“He Who Adjusts Least Adjusts Best”

When it comes to pricing a home off of Comp’s (“Comparable Sold Properties”), the trick is to minimize both the number and absolute magnitude of the adjustments.

gold2The ideal would be a condo identical to its peers in every respect — floor plan, size, condition, location, market conditions, etc. — with the exception of floor number.

Assuming no “view-break” is involved, the listing agent — or Buyer’s agent, or the Appraiser — then merely adjusts up or down $10k or 1% or some such per floor.  See, “(Manhattan) Real Estate Term of the Day:  ‘View-Break.”

Minimizing Discretion

By contrast, adjustments like swimming pools (at least in the chilly Twin Cities); major additions; and even bomb shelters(!) and bowling alleys are more problematic because:  a) they’re more unusual; and b) Buyers’ preferences and/or aversions are so case-specific (read, “subjective”).

See, “What’s it Worth? Or, Accounting for a Basement Bowling Alley (But Preferably Not)”.

applesThe ideal, of course, is for both the subject property and the Comp to have the same feature.

In that case, they cancel each other out.

When that’s not possible, though (see “a” above), someone’s got to put a “best guess” estimate — or at least a price range — on the adjustment.

Now, add together four or five such judgment calls, and the potential for potentially mis-pricing a home increases exponentially.

Which is why lenders typically limit the maximum, cumulative adjustment to 25% or less.

As l like to tell my clients, “you can compare a Granny Smith apple to a Braeburn . . . but not to an orange.”  (sorry)

**”CMA” = Comparative Market Analysis.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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