Portland Area Real Estate Appraisal Discussion

Appraisers and real estate agents often ask what adjustments I use and/or how I support my adjustments.  The answer is that most properties require a different adjustment that is specific to its market (e.g. size, location, condition, etc.) and there are many different ways to support any individual adjustment.  No one method for supporting adjustments is perfect.  Appraisers should select the method or methods that will produce credible results for the given assignment and available data. 

I recently appraised a roughly 1,200 square foot 1970s ranch home on a city-sized lot in a Portland suburb wherein the quantity and quality of the available data was particularly good.  For this reason, I was able to have a little fun and support my appraisal adjustments for this one assignment in many different ways.  Here are the multiple approaches and real data for supporting my Gross Living Area (GLA) adjustment.  (Information that may identify the subject or comparable sales have been redacted for confidentiality.)

  1. Paired Sales – Paired sales are a cornerstone of textbook appraisals, but textbook cases of paired sales rarely occur in practice. In a common textbook scenario, paired sales are two sales that are the same in every way except the one factor for which the appraiser is trying to estimate an adjustment. For this reason, it is easy for appraisers to forget that a paired sale can have other differences (although it is important that the differences are minimal and that adjustments for the differences can be supported). In this assignment, my grid included four sales that had very little difference from one another except for GLA. After adjusting for a couple of minor factors, the paired sales all suggested an adjustment of $51 and $60 per square foot for GLA.
  2. Simple Linear Regression – I’ve blogged in the past about supporting adjustments, particularly GLA, using simple linear regression. Linear regression is basically analyzing trends in data. (Here is a link to the most-recent post and to a video on how I use this tool.) For this assignment, simple linear regression suggests $53 per square foot when comparing sales price to GLA. Significant variation exists among the data of this sample, but the datum points are spread evenly along the entire regression line suggesting that the indicator is not being skewed by a small subset of outliers. It is okay if the properties in the sample have differences, however it is important to make sure to filter out differences that would skew toward one end of the range or the other. For example, if a larger site size also tends to include a larger home, then it would be important to make sure that the homes in the sample all have similar site sizes or the adjustment could be falsely overstated. Also, it is helpful to the outcome of the regression analysis that the subject property is in similar condition to the majority of the sales in the sample. The following chart shows the linear regression outcome in this appraisal.

    Simple Linear Regression Support Adjustment 

  3. Grouped Data Analysis – This method is closely related to simple linear regression and is essentially many paired sales representing a fast way to estimate an adjustment simply by sorting comparable sales. This can be done using quick searches on the local multiple listing service or using data exported to a spreadsheet. But remember that the same factors that can skew linear regression will also skew grouped data analysis. For best results, it is important to sort out all of the features that might distort the results without sorting to the point where the sample sizes are small and wildly varied. For this assignment, I filtered out all ranch sales in the past two years with a lot size of 7,000 to 9,999 square feet, that feature two baths and three bedrooms, and that were built within ten years of the subject. Sales of homes meeting these criteria between 1,000 and 1,199 square feet have an average of 1,128 square feet and an average sale price of $212,637. Sales of homes meeting these criteria between 1,200 square feet and 1,299 square feet have an average of 1,253 square feet and an average sale price of $220,055. The difference between the average of these two sets is $7,418 and 125 square feet or $59 per square foot. The median could also be compared as well to provide another indicator that is less likely to be skewed by outliers.
  4. Depreciated Cost – The cost approach value in this assignment is consistent with values suggested by recent comparable sales. This suggests that the cost approach is likely valid and could be used as a way to test reasonableness or support adjustments. The subject’s original cost is estimated at $108 per square foot and the depreciated cost is estimated at $81 per square foot. A simple depreciated cost adjustment might not be a good adjustment to apply to comparable sales. This is because the depreciated cost is a straight-line measure from zero square feet all the way to the total area including the kitchen, bath, mechanical, and everything else in the house. For this adjustment, we are just looking for the value difference from a similar-sized comparable to the subject. To obtain this adjustment using the cost approach, I ran a cost estimate for the smallest comparable sale and another cost estimate for the largest comparable sale with no physical changes for anything other than living area (e.g. room count, garage, quality, and all other factors kept equal). The original cost difference between the low and the high came out to $79.53 per square foot. If this number is depreciated based on the cost approach in the appraisal, a reasonable adjustment of $60 per square foot of GLA is estimated.
  5. Income Approach – The income approach was not performed for this appraisal assignment, but if it had been, the income approach could have been used to support another indicator for the GLA adjustment. One way the income approach could be used to support a GLA adjustment is by taking the estimated loss or gain in rent from an additional square foot of living area (can be estimated using any of the above approaches except for cost) and apply a Gross Rent Multiplier (GRM). Critical to this approach is that the multiplier and rent estimates are market derived and that rent might be a consideration for the typical buyer.
  6. Sensitivity Analysis – This method is closely related to paired sales and I think it works best for secondary or tertiary support for an adjustment or helping to reconcile what adjustment is most effective. However, this method is not very useful if adjustments for other comparable sale differences are not accurate. Once all of the comparable sales have been placed side-by-side in a comparison grid and adjusted for all other factors using market derived adjustments, the appraiser can test different GLA adjustments to see what adjustment produces the tightest range of adjusted value indicators. If the appraiser is unsure by simply looking at the data, the Coefficient of Variation (CV) can be applied to each set of adjusted indicators to mathematically test what adjustment is producing the tightest range. The lower the CV, the better the adjustment is working within this sample of sales. Here is a link to a free CV calculator. Just enter your adjusted indicators separated by commas and press calculate. Then test another adjustment and repeat with the calculator. An appraiser could also set up a formula using the Worksheet function in a la mode Total to instantly provide the Coefficient of Variation. For this appraisal, sensitivity analysis helped me reconcile that the simple linear regression adjustment is most well-supported adjustment because it has the lowest CV as seen in the following table.

Paired Sales

Simple Linear Regression

Grouped Data

Depreciated Cost

Indicated GLA Adjustment

$51 or $60





0.00648 or 0.0082





None of the above methods for supporting an adjustment are without limitations and there are many more ways an appraiser could support an adjustment.  Although this is an example where data sets are particularly plentiful, the example shows that information does exist outside of textbooks for supporting adjustments; and when multiple approaches are combined and reconciled, a strong case for the appraiser’s conclusion can be made.  An appraiser won’t always need to go this far to support one adjustment, but if that one adjustment is crucial to the outcome of the appraisal or the appraiser believes they will be challenged on this adjustment, then the appraiser should expand and explore multiple methods for support.

Did I leave anything out or do you want to join in the conversation?  Let me know in the comments below.

If you find this information interesting or useful, please subscribe to this blog and like A Quality Appraisal, LLC on Facebook.  Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos.  If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book us to speak at your next event.  We will do everything possible to assist you.

Thanks for reading,

Gary F. Kristensen, SRA, IFA, AGA

Split Entry Home in Portland.jpg
My wife and I purchased our Portland area split entry home over ten years ago.  At that time, our real estate agent told us, “Buyers usually only buy one split entry home.”  I do not know if that statement is true, but it says something about the local perception of split entry homes and how they can be a unique appraisal problem.

A split entry, split (for short in our area), or two-story bi-level home is one where there is a small entry landing between two levels of the home.  This should not be confused with a split level home (typically called tri-level in the Portland area) where the entry leads to a main kitchen, living, and dining area of the home and you can either go up or down half levels to access the bedroom or garage levels.  On split entry homes, there is usually a half stairway that leads down into a daylight basement and garage or up to the main living area of the house, directly from the entry landing of the home.

The reason that split entry homes can sometimes be difficult to appraise, particularly if there are not many other splits in the area, is that they are functionally different than most homes.  Therefore, comparisons to other types must be made with caution.  Here is a list of negative aspects related to the marketing of split entry homes.

1.    Since the garage is usually on the lower level and the kitchen is usually on the upper level of a split entry, a simple trip to the grocery store means that all the groceries must be carried up a full flight of stairs to the kitchen level.

2.    Answering the front door on a split entry home can be difficult.  Imagine standing in a typical four by seven foot split entry landing where the door swings into the middle of that space.  Inviting your guests to also step into the roughly three feet by three feet that remains between the door and the base of the stairs can be challenging and awkward.

3.    The lower levels of split entry homes are often dark and cold because of concrete floors, partial concrete walls, and smaller windows.

4.    Split entry homes typically have the kitchen, living, dining, and bedrooms all on the main level.  For this reason, split entry homes can often feel small on the main level in relation to the total area and the relatively large lower level family rooms.

5.    Split entry homes frequently have uneven or less usable yards with retaining walls or steep slopes because the dirt excavated for the basement usually gets piled up and redistributed on one side of the home.  Also, split entry homes are often the best use of a sloped site.

Split entry homes offer positive aspects like lower build cost per square foot, ducting that is usually within the heated envelope, window privacy on the elevated main level, cool basements in the summer, and good separation of living.  However, in Portland, the negatives usually outweigh the positives; consequently, caution must be used in the appraisal process.  Here is my list of tips for appraisals of split entry homes.

1.    Select split entry homes whenever possible as comparable sales.  If none are available, the best alternatives in the Portland area are usually ranch homes with a daylight basement that also have a lower level garage or choose tri-level homes of similar vintage.  Recognize that split entry homes might be perceived functionally inferior to many alternatives. 

2.    Be aware that typically split entry homes are built as a way to get the most finished area for the lowest cost.  Therefore, split entry homes often lack other features that relate to quality.

3.    Use caution when performing the cost approach on split entry homes.  Many of the cost estimation sources will underestimate the cost of the basement on a split entry home, particularly if the user of the cost data does not understand exactly what is being estimated.  This is because the cost reflected for a finished basement will sometimes not account for the higher cost of the partly above-grade nature of the split entry basement.  For example, the added cost of partial stud walls and more and/or larger windows compared to a fully subterranean basement.

Did I leave anything out or do you want to join in the conversation?  Let me know in the comments below.

If you find this information interesting or useful, please subscribe to this blog and like A Quality Appraisal, LLC on Facebook.  Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos.  If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book us to speak at your next event.  We will do everything possible to assist you.

Thanks for reading,

Gary F. Kristensen, SRA, IFA, AGA

Portland Real Estate Agents Asking Appraiser Questions

I regularly speak at real estate offices around Portland, Oregon about appraisers and the appraisal process.  Lately, variations of the following questions have been most popular:

  1. “Are you seeing more appraisals than normal coming in below the contract price?”  I do not have any quantifiable data to support it, but there is plenty of anecdotal evidence that this is true.  I do not personally perform appraisals for purchase loans.  However, one appraiser in my office has started checking comparable sales before accepting appraisal orders for purchases because he does not like to be a bad guy or deal with the challenges that often result from value that is below the contract price.  Other appraisers I speak to are reporting similar stories about high numbers of “unsupportable” purchase prices. 

  2. “Why are so many appraisals coming in low around Portland right now?”  A 2011 study by Yanling Mayer found that less than ten percent of all appraisals come in below the contract price.  However, this number could be more than ten percent in Portland right now.  Prices are going up particularly fast for many properties and market segments around Portland due to strong demand, very low inventory, and a sense of urgency among buyers.  In addition to a hot market, this also marks the end of the seasonal spring jump when properties typically recover from winter lows and much of the annual price increase occurs in a short time.  (This concentrated annual jump in prices is discussed in a previous blog post regarding the Average Case-Shiller Portland Index.)  The quickly increasing Portland prices, combined with normal seasonal fluctuations can make it very difficult for appraisals to keep up.  This is because appraisals are strongly dependent on closed sales.  An appraisal done today might be based on the best available comparable sales that closed a couple months ago, but went pending a month or so prior to that.  Even better comparable sales data might not be fully available because it has not yet closed.  Market statistics for supporting market change (time or date of sale) adjustments also lag a few months behind, leaving an appraiser with estimated trends, projections, and feelings, rather than solid evidence for making a well-supported conclusion that lenders can feel confident funding a loan on.  The good news is that typically price increases slow late in the summer and market statistics start to catch up with current sales.  This means that there are likely fewer low appraisals for closings in late summer, fall, and winter months.

  3. “What options do I have if my appraisal comes in low?”  There are four alternatives if an appraisal comes in low on a pending sale. 

    1. Cancel the contract.  The appraisal might be a wakeup call that this is not the best deal for this buyer.  It might be time to find a different home to purchase.

    2. Renegotiate the contract.  Sometimes when an appraisal comes in low, the two parties can split the difference and make the deal work.  However, this option can be painful for buyers or sellers.

    3. Ask for a second appraisal.  Some lenders are willing to order a second appraisal as long as there is evidence that the first appraisal is flawed.  Lenders do not want to be accused of, “shopping for a value” by ordering appraisals until they get the value conclusion they want.

    4. Dispute the appraisal.  See question #4 below.

  4. “Can an appraisal really be disputed?”  An appraisal can be disputed successfully if it contains an error or if there is compelling evidence of flawed analysis.  Most lenders or appraisal management companies have a formal dispute process that involves filling out a form and submitting it for review.  In my career, I have had many people try to dispute my value opinions; a few have successfully convinced me to change my value.  On one occasion, I thought that a comparable sale just up the street from the subject set a firm upper limit of value by being superior in most ways.  However, the borrower had been in that property and pointed out some things about it that I had not been able to uncover in my research.  Consequently, I was able to verify the new information and revise my value opinion.  I have also been successful at disputing several appraisals done by other appraisers.  The best way to dispute an appraisal and win is not by disputing the opinion, but by pointing out errors of fact and building a strong case for an alternate conclusion.  Remember that a value below the contract price does not mean that the appraisal has errors.  Here is a blog post on how to challenge an appraisal.

Did I leave anything out or do you want to join in the conversation?  Let me know by commenting below.

If you find this information interesting or useful, please subscribe to this blog and like A Quality Appraisal, LLC on Facebook.  Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos.  If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book us to speak at your next event.  We will do everything possible to assist you.

Thanks for reading,

Gary F. Kristensen


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