With all of the discussion regarding the CU (Collateral Underwriter) and using regression analysis to support adjustments, I thought I would share a recent, good old fashioned Paired Sales Analysis (Matched Pairs) to determine an adjustment for a Garden unit vs. a high first floor unit. The idea behind paired sales is to find 2 or more sales that sold around the same time, in the same location, that are the same with the exception of one feature. The difference between to the two sales price should give you a supportable adjustment. The best thing about condo conversions in Chicago, is that when they are converted from apartments, the building and units are often rehabbed and resold around the same time. Even better, they are often rehabbed by the developer with similar finishes in each of the units. When the garden unit has the same floor plan as the units above it, it creates a perfect data set to extract a matched paired sales adjustment. You have similar location (same address), they typically sell with a few months of each other, and are similar in bed and bath count, GLA, etc.
I was appraising a garden unit in on the northwest side of Chicago. While I was able to find other recent sales of garden units for comparable sales, I needed to use a non garden unit to bracket a particular feature. After pulling 3 recent garden unit sales, I found out when the buildings were converted and look up the sales prices of each of the units at that time. Here is the data below:
As you can see above, I have four different paired sales to analyze. One building actually provided two sets as the two units both sold again recently within 2 months of each other. The percentage difference ranged from 9.2% – 15.3%. After average all four percentages, I was able to come up with a 12.5% adjustment for the difference between a garden unit and the unit above it. When the CU comes back and I am asked why I gave such a large (or small, who knows with CU) adjustment for floor level, I can cut and paste this into the addendum. Or better yet, just put in into the report in the first place and hopefully avoid the hassle.
While this ended up working out really nice and neat for this appraisal, my fellow appraisers will attest to the fact that finding good paired sales in all circumstances in just a pipe dream. I just thought I would share one example in which it worked out really well. I have been testing many of the recent regression tools available for appraisers and have found a couple to be really promising. Once I learn all of the nuances and techniques, I believe they will be extremely helpful in many situations. But those of you who have tested them know, they often give some crazy results and other methods will still be necessary. My favorite so far is PAIRS, by Gandysoft. Please leave a comment and let me know which software you are finding to be the most useful so far.
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