My New Blog

Typically, appraisers may make an adjustment for the difference between a four-bedroom home verses a three-bedroom home. One method appraisers utilize is linear regression analysis, which is used to determine an adjustment of an independent variable or a property characteristic. The adjustment is market derived, meaning what buyers in the subject's market area are paying, in this case, for the difference, if any, in bedroom count. I recommend that you research, "Linear Regression Analysis" to get a better understanding of this technique. To simplify this approach, one can research and pull 20+ (the more, the better) "comparable" sales of three-bedroom homes in the subject's market area and determine the average sales price for the three-bedroom homes. Then pull a similar number of sales of four-bedroom homes in the same market area and determine the average sales price for the four-bedroom homes. In theory, the variance between the averages of the sales prices should demonstrate what buyers paid for the difference in bedroom count. Keep in mind that this method may not be accurate if the selected comparable sales are not truly comparable. I recommend you refer to page 23 in "ABC's of a CMA, Comparative Market Analysis" by Kelly Kellogg for her definition of "Comparable". The book can be ordered on line at: TheAppraisalExpert.com However, if you have a one-bedroom dwelling that is your subject property, you shouldn't compare it to a two-bedroom or a three-bedroom dwelling. You should select other comparable one-bedroom sales for your analysis. Likewise, if you have a two-bedroom dwelling, you should use similar two-bedroom comparable sales. Typically, most buyers would pay more for a three-bedroom dwelling than they would pay for a two-bedroom dwelling, and, most buyers would pay more for a two-bedroom dwelling vs. a one-bedroom home. It would be best to utilize 3-bedroom sales for a 3-bedroom subject and 4-bedroom sales for a 4-bedroom subject, and so on. Kelly Kellogg, The Appraisal Expert 407-644-8885