# How Good Are You? Prove it!

**Support and prove your adjustments!**

Never mind that it’s not possible. Just do it!

Do that, or face the wrath of being declared in “violation” of USPAP. So what, exactly, does USPAP say about adjustments for real estate appraisal? Well? Go look it up. You have a copy.

Did you find what I found?

Yep, . . . n o t h i n g . . . The word “adjustment” is not found, anywhere there. In fact “adjust” is found only once in USPAP. It is in Standard 6, on mass appraisal.

So we are left to what clients demand and define. GSE’s such as Fannie and Freddie have written guidelines however. But that’s a story for another time. Today’s question is: What types of adjustments can be made, and how can we ‘calculate’ them?

**First off, let’s be clear on one thing. **

We have been taught to “support” our stuff: our opinions, our estimates, our calculations. The word “prove” sounds like this can be done like a mathematical proof, just like you loved to do in your math class.

Well, if I calculated it right in the first place, I would not have to prove it. If it was an opinion, then that’s what it is, an opinion.

- Trust me, I’m smart, been appraising for xx years, and have XXX designation(s).
- Here are the facts . . .
- Here is the reasoning — deductive logic: If A is true, then B must be true, formulas;
- Here is the reasoning — inductive inference, models (three approaches), algorithms;
- Here is the story . . .

We are taught there are three ways to compare/adjust from a comp to a subject: quantitative, qualitative, and relative comparison. Why and when can each of these be applied?

- Quantitative analysis requires that the data be numeric – with measurable intervals, like inches on a tape measure.
- Qualitative analysis only requires an
*ordinal*observation: better, or worse, larger or smaller. An example is view. Most people agree on better or worse, but cannot measure how much.- Relative comparison is a form of qualitative, but the method is to put each comps particular feature in sequence from best to worst, then position the subject in there.

**Simple, right?**

As it turns out, there is more at play. Like — how much data do you have? How reliable is each datum? Did you pick the right data set to begin with? How good is your measuring stick?

But wait! There’s more! There is a trade-off between precision and understandability. Like rounding numbers. And like some things really are better done by a trained human mind, like fitting curves to data in plots.

And remember, always be a good boy/girl – support and prove your adjustments, and never, ever violate USPAP adjustment instructions.

Steven Smith

April 5, 2017 @ 8:18 am

My first job with a S&L included using their List of Adjustments, which was used in every Location, Size, Age and Quality range from Beverly Hills to the inner cities. When I questioned the adjustments, I was asked to prove my point. I took Time, which was on the List at 1/2% per month, and came back with proof that it was 1.5% per month.; so they changed to 1% per month.

On the List was $1.00/SF for Lot Size, $500/year of Age, $1,000/ step for Quality and Condition, $20/SF of Improvements, $500/Patio, $500/Garage, $500/Fireplace, $5,000/Pool, etc

Not one of the Adjustments was tied to the market. If we came in below the Sales Price, we threw out one sale and grabbed a higher one, and voila; we Made Value. A complete and utter perversion of what the Approach was intended to do.

It was not until I did my SRA Demonstration Report research wherein I did 57 Pairings trying to prove or document the adjustments; that I actually began to learn by market evidence what they should be.

I started out trying to prove that Pools were worth less than their Cost. The S&L had told me they were worth $5,000 or half of their Costs. My subject was a 25 year old tract home with an enclosed patio addition and a 10-year old Pool. I checked the permit file and called the Pool builder and asked if he remembered it and he did. He said it was their Ad Special. So, I asked what it cost then and what it would cost now. The answer was $2,995 then and $9,995 now.

My Pairings showed the value to be $11,000 in the Winter and $13,000 in the summer. My subject with out the Pool was worth about $120,000. From that point on, my notion of what a pool was worth was tied to the otherwise property value, how much more did it contribute. I came to using a percentage, like 5% or 10%, depending on the strength of the Location, the Market Conditions, the Age and Condition of the Pool, as well as Amenities. Doing so has served me well, even in situations where I was cross examined on adjustments.

Today I do a lot of Qualitative valuations comparing my subject to the larger body of data and how it fits, is it more better, or more worser than the data-set, would it sell above or below the mean indicator, and why. This too has served me well as it is easy to explain even to a jury, if not to a group of appraisers.

Thanks George for your continued thought provoking writings and teachings.

Dave Towne

April 5, 2017 @ 9:07 am

I’m in a 12 step program and admit my failure to follow the USPAP adjustment instructions. Hopefully as I continue to attend my sessions I’ll be redeemed and forgiven. Thank you for your support.

mhlappraisal

April 10, 2017 @ 4:15 pm

George – thanks for posting the link to the class. I really appreciate the time you took to answer the question “how do we know when we are leaving the quantitative realm and moving into the qualitative”. Again – thanks for sharing all the resources, makes for a rich learning environment.

Gary Kristensen

April 10, 2017 @ 11:50 pm

Thank you for the post George. I love qualitative analysis. Even when I do an adjustment grid, I order my comparable sales by price and keep looking back to the qualitative analysis to see if things look reasonable.

Todd Redington

April 21, 2017 @ 7:44 am

Do not discount the importance of the “Uncle Bob” factor in establishing market support for an adjustment…..similar to Steve’s corporate adjustment list … cuz that is what Uncle Bob always uses

Then there is the oh so “PC” sounding “sensitivity analysis”..or as I like to call it the “20 questions adjustment”…. Well I just started at $25/sf and kept increasing the adjustment rate for as long as the adjusted value range kept getting narrower. When the next higher adjustment rate caused the range to get wider, I stopped.