Should Adjustments Actually Be Done?

Should We Real Estate Appraisers Stop Making Adjustments?How much credit should we give ourselves when it comes to making adjustments? Making adjustments is controversial. USPAP says nothing about adjustments – it does not require us to make them. They are a GSE construct. So, should we real estate appraisers stop making adjustments? Clients pay us for opinions of value, so our adjustments are really opinions based on what the market tells us (or that’s what we should base them on), but they are still opinions we form; they are not facts we find. So, maybe, should we stop making adjustments?

We derive our adjustments from sources such as paired-sales, regression, ranking, and so forth. There are classes, seminars, and webinars out there on making adjustments (I know there are – I’ve taken them). Yet, since real estate markets are not logical and have no basis in science, it’s highly possible that the adjustments we derive are overrated in the sense that we impart to them too much importance. I wonder if we shouldn’t get rid of adjustments, and the entire adjustment process, completely?

So, if not for the adjustment process, where does value actually come from? I am a strong advocate for appraisers. I firmly believe in the importance of, and the need for, what we do. I also believe that you cannot throw a bunch of numbers into a computer and then expect the results of that to be accurate. There is something to be said about the experience, the qualifications, the education of the appraiser, the human brain & heart, to pick the proper comparables and to do their jobs as appraisers correctly. All the algorithms in the world cannot add the human essential into the results of a computer run. Remember, we do not value property, we do not value property rights. Rather, we value people’s reaction, people’s opinion, to that property and to those rights.

But, what about not doing adjustments? Appraised value is not solely the result of the adjustments process. Rather, it comes from the proper selection of comparable sales, etc. This is the most important component of the appraisal process (especially in rural areas where there are relatively few sales). Value comes mostly from comp selection, not adjusting the comps. This is not to advocate that comps never need adjustments. They may. Rather, it is to say the best comps need the fewest adjustments.

My support for this conclusion is that on some appraisal forms (clearly not Fannie Mae, et al), there is no place for adjustments; just space for the appraiser to show the differences there are inherently between properties (but not to quantify those difference. Lest you start jumping down my throat, yes this conclusion is totally USPAP compliant (according to the experts I’ve consulted) since USPAP does not require adjustments. USPAP does not even mention the word adjustment (I’ve done the word search in a PDF copy of the USPAP document). Thus, adjustments are a requirement of specific lenders, not of appraisal theory, not of state statute, and clearly not of USPAP. So, an appraisal without adjustments, and an appraisal report without adjustments, are both totally acceptable (unless your client demands you show quantifying adjustments).

Recently, in my office, I gave my associate an appraisal assignment that she completed in the traditional manner, which included adjustments. She had a copy of the purchase and sale agreement, as well as knew the contract price. I knew about the agreement, but for my purposes I chose to ignore it until after I had reached my value opinion. So, I did my own sales search for comps, choose them, and then, via my gut alone, came up with what I considered to be a credible value opinion. So you’ll know, the purchase and sale agreement had a contract price of $250,000 which, we both concluded, was under-market. My associate, via the traditional appraisal methods, came in at $265,000. Without a “formal” set of adjustments, just using qualitative analysis, I came in at $270,000. I did not see her appraisal until I had deduced my value conclusion. My choice of comps was different from hers, too (we had only one comp in common). Again, I was not aware of the contract purchase price until after I deduced my value conclusion (without the aid of a formal adjustment process).

There is about a 6% difference between $250,000 and $265,000. There is about a 7% difference between $250,000 and $270,000. There is about a 2% difference between $265,000 and $270,000. So, my associate and I were very close to each other; and we were not that far away from the contract price. Again, we both agreed the contract price was low. I conclude this range of difference is normal and acceptable.

Now, I realize this is nothing more than an anecdote. There was nothing scientific about this experiment. The same type of comparison on a really complicated property might have given different results. But, just so you’ll know, we did this again on another property and came up with a similar split between the appraisers.

So, does this tell us that adjustments are bogus? That the adjustment process is artificial? If you carried out the same experiment (with the same unscientific approach), would you achieve the same results? I don’t know, and will not speculate. These results, however, have led me to question if the adjustment process is all that necessary and, if it is not, why do the GSE lenders want us to go thru it?

Extracting adjustments from the market results, at best, in a range of indicated adjustment quantities, but never a single dollar figure. This is because the real estate marketplace is not rational, and it participants generally do not follow the dicta of the definition of market value. Thus, we end up with dollar ranges when we try to determine how much say, a view, contributes to overall value.

Therefore, I must grab hard onto that third rail, when I say that the adjustment process has a subjective component to it. (There! I said it! The deed is done!) In layman’s (layperson’s?) terms, when it comes to adjustments, there is some guesswork involved. Now, I know I’m going to get a lot of hate mail on that conclusion, but that’s OK. I know some of my “experts” are going to question me on this, but that’s OK, too.

It’s OK because if appraisal were nothing more than crunching the numbers, we would have no purpose, no value, and AVMs could do what we do (a lot faster and a lot cheaper). Nevertheless, since appraisal is not merely about crunching numbers, but about deducing from the market data a unique market value, then we are necessary. We are important to the process. We are a necessity to our clients.

Adjustments are not the end-all and be-all of market value. This is because, comp selection is the key to a credible opinion of market value, not how elegantly or scientifically we choose adjustments (and remember, I am a rural appraiser). This is simply because the best comps would merit no adjustments at all. Until such perfect comps come along, however, we still, somehow, have to account for the significant differences there are between a subject and the comps. And, when all is said and done, there is a subjective component to that accounting. I’d love to see the day when we no longer have to take comp photos, nor make quantitative adjustments.

For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 148 Should We Really Be Making Adjustments

Dustin Harris
Latest posts by Dustin Harris (see all)
Dustin Harris

Dustin Harris

A multi-business owner and residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc. He owns and operates The Appraiser Coach where he personally advises and mentors other appraisers. His principles and methodologies are also taught in an online, Mastermind group. He and his wife reside in Idaho with their four children. Dustin Harris on

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43 Responses

  1. Vincent R Simon on Facebook Vincent R Simon on Facebook says:

    Just like the bracketing . A true similar comparable is a model match in SFR, TH and Condo. But yet some dipshit wants to see an inferior and superior unit . How does that solidify value

  2. Why are so many appraisers hell bent on re-inventing the wheel? The open market is the basis of the adjustments. The appraiser’s job is to interpret those differences based on the actions of the market participants. Does a buyer typically pay more or less for a pool, a 4th bedroom, a 3rd bath; and do the prices generally move up or down according to GLA. Why not bring some good old fashioned common sense back into the equation a leave and perfectly good wheel alone.

    • Baggins Baggins says:

      So either they did not recognize the quality difference of features, like superior hardwood vs mini prefab wood deck, something like that, just matching the feature on paper and not adjusting, or the sellers agent provided inadequate representation and listed the property too low. Why didn’t buyers compete and drive the number up if it was underpriced? It’s sort of one way or the other without much in between room. Perhaps the lack of detailed analysis per individual adjustment or lack thereof, is why the appraised value was notably higher than the price. When I finally get to the final stage of grid work, after all other analysis and form filling is completed, I always lay out all 6 comps printed on paper at the desk, mls, assessors and other data stapled to them, and then work line by line down the grid while reviewing listed property photos vs my thorough 100+ photo set of the subject. It’s so easy, a caveman whom is not using outsourced services could do it. If I wanted that nicer deck at my house, that bigger AC unit, that hardwood instead of carpet, you can bet your bottom dollar the contractor would have me pay extra for that compared to the lower priced materials. If appraisers want to get better at their jobs, ditch the analysis software and go to the hardware store, then stay there until you know what everything actually costs. If you’re lucky enough to deal with contractors and laborers, ask them a million questions and take notes about what services are actually costing today. If you have perfectly matching comps you don’t need adjustments, in a perfect world.

      Dare to dream I suppose.

  3. Brian Kirkpatrick on Facebook Brian Kirkpatrick on Facebook says:

    I’m afraid that if we did this than the AVM model would definitely put us out of business.

  4. Avatar Trisha Jennings says:

    I do not make adjustments unless they are supported and get ouch back all the time

  5. Avatar Bryan says:

    I’m still trying to figure out why we shoot original comparable photos (one of your prior articles that I truly agree with). Talk about carbon imprint for NOTHING substantial. The adjustment thing I will have to think about.

    • Avatar Bill Johnson says:

      Forget the carbon imprint Bryan and consider the human effect. I spent 1.5 hours (+1.5 hours driving) today walking several large condo complexes trying to find the specific comp units in question even though each were all the same but just a slightly different earth tone exterior color. There are those who take random air pictures and call it a day while completing 4 to 8 appraisals a day, and there are those who seek the truth.

      Seek the truth.

    • Bryan we ‘shoot’ comparable photos to achieve three purposes: (1) prove we personally observed & considered them; (2) provide others graphic evidence of the more obvious physical differences, and (3) to assure we went to the neighborhoods they are located in and were exposed to whatever surrounding market characteristics there are. MLS & other pictures augment this. They do not adequately eliminate its need or benefits.

      When Al Gore or the Chicago Carbon Credits Commodities exchange dba Chicago Climate Exchange start augmenting MY appraisal fees with the money they collect from carbon credit trading I will seriously consider my carbon footprint as a part of all appraisal assignments commensurate with the compensation they are providing me.

      • Avatar Bryan says:

        I personally drive every comparable for my reports. It is a huge investment in time and energy. I understand “why” we do it. Dustin stated in an earlier write that with all of the technology we have at our hands today our time might be better spent. I agree.

      • Avatar Bill Johnson says:

        Mike it’s the 100, 5, 95 rule (Did I just make that up?). In other words, you have to drive 100% of the properties to find the 5% that may differ from your original analysis, meaning nothing changes 95% of the time (your opinion). When appraisers spend one month of the year driving in circles where nothing changes 95 out of 100 times, it’s no wonder companies like Proxypics are around and they have a booth at Valuation Expo.

        Seek the truth.

        • I don’t accept the percentile relationship at all…nor do I ‘analyze’ property before I have seen it. Appraisers that never go into the field are no better than ‘reviewers’ that never go into the field. Neither should be calling themselves appraisers.

          We go into the field to learn. Every single time.

      • Avatar Diana N says:

        Hey Mike, over the years I’ve gone to shoot photos of the comps, and either they weren’t there (razed) or totally different looking (remodeled) then when they were purchased. I generally add CMLS photos because that’s what the property looked like when purchased.

        • Excellent practice. MLS pics as extras are very helpful. Used instead of personal inspections; they are just misleading the readers. A torn down house is a land sale…amazing how many will try to adjust them for size, etc, anyway.

          • Avatar don says:

            A tear down doesn’t include the cost of demolition, nor does a burn down a cost foundation removal. Does the insured have a replacement policy or a market value policy? When a buyer negotiates a lot purchase, does that a FAIR mv. ?

  6. Avatar Bill Johnson says:

    Speaking of adjustments. No thank you Solidifi I will not take that 2.5 million dollar detached condo property that is 2 blocks from the Pacific Ocean for $365 due in 4 days. Just another Tuesday in the big city Dustin where everything is model matches and cookie cutters.

    Seek the truth.

  7. Dustin, one sample in an undefined market is not enough to support any conclusion of percentile variances that may result across the country.

    I agree with Ms Potts on this. There are cases where quantitative adjustment is simply not possible, but in the large majority of cases ‘market significant’ differences are quantifiable using long-established commonly accepted, sound appraisal practices and techniques.

    These include a market survey of participants including local area agents. It’s a great data source that has fallen into disfavor by GSEs and some ignorant regulators alike. It is every bit as valid as paired sales or regression. It does require judgment and proper interpretation of the information just like any other data source. An experience-based subjective opinion is necessarily used to consider source credibility. Agents were not dismissed out of hand as ‘vested interest’ parties. Individual agents overall credibility was opined by appraisers and decisions were made to include; modify, or interpret the data we were being given through life experience veracity filters. Hence the art part of our profession.

    I think the real issue here is appraisers lacking either the willingness or the confidence to push back against non-appraiser ‘reviewers’ or highly suspect “Big Data” risk rating algorithms.

    Agent / buyer / seller surveys have an element of subjective opinion to them, but collectively on an ongoing basis, they tend to capture market perceptions pretty accurately. These are the source ALL other data collectors try to emulate.

    Paired sales in certain textbook instances are great and self-explanatory. In the real world in mixed property type or eclectic market areas, PS is not nearly as neat and pretty.

    Big Data; Data Science or regression is incapable of capturing or accurately measuring more than about 70% of a property’s physical characteristics; has built-in errors where public records information is incorrect and does not even consider the other 30% of market characteristics that contribute to recognized values. It simply reallocates their numeric ‘value’ as a percent to the other characteristics that are being measured. The result will always be skewed. SUBJECTIVE data scrubbing is used to minimize this.

    An ill-informed belief has arisen that any difference in a forms or grid line item description also requires a specific adjustment. Nothing could be further from the truth. Pre UAD we used to ‘qualify’ relative comparisons in line items JUST LIKE THE MARKET did. Ratings were not absolutes and no one tried to foist that particular mental petard off as being an element of good appraisal practice as GSEs; MISMO and some regulators do today.

    To avoid misleading reports, we used to write ‘see cmmts’ in the adjustment box. Telling readers that there is an explanation that goes along with a visual dissimilarity in descriptions. We used to utilize ‘half ratings’ or conditions to demonstrate where in a category a property characteristic may fall.

    Lastly, we would also identify that some differences may or may not be recognized by the market but IF they were, data was inadequate to quantify such an adjustment, and qualitatively we subjectively considered their impact in our reconciliation.

    Not all of us have the same formal educational credentials of our professional peers and many of the self-serving broader industry advocates. We tend to be accepting when a more formally educated person; or study by such persons is presented telling us how we should be doing things.

    We do however have something they lack. That is a collective educational foundation more similar to the other broad market participants whose actions we try to emulate; measure and predict.

    I humbly submit anyone who read & understood Hans Christian Andersen’s “The Emperor’s New Clothes”; and Miguel de Cervantes Don Quixote has a better foundation to become a great appraiser, than those that can’t make dinner decisions without consulting a spreadsheet.

    After all, most of our profession involves exposing naked emperors & tilting at bureaucratic or vested interests windmills.

    • Baggins Baggins says:

      I have never once seen this author actually answer a comment on this board. It’s doubtful he reads them and more likely he just uses this website as a marketing tool.

    • Thanks Mike Ford, and I agree with you, especially about the Al Gore carbon credits and footprints, as well as the Don Quixote and spread sheet analogies. Great stuff! LOL

      It never ceases to amaze me the level of perfection we all pontificate over when dealing with an imperfect market. Sometimes the biggest challenge for appraisers is getting out of their own way.

      • Avatar Mark Ziegler says:

        A few years back I was approached by an AMC who developed what they were calling an “AAAVM” (Appraiser Assisted Automated Valuation Model) touted to become the “be all and end all” of valuation modeling and supported adjustments. They asked if I would have an interest in conducting such reports. Having built and calibrated numerous mass appraisal models, this obviously piqued my interest.

        They told me they’d be conducting individual training and requested I choose a specific property in my market area for said training. I have to admit this was a “little loaded” given my background and I effectively went into this demo intent on proving how this product wasn’t necessarily going to work for at least a couple reasons; You can’t teach Multiple Linear Regression overnight and, unless you have total control over the model, it virtually never works in the predominantly rural areas I work in.

        I specifically chose a rural subject, then threw in a large twist: The site displayed Lake Michigan frontage and it had sold recently so I also had a reasonable measurement for the accuracy of the indicated value developed by virtue of this product. Long story short, the trainer kept saying “more data, more data” piling numerous sales that had absolutely no relationship to the subject into the model that would supposedly derive supportable adjustments and. In an absolutely unbelievable revelation, this product didn’t allow for site adjustments.

        After almost 2 hours of “training” and not being able to come within 40% of the recent sales price of this subject, the “trainer” was unbelievably frustrated, told me I had no idea how to use this product and I “did this on purpose” (which I actually did). A few days later I got a call from management querying my thoughts on this product and if I was still interested in conducting these type assignments. I immediately questioned the inability to make site adjustments and he concurred this wasn’t currently an option and you “need to choose sales with similar sites”. Yeh, right.

        To my knowledge, this product never got out of the gate and rightfully so. In 30+ years of mass and fee appraisal work I’ve never completed a report that didn’t require some adjustment(s) and, most specifically amongst rural properties with limited and diverse sales in any given 12 month period. I firmly believe that adjustments could and should be applied in most instances. But just not any adjustments, supportable adjustments.

        • Great background Mark. I suspect that named product may never have gotten out but it’s ugly stepchildren did. The BEST that can be said about those things is that once in a while when all the planets are in proper alignment and the property is the median price range model, then they can be quite accurate.

          As noted though, the planets must be in near perfect, linear alignment; and not vary from the area median price or property type most associated with that median.

          On cloudy days though, all bets would obviously be off.

      • Avatar don says:

        Amen Joyce, by the way is the C.C.C.C. MVA for the Chicago Climate Exchange. What are the appraisal fees?

        It seems to me that there are as many final value opinions as there are appraisers, and will always be. Maybe I should modify my name to don q. and expect each and every job to have an original opinion.

    • Avatar don says:

      I find that asking the neighborhood agents (how their phone is ringing) is helpful and a most current indicator of the market. M.L.S. activity categorically illustrated for the community and the neighborhood reveals the transparency-honesty of the spoken opinions. Most all parties have read H.C.A., M.d.C. and the “Prince” by that Italian guy. Dreamers, or Bullies, and Crazies are only a part of the market, schemers are the most dangerous.

  8. Baggins Baggins says:

    This is what passes as appraisal advisement and training these days? In the real world, a deck costs so much money. The bathroom and remodeling efforts have a relatively fixed range of cost depending on materials chosen. The AC unit costs so many thousands of dollars, so does the new furnace. Paint and trim cost money. Laborers cost money. Not every real property feature is the same and there is a quantifiable difference in quality and cost.

    Stop doing adjustments and just appraise them all categorically? I think I heard that before more than 10 years ago. From the now washed out mortgage brokers whom insisted everything be appraised highest and best.

    I keep telling appraisers, if you’re reaching into advanced tech analysis to extract adjustments from a larger body of data, you may get misleading results. Those programs must operate under proportional allotment of difference, then drop such total difference into the proportional categories. So much $ for ppsf, so much for beds bath, so much for whatever feature is being recognized in the mindless automated tech analysis process. Don’t bother with quantifiable differences of worth and quality, because if you use regression then also try to apply a sensible principal like that, you’d then be over adjusting and skew your own result.

    If you’re not making adjustments, you’re doing it wrong. If you think there is no quantifiable difference in quality with the majority of housing comparables, either you truly are working in cookie cutter everything is exactly the same, or you’re doing it wrong. Did not know the contract price prior to providing the end value? Oh boy that’s rich. How exactly did this appraiser analyze the whole market, did his assistant redact the subjects address from those pointed data sets he looked at? Probably he just picked data, entered data, then dealt with the statistical computations presented. That’s not appraisal, that’s something else. If the subject is listed in MLS, and you’ve performed adequately thorough market research, you do know what the subjects listed price is. If you have completed an appraisal without looking at the contract, you’re doing it wrong because you may have missed special inclusions, exclusions or special terms which influence the final valuation results. This experiment sounds like it did not utilize the scientific method adequately, but rather formed the test parameters around preconceived results being sought.

    The beat skips on.

  9. Anyone who actually believes that paired / matched sales in the real world comes remotely close the text book samples, needs to reconsider. The text books afford hypothetical examples. I apply matched / paired analysis to the overwhelming majority of my assignments with similar verbiage to this: ‘Adjustments are based on a combination of aggregate comparisons, matched / paired sales analysis, sensitivity and/or trends, with no two or more approaches returning consistent results, with the adjustments deemed ‘reasonable’. While not always strongly independently supported, collectively, the adjustments serve to narrow the adjusted value range of the bracketed comparables in support of the subject’s most probable selling price commensurate with the definition of market value set forth herein.’

    I went down a deep, dark multi-linear regression (MLR) rabbit hole several years ago only to learn that MLR wasn’t the answer either, in most cases, after I spent an extraordinary amount of time and money. MLR affords no more support than the other conventional methods, IMO.

    Again, why are so many hell bent on writing articles that over churn and burn the same old topics and criticism of age old methods and techniques that have yet to be improved upon? We work in the real world and changing markets that have so many different fluctuating variables that it becomes impossible to quantify adjustments with the ridiculous level off accuracy that many contend is necessary / required. That’s not how real world markets work. Factor in changing trends and you’ll find yourself chasing a moving target every time. Stop over-complicating what we do. For me, I’ve come full circle.

    • Baggins Baggins says:

      Talk to me about the idea that adjustments should be based, at least in a sensible proportion, to real world actual costs of features. I mean, like, that’s what actually drives market value at its core right, the quality and dressed up features, or lack thereof? Thank you.

      I actually found a meaningful matched paired sale once. Yes, it’s true! Two houses on the same block, immediately across the street from each other. Matching model, similar everything. One backed to park and the other did not. The park adjustment was obvious and irrefutable, sort of, well as good as it could be. Boy that was a good day. Still remember that like 8 something years later.

      • You can have 20 sales. 10 with pools, 10 without. Most of the time, the contribution of pool won’t make sense. So do you make any kind of pool adjustment? Stop seeking out definitive, exact answers. Generally speaking, certain amenities contribute and warrant an adjustment. Why are so many overthinking this?

        • Baggins Baggins says:

          Pool is not a good example though. It’s all about how people manage them, if they’re sturdy and clean, have an alligator living in them, etc. It’s the maintenance costs both deferred and future which drives pool analysis bonkers.

          For things like decks, finishing points, general quality of materials, always important to estimate something if there is observable difference.

          If a regression software indicated $X, but you knew your subject was well over quality norms, you’d have to adjust $X+. But I wonder if appraisers whom use regression also diminished an indicated adjustment elsewhere, removing the + difference applied to the other item. Regression just seeks to break up the whole and distribute value assignments through available defined categories. To actually perform regression properly, it would always take a lot of time because you’d have to constantly change parameters and proportions for sensible distribution based on the individual market quality and amenity norms. I don’t even bother with it and just wing out sensible logical lump adjustments instead and back into ppsf. More often than not a 1/5th allotted adjust back compared to the avg ties it all up nicely, be it land, ppsf, etc. Tag them $3-5k for the deck, $10k+ or some other metric figure for observable quality differences like all hardwood vs all carpet or stock K vs granite & new cabs, etc.

          The end result is a logical defensible appraisal where the grid looks clean, is understandable, and adjustments were always based on tangible identifiable differences, while also including observable quality differences adjustments.

          This logical approach brings far less uncertainty because I could not get the numbers to line up nonsense. Either the deal is fair to the market or it’s not, the adjustments come after careful consideration of the sale scenario at hand, fair comparative placement of the subject in the high/mid/low category, and important but standard adjusts for things like land location and size.

          Anyways, appraisal is like really boring. Adding unnecessary tech does not make it like, exciting or glamorous or such.

    • Could not agree more. Also love the verbiage.

    • Uh Oh! It looks like I am in 100% agreement with Joyce on this one. Rare, and to me, shocking. Almost disappointing because we ‘like’ to butt heads.

      Extremely well said and explained. (hint – STEAL the verbiage and modify it to meet your own final comfort level!).

      As Baggs also pointed out, regression often only reallocates market ‘reactions’. Sometimes more credibly than other times. Regression cannot credibly handle view adjustments; usable site area vs gross sites, most quality differences and room counts or features reported in a mandatory UAD format which may or may not be recognized in local markets.

      Joyce didn’t cite all the specific pitfalls of MLR but my own research suggests the following are among some of its pitfalls.

      At best, it only captures about 70% of real market participants’ perceptions. That means that the other 30% is re-allocated among the 70% items…assuring that those too are now compromised. In the end, the ‘scientifically supported method is not as accurate, or any more accurate than the appraiser’s own practical experience and market observation-based ‘opinions’ (which we no longer cite).

      Again – Copy that verbiage. Modify to fit your understanding and concurrence if needed, or use it damned near as written.

  10. The first sentence in the article says “How much credit should we give ourselves when it comes to making adjustments?”

    Wrong premise out of the gate, or poor choice of words.

  11. Appraisers are not the only people who “make adjustments”. Humans do. We adjust where we shop based on amenities, location, features and prices. We adjust what vehicle we purchase for similar reasons. Heck we even pick our mates based on our “adjustments” for features, intelligence, location, etc. 🙂 As Appraisers we are paid for our opinion, how we formulate that opinion is up to us! But nice article, apparently nothing appeals to an Appraiser more than a good argument! 😉

  12. Avatar Mark Ziegler says:

    I find this an extraordinarily interesting debate given I was a Certified Assessor for 17+ years and have been a licensed and Certified Appraiser for 26+ years. The first caveat, as an assessor, is that I live in one of only three states that currently statutorily require an interior inspection to establish value which, as I personally believe, is “as it should be”. While owner’s don’t have to cooperate, most do. I’ve built multiple mass appraisal models based upon this data and, as is the case with any valuation modeling, there were significant outliers that necessitated dealing with individually (didn’t “model-match” the market). In 1994 I approached the state (Wisconsin) to use our own property record card as opposed to the state-issued card for property data collection in an effort to collect more significant value-related differences and we were approved. It was amazingly more accurate in terms of value but, I must state, it took vigilance to keep all appraiser’s on the same page (seeing the same thing) in terms of ratings. While it was great to have such a significant universe of properties as opposed to 3 “comparables” to “fine tune” indicated values based upon market actions and reactions, the base of all of these models is the cost approach. And, when you have outliers and no similar sales, you can legally rely on the cost approach as an indication of value (good luck doing that with a lender). The last revaluation I administered was 1999 and we seriously fine-tuned this to include updated electric service relative to chronological age as well as estimated REL of major components such as roof, siding, HVAC, plumbing and quality and size of appurtenances. While unbelievably accurate regarding market reaction based upon extracted adjustments, there was a backlash from the “taxpayers” regarding these determinations. Arguments being, ” a roof is a roof” or “a furnace is a furnace” etc.

    It was an interesting experience and, while I apologize for the long-winded intro, it amazingly dovetails.

    Enter UAD and trying to fit everything into a “box”. Useless. And, if the author does primarily rural properties as I do, totally useless. I encounter “high Q3 as opposed to low Q3” and “high C3 as opposed to low C3” all the time, just as it’s been prior to UAD and make appropriate adjustments accordingly. Appropriate and supportive adjustments can be reasonably and supportively extracted from the market for qualitative as well as quantitative adjustments. Unfortunately, and especially for professional appraisers, this is simply something many appraiser’s don’t do and thus don’t charge accordingly for.

    Long story short, there’s unquestionably value-related differences between properties (especially limited rural sales) that can be reasonably extracted and supported (adjustments). There’s also inexplicable actions and reactions in the market everyday. Right, wrong or indifferent, it’s the way of the world. My conclusion after 30+ years in this industry is that while adjustments are unquestionably warranted, an indicated “range of value” would better suit user’s as opposed to a “specific” reconciled indicated value. While I love what I do, obviously, if I had a crystal ball I’d be in a different line of business.

    • Mark, that is one of the most thorough explanations I’ve ever heard re Mass models for taxation and CA; as well as the need for continued market derived adjustments.

      There are two major problems with a range of value: (1) Lenders won’t accept it, or they would default to the low end of the range; & (2) There are good state regulators, with real appraisers and there are bad state regulators who completely ignore or don’t understand applying USPAP except to see it as a prosecutorial battle to be “won”.

      The latter would then have TWO points of value to attack (both ends of the range) rather than a single point ‘plus’ an inferred acceptable margin in either direction.

      I thought your post was outstanding.

    • Baggins Baggins says:

      Well, it’s the permitting game. Homeowners whom can do it all themselves without getting all those permit records are the only ones whom can beat the tax man. The 4th is also about protecting citizens from excess taxation.

      TEA, and that’s why people these days are often more interested in consumerism than home remodeling, you only get taxed once when you buy an item off the shelf, upgrade your tech, customize your whip. When you remodel your kitchen like a good boy or girl using the permit process, you’re rewarded with an increased taxable value that keeps on giving year after year. I’m talking about opting out of mill levies here. I’m open to suggestions. Ha!

      • Avatar Mark Ziegler says:

        It’s always been a game of cat and mouse. Merits of your “reward” aside, this isn’t necessarily always a bad thing.

        I was scheduling inspections one year for assessment purposes based upon building permits issued the year before. One of these was permits pulled for a “fix and flip”. The building inspector had to conduct an inspection on this dwelling as well, so we decided to go together and save the owner an additional trip. Upon arriving we found the entire interior had been re-drywalled. The building inspector stated :I explicitly told you not to drywall until I inspected and signed off on the electrical”. He then said “I’d hate to have to make you tear all the drywall out, but I have to do something”. He took a keyhole saw out to remove a portion of the drywall at a GFI outlet in the kitchen and check the connection at the box. He found the owner (rehabber) had wired the entire kitchen and family room with extension cords instead of romex. This could have saved somebody their life had the dwelling burned down.

        In terms of suggestions, I guess there’s always California’s “prop 13” that caps the base assessment as 1975 value with no more than 2% annual increases unless and until the property sells. Can’t say whether that’s bad or good, but I’ve never been a major fan of anything happening in California where laws are concerned.

        • Hi Mark – Interesting anecdote re extension cord hazard.

          As for Prop 13 (Now Article XIII of our State Constitution), relatively (exceptionally?) few properties are still at 1975 levels +2% per year. A bigger and more beneficial side of Prop 13 is that new buyers pay 1% of the (new) sale price as their tax base, which is also capped at 2% of the 1% per year (plus any special locally voted assessments; typically another 0.0015-0.0025).

          Prop 13 has been an exceptionally good thing for owners and assessment districts alike (though they like to argue otherwise because it stops THEM from arbitrary annual increases to fund union employee pensions). (I’m not anti-union pensions – I’m just anti-government incompetence in funding them).

          IF it were not for Prop 13 our property taxes and property values would tend to mirror those of Oregon, or perhaps Washington State. Existing long term owners are not forced out of their pad off houses by ever increasing taxes. Public Agencies benefit from a majority of houses resale tax increases about every 5 to 7 years.

          An existing house bought in 1985 for $150,000 may have only a $1,500 tax base (+ a bunch of 2% increases taking it to around $2,300+- total). When it now sells in 2019 for $850,000 the new tax is $8,500 Plus voter special assessments of $1,275 for a total of $9,775. Without Prop 13 that 1985 price would only be around $300,000 today and the tax perhaps $4,500+-.

          Residents benefit from the lower millage rates which prevent similar property value increases other states. With typical American property turn over every 5 to 7+- years, government benefits too by greater longer term increases than they would otherwise see.

          It may be the only thing we’ve done right in the last 60 years aside from air pollution laws of mid 1960’s to around 1990’s (then went nuts again and banned many bakeries)

          • Avatar Mark Ziegler says:

            Hey Mike,

            Glad to hear from the front line. Given it didn’t affect me, like many other things, I just never followed it. Because of property churn (5 to 7 years) I can see where this could work. Assessed values, in a way, are somewhat of an “afterthought” given that when local government runs amuck, they simply apply the mill rate necessary to raise the capital for the approved annual budget predicated upon the total municipal assessed value.

            For the most part, and in theory, the purpose of the assessor is to establish market (assessed) value for the purpose(s) of creating parity in tax burden. It’s rather incredible how many people view the assessor as the “tax man” when, in fact, they truly have no control whatsoever over your tax burden outside of attempting to support parity.

            When I ran a revaluation firm (bringing jurisdictions into Department of Revenue statistical compliance for assessment purposes) I never ceased to be amazed at taxpayer revelations. Once we produced the assessment roll and presented it for public inspection at the (City, Town, Village) Hall, many would show up to check the values. While we’re statutorily required to send a “change notice” if there’s any change in a property assessed value, this would still draw a crowd. It really didn’t have a significant impact on the percentage of owner’s contesting their assessments, but when I’d question people about coming in to inspect the roll, they almost always had the same response. “I’m not necessarily happy, but I had to make sure my neighbor is getting screwed the same as me”.

            Most jurisdictions are relatively smart about this, realizing their constituents are anticipating a “bend over” moment, and they adjust the mill rate for that year down accordingly. However, the mill rate does have a bad habit of running rampant in the following years.

            While it certainly isn’t supposed to be political, I could cite numerous occasions where the “powers that be” lobbied for “favorable” status for certain property owners. I’m not a political animal where valuation is concerned and, in a slight degree of irony, many didn’t like the fact I was fair across the board. Nevertheless, it was a great run, unbelievably insightful and nothing short of absolute affirmation for why adjustments are, in fact, both appropriate and necessary.

            As a side note, being an assessor and developing these models has lead to my making consistent adjustments in an appraisal report regardless of how potentially miniscule they may be. Everything (in my reports) is adjusted appropriately and rounded to the nearest “$100”. I know a lot of appraisers won’t adjust for what they deem to be nominal differences (e.g. 100 s.f. GLA. 1,000 s.f. site difference, etc.) and, it’s quite possible that’s true in their market. Kind of interesting though, after numerous reviews, how this is often used to meet “bracketing” expectations..

            • What you describe re millage rate bumping is rampant in Texas from what I’m told (specifically Laredo area). Its a non disclosure state. I’ve heard trustees deeds are even used in some cases to argue value.

              Anther allegations are five largest families in area with huge ranch holdings pay relative pittances while average folk son typical sfr lots pick up the slack. Again, political and a patronage issue.

              No question though. When County Board decides they need more money the assessed valuations go up because apparently, the millage rate itself is limited. Tax Protest work can be very good down there from what I hear.

              Thats a huge drawback of non disclosure states. Consumers and owners think “Privacy” is the big deal, while they have no way of knowing if big money is shifting the burden to their backs. Non disclosure is a horrible rule that ONLY HARMS those affected by unfair assessment..

  13. Avatar Mark Ziegler says:

    Thanks Mike.

    I deem it an honor coming from you.

    I’ve been approached through the years by a number of companies developing CAMA (computer assisted mass appraisal) programs to assist in design and development. Kind of cool, but all statistics with a “fudge factor” override (used incorrectly and way too often). That said, as of late my state has required a USPAP Statement be included in the annual assessment roll and I was somewhat shocked at the amount of assessor’s that contacted me regarding what and/or how they should meet this requirement. I haven’t done assessment work per se for almost 19 years, but was the only (moron?) who actually included a USPAP Statement in his annual roll(s). I actually called some appraiser’s out for USPAP violation(s) during 70.85 hearings (contestments), but a story for another day given the state had no idea how to act.

    Unquestionably, at least as of now, lenders won’t (don’t) accept a range of value. And certainly, if you’re lending money, prudence would dictate choosing the lower end of the indicated value range. However, without adjustments, are we really that good? I posit we aren’t, especially in heterogeneous markets with wild 12 month sales swings. And, for those of us that conduct review assignments, if 10% is a “reasonable difference of opinion” then what’s wrong with a range of indicated value? Especially if the determination of indicated value is within the supposed “difference of opinion” value range?

    I’m not a political animal, which is why I drifted away from assessment work. However, it’s unfortunate and unquestionable at the same time that regulators tasked with enforcing USPAP have no concept of its meaning and wield it as a “scare tactic” sword. Fortunately not personally, but I have somewhat recently assisted my better half through such a colorectal exam having nothing whatsoever to do with the specific original complaint. The lender simply “coached” these people because they didn’t get the value desired and resulting commission. Again, story for another post.

    I reiterate I love what I do and, I’m fairly good at it. But this industry is starting to make it hard to “jump out of bed” in the morning.

  14. Mark, I hope you will write an article about your better half’s state experience (& or anything else that strikes your interest-you have a gift and wealth of experience).

    You hit my number one objection on mass models /regression (including and especially Collateral Underwriter). All have a built-in fudge factor. Touted and sold as the science-based alternative to subjective (experience based) market perceptions; the mere process of data scrubbing introduces subjective data interpretation into the ‘science’.

    Coupled with flawed databases my position has always been that the ‘tool’ is no better than local broker surveys; or cost based derivatives. Certainly less reliable than true pairs, & often times broadly paired ‘sensitivity adjusted’ adjustments.

    I too still love the oddball stuff I do, though if I were dependent on loan production, non-complex appraising with today’s ridiculous turn times; low fees and equally assinine stips and ROVs I’d seriously consider going back to running a small marine maintenance and salvage company. Too old & worn to do the diving work anymore but I can manage, and teach.

  15. Baggins Baggins says:

    Glad I revisited this article, awesome follow up comments here.

    Wouldn’t it be something if the government leveled the playing field by recognizing cash equivalency in mortgage costs regarding taxable assessed value base? I mean, the guy whom got raked over the coals with a high rate, he gets to enjoy the same tax base as the guy whom paid cash. His final sales price may be equivalent to other homes sales prices, but his out of pocket costs which include a measure of pass through taxation coming down from the lending services, that’s a lot higher. In a way, people whom borrow to buy are double taxed compared to those whom pay cash.

    I don’t know though, the mip deduction is sort of like a pass through taxation credit back, so the presence of such a possible taxation relief benefit ultimately entices more people to stay indebted and continue to seek out mortgage services, rather than less.

    How can we adjust the taxable approaches to real property to incentivize and encourage complete non-indebted home ownership as well as encouraging better more thorough home maintenance? Well cared for homes make for a more healthy individual and community where as higher taxation will tend to grow government which results in a less healthy community and higher quantity of unhealthy and run down homes. Are the innovations through the assessment community really all that welcome when the advancements ultimately further the cause of more taxation rather than less?

    • Avatar Mark Ziegler says:

      Interesting take.

      There are very few people who can afford to pay all cash for their home, although down-payments can vary significantly and, in some cases, this may be possible when down-sizing. In terms of incentivization,, I can’t see how you could directly do so relative to indebtedness. I’m certainly not intimately familiar with it but, to a degree, it appears California’s “Prop 13” does so in a way that, capped at 2% annually, one could complete major repairs and/or renovations without being assessed at the full market value of such.

      Regardless of the type of system (ad valorem, partial, etc.) the intent is to establish an equitable base whereby every property owner’s pays what’s deemed “their fair share” relative to maintaining local government and infrastructure. It’s nice in theory but, at least residentially, I don’t necessarily see how a $1,000,000 property owner places more “wear and tear” on the infrastructure than does a $100,000 property owner. A debate for the ages.

  16. Yes adjustments should be done. Why? Because buyers and sellers typically add and subtract for physical and locational characteristics in their head all the time. That’s the way the real market works even though it’s often difficult for the appraiser to quantify those differences with a consistent and high degree of accuracy.


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Should Adjustments Actually Be Done?

by Dustin Harris time to read: 5 min