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The author addresses the adjustment process in the sales comparison approach, and advocates an alternative to the now conventional use of specific dollar-amount or percentage adjustments, as applied to specific differences between properties. An example of this alternative--direct and overall property-to-property comparison--is presented, with special consideration given to certain salient factors: date of sale, terms of financing, and location.
Fundamentally, appraisal is a process of comparison. This assertion applies to the market overview and neighborhood sections of an appraisal as well as to each of the three traditional approaches to value. The process of comparison is most obvious in the sales comparison approach. The argument advanced here is that the sales comparison approach would benefit from a more direct form of comparison than is usually applied.
The most useful method of comparison for residential appraisal is to focus on the property or comparable sale as a whole and undivided entity. The usual practice of employing a fairly detailed adjustment grid with specific percentage or dollar-amount adjustments can at times be misleading. A systematic adjustment process may be unrealistically rational and methodical. In the marketplace, one property's strong curb appeal may overshadow the specific features of central air conditioning, an oversized rear yard, and a basement recreation room offered in a competitive property.
By concentrating on specific attributes, a grid-adjustment process may miss the correct overall conclusion--that is, should there be a net positive or negative adjustment? The danger of this is most likely when one of the major adjustments involves such subjective (yet critical) items as overall attractiveness, quality and condition, or functional efficiency. There is an inherent tendency toward conservatism when quantifying (i.e., estimating a dollar-amount or percentage adjustment) highly subjective features involving style, fashion, and taste. In contrast, physical items that are readily expressed in units of comparison (e.g., building area, lot size) or those that have a fairly definite known cost new (e.g., built-in appliances, air conditioning), may be overemphasized in a conventional adjustment process.
In addition, a systematic grid-adjustment process that employs specific percentage or dollar-amount adjustments is not characteristic of the behavior and thinking of most purchasers of residential property, and in that sense may be unrealistically rational.
As an alternative, bracketing the subject property between two sets of comparable...