The Anatomy of Adjustments $$$
Part 2 of our Anatomy Series

Part 1 if you missed it was Anatomy of Comparable Sale Selection.

Adjustments are at the heart of how Appraisers come to determine the final value for a property. How and when are they used and how do they come up with those adjustment amounts?

This newsletter will help to provide the reasoning behind adjustments and when they are made.

The first misconception out there is that there are set dollar adjustment amounts for various amenities. Many years ago there were "lists" of adjustments passed out to Realtors, even yours truly provided such a list. But this was only meant to provide a guideline and instead it somehow became the "Gospel" for Realtors to use when completing their BPO's or Market Analysis Reports. That was never the intention, but it happened. So please toss those lists out if you still have one!

So where do we go from here? Let's start at the beginning: Adjustments are for the SOLE purpose of making the Comparable Sale properties equal to the Subject in all aspects where the variations are determined to have a dollar impact on value. Once all adjustments are made then we reconcile the "adjusted sales prices" of the comparable sales to come up with the Market Value for the Subject. Market approach to value is the primary method we use and carries the most weight in appraisal reporting.

Some of those items include, but are not limited to the following:

  • Real property rights conveyed (Fee Simple, etc.)
  • Financing terms (Conv, FHA, Owner, etc)
  • Conditions of sale, such as motivation (distress or arms length)
  • Market conditions affecting the subject property
  • Location of the Subject
  • Physical characteristics for both the land and improvements
  • Various types of depreciation
  • Use considerations, such as zoning, water and riparian rights, environmental issues, building codes, and flood zones
  • And any other factors that may affect the market value of the subject property


When making adjustments or reviewing appraisals remember 2 things: CBS AND CIA . They are acronyms for how adjustments should be applied. " C omparable B etter S ubtract or C omparable I nferior A dd". When we make adjustments we make them to the comparable sales PRICES, never to the Subject. So, if you have a comp that is larger in square footage than the subject, you should see a MINUS sign or a negative adjustment to that comparable sales price to make it even with the subject. While that seems counter intuitive, remember you are adjusting down or up from the sales price of the comparable sale. So if the comparable is larger, assuming all else is equal it will likely sell for a higher price. So you need to SUBTRACT from that higher sales price in order to make it equal to the subject which is smaller. This applies to all features of the comparables against the subject.

While most appraisal software automatically assigns a negative or a positive adjustment if the square footage is larger, not ALL features are automatically adjusted downward or upward for the Appraiser. So make SURE that the adjustments you see are in the right direction OR that could make a significant impact on value . If there was supposed to be a positive adjustment and the Appraiser put a minus sign in front of the number that would bring the value of the Subject down, when indeed it should be higher. So watch closely for any adjustments that appear to be in the wrong direction!

So how do the Appraiser's determine the actual dollar amount of adjustments? There are several methods used by Appraisers.

  1. Matched Pair Analysis: Take 2 homes relatively equal in amenities, size, square footage, etc. except for 1 item. Maybe one had a fireplace and the other did not. Look at the variance in sales price. If it was $2,000, $4,000 or $5,000. Whatever that number is, that is the adjustment that should be made. **Not every sale is so close to the Subject in amenities, unless you are in a cookie cutter development where all the homes are very similar. So it becomes a more complicated method to extract each amenity and its value impact in the market. Once you know the site value, which is always the very first step an Appraiser should take, then you know how much you should adjust for site variances between the comps and the subject site. This is known as the Allocation Method (what percentage of the total value belongs to the site). The other amenities are adjusted after the site adjustments are made.
  2. Cost approach to value method. There is a cost to replace the home, plus the site value, minus depreciation of the improvements. The cost method is a secondary method that is included in most appraisal reports and can be used to extract other adjustments such as condition. Since condition directly impacts effective age of the subject you can divide effective age number variance by the remaining economic life of the properties. The contribution of the subject improvements (sales price minus the land value) is multiplied by the difference in effective age to arrive at a supported condition adjustment. Complex, a little bit, but it is a fall back for certain adjustments that are not easily extracted in the market place.
  3. We NEVER use price per square foot as an adjustment for square footage variances. WHY? Because the price per square foot includes everything including the site. So that means square footage, site, quality and condition of the home, upgrades, pools, sheds, etc. So when you ask why was the adjustment for square footage variance only $30.00 or $40 per square foot, that is only for that segment of the total property picture.
  4. Regression Analysis. You have to know what you are doing with this method and most Appraisers have software programs that gives them the information they seek with regard to proper adjustments, basement space, pools, age of home, bedrooms, bathrooms, you name it. You have to know what data to input in order for the analysis to be accurate. You know the old saying, Garbage in, Garbage out! That applies here. **Definition of Regression Analysis: "Regression Analysis is a powerful statistical method that allows you to examine the relationship between two or more variables of interest. While there are many types of regression analysis, at their core they all examine the influence of one or more independent variables on a dependent variable"
  5. Appraiser's overall experience with the knowledge as to what the market reacts to positively or negatively and how much they are willing to pay for various amenities. This only comes with years of experience in a given area or a certain property type. Even then, their knowledge has to be backed up with factual data to support their "knowledge based" adjustments.
  6. Grid Method from your own comps:

Looking at the grid below you would expect the subject to have more value than comp 1 but less than comp 3. You can subtract the sales price of comp 1 from comp 2 to determine a square footage adjustment. You can subtract the sales price of comp 2 from comp 3 to determine a contributory value for a pool.

The more variables you have, the more comparables you may need to account for each difference but what do you do with a difference you cannot find in any of your comparables (such as a view)? You have to find sales with and without views to see what their impact is on the market only after you have extracted all the other factors or variances.
AS YOU CAN SEE, THIS IS NO EASY TASK! But this is how it should be done.

WHAT ABOUT QUALITY AND CONDITION ADJUSTMENTS? See below!

I hope this information will help you to understand how Appraisers go about extracting adjustments directly from the market place as that is the only way it should be done or the appraised value will be off.

More importantly, you can review appraisals with this information in mind to make sure that the adjustments are in the right direction as we discussed above and that they make sense in the market when you try some of these techniques above for your own listings.

If you would rather NOT deal with all the numbers and MATH, consider having an Appraiser do that job for you. Then you can concentrate on your area of expertise; Marketing, Negotiating, Research and the many other tasks that you take on as a Real Estate Agent.

Thanks for reading to the end....because you will now know that my next Anatomy Series will be: Anatomy of Quality and Condition : A deeper dive into what Appraisers look for when determining Quality and Condition Ratings for Properties as that impacts the adjustments made for these 2 more nebulous features of a property, but which can be significant to the final value.
If you have any questions or would like to schedule an Appraisal call or email me.
[Lanier Appraisal Service] [770-967-0753] [lakelanierappraiser@gmail.com]