Overview
Adjustments in appraisal are essential for accurate property valuation. They aim to address variations between the subject property and comparable properties to ensure fair and accurate market pricing.
For example, an appraiser evaluating a four-bedroom house may use a similar three-bedroom house as a comparable property. If the comparable sold for $400,000, the appraiser might adjust the price upwards by $4,000 to account for the additional bedroom, arriving at an adjusted sales price of $404,000.
Examples
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Example 1: Bedroom Adjustment
Suppose an appraiser is valuating a five-bedroom house. A comparable property with four bedrooms recently sold for $500,000. Based on local market standards, each additional bedroom is valued at $10,000. The appraiser adds an adjustment of $10,000 to the comparable property’s sales price, resulting in an adjusted sales price of $510,000.
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Example 2: Quality of Finishes
An appraiser is evaluating a subject property with high-end, custom finishes. A comparable property with standard finishes sold for $300,000. The appraiser determines that the high-end finishes add $25,000 in value. An adjustment of $25,000 is made to the comparable property’s price, resulting in an adjusted sales price of $325,000.
Frequently Asked Questions
Q: Why are adjustments necessary in appraisals?
A: Adjustments ensure that the valuations account for differences between the subject property and comparables, leading to a more accurate market value estimation.
Q: How are adjustment amounts determined?
A: Adjustment amounts are typically determined through market analysis, considering factors like local market trends, buyer preferences, and expert appraisals.
Q: Can adjustments be both positive and negative?
A: Yes, adjustments can either increase or decrease the comparable property’s sales price to align it better with the subject property’s characteristics.
Q: Who decides on the adjustment values?
A: Certified appraisers, often using market data, professional judgment, and empirical methods, decide on the adjustment values.
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Comparable Property (Comparable)
A property recently sold or listed for sale and used as a benchmark for appraising the value of a subject property.
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Adjusted Sales Price
The sales price of a comparable property after adjustments have been added or subtracted to account for differences.
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Market Value
The most likely price a property would bring in a competitive and open market.
Online Resources
References
- Federal Housing Finance Agency. “Home Appraisal Guide.”
- The Appraisal Institute. “Residential Property Appraisal Guidelines.”
- USPAP. “Standards of Appraisal Practice.”
Suggested Books for Further Study
- “The Appraisal of Real Estate” by Appraisal Institute
- “Mastering Real Estate Appraisal,” by Tom Wilson
- “Appraising Residential Properties” by Appraisal Institute
- “Residential Real Estate Appraisal” by Mark Rattermann
Real Estate Basics: Adjustments (In Appraisal) Fundamentals Quiz
### Why are adjustments in appraisals necessary?
- [x] To ensure valuations address differences between the subject and comparable properties
- [ ] To standardize all property prices
- [ ] To inflate the market value of properties
- [ ] To simplify the appraisal process
> **Explanation:** Adjustments are necessary to ensure that the valuations account for the differences between the subject property and the comparables, making the market value estimation more accurate.
### An appraiser is adjusting the sales price based on a comparable property. What type of property does this adjustment apply to?
- [ ] New construction
- [ ] Historical buildings
- [ ] Subject property
- [x] Comparable property
> **Explanation:** The adjustments are applied to the comparable property's sales price to make it similar to the subject property for valuation purposes.
### Which of the following is an example of a typical adjustment in appraisal?
- [x] Adjusting the price based on an additional bedroom
- [ ] Changing the building permit category
- [ ] Modifying zoning laws
- [ ] Updating property records
> **Explanation:** A typical adjustment might involve altering the price of a comparable based on additional features such as bedrooms, quality of finishes, or lot size differences.
### Adjustments in appraisal can be which of the following?
- [x] Both positive and negative
- [ ] Always positive
- [ ] Always negative
- [ ] None of the above
> **Explanation:** Adjustments can be either positive or negative, depending on whether the comparable property has less or more favorable features compared to the subject property.
### What is the term used for a property used as a benchmark in appraisals?
- [ ] Subject Property
- [x] Comparable Property
- [ ] Benchmark Property
- [ ] Primary Property
> **Explanation:** A comparable property is used as a benchmark for appraising the value of a subject property.
### Who typically determines adjustment values?
- [ ] Local Governing Body
- [ ] Homeowners Association
- [x] Certified Appraisers
- [ ] Mortgage Lenders
> **Explanation:** Certified appraisers determine adjustment values based on market analysis and professional judgment.
### Adjustments made to the comparable property’s sales price are necessary for which of the following reasons?
- [x] Compensating for variations in features
- [ ] Lowering the appraisal costs
- [ ] Maximizing property tax revenue
- [ ] Increasing the appraiser's commission
> **Explanation:** Adjustments compensate for the variations in features between the subject property and the comparables to ensure an accurate valuation.
### What term refers to the final amount after adjustments have been made to comparables?
- [ ] Gross Sales Price
- [ ] Assessed Value
- [x] Adjusted Sales Price
- [ ] Net Present Value
> **Explanation:** The "Adjusted Sales Price" is the final amount after all necessary adjustments have been applied to a comparable property's sales price.
### What type of analysis is critical in determining the adjustment amounts?
- [x] Market Analysis
- [ ] Statistical Analysis
- [ ] SWOT Analysis
- [ ] Metadata Analysis
> **Explanation:** Market analysis is critical for determining adjustment amounts by assessing local market trends and buyer behaviors.
### Which resource would most likely provide guidance on industry-standard appraising practices?
- [ ] Local Newspaper
- [x] Uniform Standards of Professional Appraisal Practice (USPAP)
- [ ] Real Estate Blogs
- [ ] Housing Market Surveys
> **Explanation:** The Uniform Standards of Professional Appraisal Practice (USPAP) provides official guidance on industry-standard appraising practices.
