. Before any adjustment can be identified or quantified, a sale must be sufficiently comparable to the subject. Even if sufficiently comparable, a determination must be made as to the adequacy of information collected concerning a sale. The difficulty in quantifying adjustments is a result of real ~state being unique in nature, with no two properties being identical. Additionally, not all differences require an adjustment. This is true if the market does not pay a premium or lower the price for a difference between similar properties. The appraiser typically will have to rely on reason and experience to decide which differences should be adjusted, as well as the magnitude of any adjustment. The most appropriate use for an adjustment grid and pairing sales for specific dollar or percentage adjustments is for simple properties where relatively few adjustments explain differences in value. Vacant land, simple retail, some industrial, and residential properties fall ; into this category. Another ,consideration in the sales comparison approach is that adjustments can be overlapping. Overlapping adjustments are those that look like independent adjustments, but may in fact be explaining the same market consideration for differences in price. For example, adjustments for ;utility, location, zoning, and traffic count may be overlapping adjustments and may all be included in the market perception oflocation. Ifvarious location factors such as traffic count or zoning are delineated for adjustment, the appraiser should consider the specific effect of each factor on value. The following are generally accepted adjustment categories. The first four categories, real property rights conveyed, financing, conditions of sale, and market conditions are cumulative. Normally a sale should be adjusted for the cumulative adjustments before the remaining adjustments (location, physical, and other) are applied. Location, physical characteristics and other adjustments are additive, and may be made in any order. 1. Real property rights conveyed - The real property rights conveyed is the first adjustment because the appraisal of the subject property rights can only be compared to similar property rights. If no information can be obtained to extract an adjustmept of, for example, a fee simple interest to a leased fee interest (or leased fee to fee simple), then the sale should not be used. In practice, a sale of a fee simple interest is typically not compared to a leased fee or leasehold estate. Typically, comparability required omitting ;;:.""b~';'~,i;!;~~~'1:ffigy:~ sales of different property interests ;g, As may be seen~' this is' a"major reasoifwlW this: isthe::;~i~~~"~;\~;;,, first consideration. A sale of a leased fee estate may be used (if appraising fee simple) if . . the appraiser is convinced that the rental structure is at market, or if there is a short time left on existing leases and the affect of the leases can be adjusted, or if substantial information is available to adjust for the value of the leased fee to fee simple (for example having an indication of the value of the leasehold estate). 27