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I know I should probably already know this, but I'm going to ask anyway. I was doing a BPO and two adjustments came up (I hate doing adjustments.) How do you get the following:
1. Year built adjustment
2. Days on Market (DOM) adjustment
Thanks and I look forward to some good replies that may help someone else too.
Great questions and it will be interesting to see responses. If your question has to do with using comparables outside of the date range due to lack of sales, I would adjustment by determining the local market decline/appreciation percentage that is outside of your comparable sales BPO date range. If you can't get monthly data on decline/appreciation, try quarterly, prorate to a per day percentage and adjust to how many days outside of your date range the comparable sold. Obviously note how you determined your method and source of information.
Also, the National Association of BPO Professionals has a great "guide" you can use for parameters. I found it it using Google.
John, first of all you just said a mouth full, so thanks. If I learn to do all that I better write it down step-by-step to remember the procedures until I get it down. The National Association of BPO Professionals? I didn't know that group existed, I'm going to look it up too. It will be good to see what others are doing on adjustments on BPOs. I look forward to their response.
Careful on the DOM adjustment, the only time this adjustment is necessary is when there have been no price reductions for a long period of time.
Example 1) A home priced at $300k and has been on the market for 400 days with NO price reductions will need the adjustment, however that does not mean the price was justifiable when listed 400 days ago. If an average sale price for like properties was $260k and values have dropped 35% in that time period it is easy to adjust 260 x .35 = a $91k plus the $40k it was overpriced for total downward adjustment of $131k which results in a new value of $169k, this calculation should line up directly with the recent sales comps. You must note the the property was over priced. This is easy to justify in notes and I have never been challenged on this.....not sure they really care?
Example 2) A house that has been listed for 400 days starting at $300k when same properties were selling at $260 and has had many downward adjusted adjustments and is currently listed at $180k will NOT need a DOM adjustment. It just means it was priced to high to begin with and the priced reductions were not soon enough, and still slightly higher than market value.
If you must use a comp that is questionable always make it your third comp and document exactly why and how it was calculated, you won’t have an issue.
Now for the year built adjustment, you should be using comps that are either 5 years up or 5 years down from the subject, if there are none try this calculation (not saying it is right or wrong but again….I have never been challenged on it) if you have 2 comps that were built at a similar time as the subject and one that is 10 years older I feel that in the $100k range a buyer would pay $5k less for the older home, or if reversed $5k more for the newer home. At a $200k range a buyer might pay $10k more or less, and so on and so on.
You do have to be careful not to double dip on this, in other words if you are going to mark the older home as fair condition and the newer ones as good condition because of the age you will be adjusting twice for the same thing. Also homes built in the 40’s and 50’s will need more of a year spread to need an adjustment as they can be 15 years apart and still be comparable.
I have learned to love the BPO’s that require adjustments because I can get value much closer. Each company has different but similar guidelines and many times they do not address everything, so it is good that you post questions like this, who knows….someone may offer up something that I like better than what I am currently doing.
Thank you for crystalizing my vision of
adjustments. I agree 100% with your
strategy and feel validated in my own
The first 500 or so BPO's I feared, dreaded
and avoided making adjustments for any
thing, least of all DOM. Since I have been
writing interiors I think it's important to take
the DOM into serious consideration upon
the realization of how many homes are vacant
and deteriorating from lack of maintainance.
This brings DOM into the #1 slot of importance.
When a property is overpriced and the seller
neglects to monitor and make appropriate
adjustments the structure falls prey to the elements.
Winter comes and goes pipes break, mice move in,
mold, and bacteria spread.
My point is: Keep up the good work! We can sell
these places. Where there's a vacancy there's a
home in need of a family!
Thanks Tony for your call and for sharing this valuable information, I will definitely try using this formula. I hope it helped others too. I didn't know there was a National Association of BPO Professionals, I'm going on-line to look them up.