Adjustments (in Appraisal)

Definition

Adjustments (in Appraisal) refer to dollar or percentage values that are added to or subtracted from the sales price of a comparable property to estimate the value of a subject property more accurately. Adjustments are needed to compensate for any differences in features or conditions between the comparable property and the subject property. This process helps ensure that the comparison between properties reflects an accurate market value for the subject property.

Examples

1. Lot Size Adjustment:

   • If the comparable property has a larger lot size than the subject property, an adjustment would be made to decrease the value of the comparable to account for this feature.

2. Location Adjustment:

   • If the subject property is located in a more desirable neighborhood than the comparable, an adjustment would be made to increase the value of the comparable property.

3. Amenities Adjustment:

   • If the comparable property has a swimming pool and the subject property does not, an adjustment would be made to reduce the value of the comparable property.

4. Condition Adjustment:

   • If the comparable property is newer or has better maintenance than the subject property, an adjustment would be made to account for the inferior condition of the subject property.

Frequently Asked Questions

Why are adjustments necessary in appraisals?

Adjustments are necessary to ensure that the appraiser can provide an accurate and equitable valuation of the subject property by accounting for differences in features, conditions, and locations between comparable properties and the subject property.

How are adjustments determined?

Adjustments are determined based on market data, professional judgment, and experience. They can involve detailed analysis of recent sales, costs of improvements, and market trends to quantify the differences between properties.

Can adjustments change over time?

Yes, adjustments can change over time as the real estate market evolves and the relative value of certain features or conditions shifts.

Are adjustments standardized?

No, adjustments are not standardized as they rely heavily on the specific circumstances of each appraisal, including market conditions and the unique characteristics of the properties being compared.

What happens if adjustments are not made correctly?

If adjustments are not made correctly, it can result in an inaccurate appraisal, which can impact real estate transactions, financing decisions, and property taxation.

Related Terms

Comparable (COMPARABLE)

A property that is similar in features, location, and condition to the subject property and is used as a benchmark in appraisal for comparative analysis.

Subject Property (SUBJECT PROPERTY)

The property that is being appraised, for which an appraisal value is sought. Adjustments are made to comparable properties to accurately evaluate the subject property.

Market Value (MARKET VALUE)

The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing.

Sales Comparison Approach (SALES COMPARISON APPROACH)

A method used in appraisals that involves comparing the subject property to similar properties sold recently to estimate its market value.

Online References

• Investopedia on Adjustments in Appraisal
• Appraisal Institute
• Federal Housing Finance Agency

Suggested Books

• The Appraisal of Real Estate by Appraisal Institute – This book covers comprehensive fundamentals and practices in real estate appraisal.
• Real Estate Principles: A Value Approach by David C. Ling and Wayne R. Archer – This text offers an in-depth look at the principles and methods used in real estate valuation.
• Fundamentals of Real Estate Appraisal by William L. Ventolo Jr. and Martha R. Williams – A practical guide for understanding the appraisal process and making accurate valuations.

Fundamentals of Adjustments in Appraisal: Real Estate Basics Quiz

### Why are adjustments made in real estate appraisals? - [ ] To inflate property values. - [ ] To deflate property values. - [x] To accurately reflect differences in properties. - [ ] To standardize property values. > **Explanation:** Adjustments are made to accurately reflect the differences between properties to provide an accurate and fair valuation of the subject property. ### How is the need for an adjustment identified? - [ ] By inspecting only the subject property. - [ ] By assuming all properties are the same. - [x] By comparing the subject property to comparable properties. - [ ] By analyzing historical market trends alone. > **Explanation:** The need for an adjustment is identified by comparing the subject property to comparable properties and noting differences in features, conditions, and locations. ### Which component can be adjusted during an appraisal? - [x] Lot size - [ ] Paint color - [ ] Carpet style - [ ] Window treatments > **Explanation:** Lot size is a quantifiable feature that can significantly impact property value, necessitating an adjustment during an appraisal. ### What primary factor influences the amount of an adjustment? - [ ] The appraiser's personal opinion. - [x] Market data and trends. - [ ] Suggestions from property sellers. - [ ] Historical precedent of the area. > **Explanation:** Market data and trends influence the amount of an adjustment, ensuring the appraisal is grounded in current market realities. ### How should an appraiser handle a comparable property with a swimming pool, while the subject property does not have one? - [ ] Increase the comparable's value. - [x] Decrease the comparable's value. - [ ] Make no adjustment. - [ ] Directly compare without any changes. > **Explanation:** The appraiser should decrease the value of the comparable property to account for the additional feature not present in the subject property. ### What is the effect of location on adjustments in appraisal? - [ ] No effect. - [ ] Minimal effect. - [x] Significant effect. - [ ] Only relevant for commercial properties. > **Explanation:** The location can have a significant effect on property value, requiring adjustments to accurately compare properties located in different neighborhoods or areas. ### What does a positive adjustment signify in an appraisal? - [ ] The comparable property is inferior. - [ ] The comparable property is identical. - [x] The subject property is superior. - [ ] An error in appraisal. > **Explanation:** A positive adjustment signifies that the subject property is superior in some aspect compared to the comparable property. ### Adjustments made in percentage rather than dollar amounts are typically related to: - [x] Market-wide factors. - [ ] Specific property features. - [ ] Structural details. - [ ] Age of the building. > **Explanation:** Adjustments expressed in percentages typically relate to broader market-wide factors that affect property values on a larger scale. ### Which approach uses adjustments predominantly in real estate appraisal? - [ ] Cost Approach - [x] Sales Comparison Approach - [ ] Income Approach - [ ] Gross Rent Multiplier Approach > **Explanation:** The Sales Comparison Approach primarily uses adjustments to compare the subject property with recently sold comparable properties to determine its value. ### An incorrect adjustment can result in: - [x] Inaccurate appraisal value. - [ ] An unbiased valuation. - [ ] Exact predictions of market behavior. - [ ] No impact on the appraisal. > **Explanation:** Incorrect adjustments can lead to an inaccurate appraisal value, affecting real estate transactions and financial decisions based on the valuation.

Thank you for exploring the concept of adjustments in appraisals and diving into our property valuation quizzes. Accurate appraisals are essential for fair real estate transactions, making the role of adjustments critically important!