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2005-01-26 CC Packet
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2005-01-26 CC Packet
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<br />ADJUSTMENT ANALYSIS <br /> <br />The sales comparison approach requires adjusting and analyzing comparables to derive a <br />value estimate for the subject. The various sale prices are adjusted after identifying relevant <br />adjustment factors and after quantifying the effect of a difference between the comparable and <br />subject. Before any adjustment can be identified or quantified, a sale must be sufficiently <br />comparable to the subject. Even if sufficiently comparable, a determination must be made as to <br />the adequacy of information collected concerning a sale. <br /> <br />The difficulty in quantifying adjustments is a result of real estate being unique in uature, <br />with no two properties being identical. Additionally, not all differences require an adjustment. <br />This is true if the market does not pay a premium or lower the price for a difference between <br />similar properties. The appraiser typically will have to rely on reason and experience to decide <br />which differences should be adjusted, as well as the magnitude of any adjustment. <br /> <br />The most appropriate use for an adjustment grid and pairing sales for specific dollar or <br />percentage adjustments is for simple properties where relatively few adjustments explain <br />differences in value. Vacant land, simple retail, some industrial, and residential properties fall <br />into this category. <br /> <br />Another consideration in the sales comparison approach is that adjustments can be <br />overlapping. Overlapping adjustments are those that look like independent adjustments, but may <br />in fact be explaining the same market cousideration for differences in price. For example, <br />adjustments for utility, location, zoning, and traffic count may be overlapping adjustments and <br />may all be included in the market perception of location. If various location factors such as traffic <br />count or zoning are delineated for adjustment, the appraiser should consider the specific effect of <br />each factor on value. <br /> <br />I <br /> <br />The following are generally accepted adjustment categories. The first four categories, real <br />property rights conveyed, financing, conditions of sale, and market conditions are cumulative. <br />Normally a sale should be adjusted for the cumulative adjustments before the remaining <br />adjustments (location, physical, and other) are applied. Location, physical characteristics and <br />other adjustments are additive, and may be made in any order. <br /> <br />1. <br /> <br />Real property rights conveyed - The real property rights conveyed is the first adjustment <br />because the appraisal of the subject property rights can only be compared to similar <br />property rights. If no information can be obtained to extract an adjustment of, for <br />example, a fee simple interest to a leased fee interest (or leased fee to fee simple), then the <br />sale should not be used. In practice, a sale of a fee simple interest is typically not <br />compared to a leased fee or leasehold estate. Typically, comparability required omitting <br />sales of different property interests. As may be seen, this is a major reason why this is the <br />first consideration. A sale of a leased fee estate may be used (if appraising fee simple) if <br />the appraiser is convinced that the rental structure is at market, or if there is a short time <br />left on existing leases and the affect of the leases can be adjusted, or if substantial <br />information is available to adjust for the value of the leased fee to fee simple (for example <br />having an indication of the value of the leasehold estate). <br /> <br />27 <br />
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