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Appraisers, I’ve written in the past about what I believe are strange ways to report adjustments in appraisals, and suggested ‘rounding’ is a perfectly acceptable way to report them. This is largely due to buyers and listing agents thinking and listing in $100 increments – not down to exact dollar amounts.
During the past couple of weeks, I ‘came in contact with’ two separate appraisals done by different appraisers on totally different properties, in different market areas.
What struck me was the incredibly precise adjustments made for only certain items in these reports, while the rest of adjustments were ‘rounded’ to even dollars. Here are the examples:
Report 1 –
Notice how the site size adjustment is reported to the nearest $1.00, and the first line for basement is to the nearest $5.00. All other adjustments are to even dollar amounts.
Notice how the Net Adjusted Sale prices are all showing a precise figure to $1.00.
The sales prices for these comps are all reported in exact even dollar figures, and the Opinion of Market Value (OMV) is also stated in an exact even dollar amount ($XXX,000). I don’t provide those here.
Report 2 –
Report 2 has the GLA reported to the nearest $5.00, while all other adjustments are to an even dollar amount.
Notice how the Net Adjusted Sale prices are all showing a precise figure to $25.00.
The sales prices for these comps are all reported in exact even dollar figures, and the Opinion of Market Value is also stated in an exact even dollar amount ($XXX,000).
These two examples demonstrate inconsistencies in these reports. This is common among many appraisers, because I have seen this before. These inconsistencies can lead reviewers and lender underwriters to question the validity of other info in reports.
It tells me that the appraisers are not really fully thinking about what they are doing. They are probably relying on some ancillary adjustment process to calculate the oddball line items, without really looking at the rest of the numbers on the grid.
It also begs the question: if certain line items are reported down to the nearest dollar or five dollars, why aren’t the OMV’s being reported in the same fashion when those values in the range demonstrate the relationship? At least that would provide CONSISTENCY in reports.
I don’t think it matters greatly whether or not adjustments in the grid are rounded. But if they are not rounded initially, and the resulting range of adjusted values show non-rounded numbers, would it seem logical that the OMV should be reported in the same way? Yes, I understand we reconcile our OMV based on the range of Adjusted Sale Prices. But if you believe ‘rounding’ of the OMV is fine, even though the individual adjustments are not, what is your rationale for NOT ‘rounding’ the adjustments?
Think this through, as if you’re on the witness stand being cross-examined by the opposing attorney who has a good understanding of appraisal reports. What would your answer be? Likewise for your state regulatory agency investigator who has questions about your report adjustments, and wants to see your complete work file.
As I previously mentioned, most listing agents and buyers typically don’t think and act in terms of goofy looking dollar amounts. Yes, there are exceptions, but those are very few. Take a look at list prices and the resulting sales prices in your area, and I’ll bet you’ll find that a majority of those are mostly ‘rounded’ to no less than $100 increments.
In my practice, my philosophy is any adjustment less than $500 is immaterial and difficult to support by the market, and is not made. The contributory value of a $500 adjustment against a $450,000 sale is only 0.11%. I also round adjustments to $100.
I have the following statement in my report Addendum:
Adjustments of $499 or less are not made.
For clarity and ease of reading, all adjustments are ’rounded’ to the nearest $100. This does not diminish the accuracy of the reported Opinion of Market Value, because notably, most property sale prices are recorded at $100 increments.
If you want to report adjustment numbers to $1, $5, $25 or $100 ‘rounding’, fine. But be consistent for all adjustments. All report software allows ‘rounding’ to be done in the individual adjustment fields on the form by selecting a setting figure. Choose the one you believe you can support, and then let the auto-rounding feature take over.
Your reports will look much better and will be more believable (at least in the grid!) when you provide consistency in reporting adjustments.
One more item of note: Did you notice that the two report examples are for different Design (Style) homes with dissimilar Quality and Condition ratings? Did you also notice that the Fireplace adjustment in both reports is EXACTLY the same? Hmmmmmm. The Appraisers must have downloaded that common adjustment amount spreadsheet off the internet… the one that real estate agents always want to get from us, and state investigators would like to have a copy of.