Adjusting for a Pool in a Tight Market
You are appraising a 2,100-square-foot single-family home in a California suburb for a purchase transaction. The subject has a pool and spa, a three-car garage, and a 6,000-square-foot lot. You have four comparable sales: Comp 1 sold for $815,000, no pool, three-car garage, 6,200-square-foot lot; Comp 2 sold for $860,000, pool and spa, two-car garage, 5,800-square-foot lot; Comp 3 sold for $790,000, no pool, two-car garage, 6,500-square-foot lot; Comp 4 sold for $845,000, pool, three-car garage, 5,500-square-foot lot. The market has been rising about 0.5 percent per month, and the sales closed between two and five months ago. The contract price for the subject is $855,000. Your paired-sales analysis of pool homes versus non-pool homes in the area suggests a pool contributes about $25,000, and each garage bay about $8,000.
1. Show how you would adjust the comparables and reconcile to a value range.
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Adjust each comparable to the subject. Pool: subject has one, so add about $25,000 to Comps 1 and 3 (no pool) and make no adjustment to Comps 2 and 4. Garage: subject has three bays, so add about $8,000 to Comps 2 and 3 (two bays) and no adjustment to Comps 1 and 4. Lot size: the subject has 6,000 square feet; make modest adjustments for the differences, but keep them small because lot size differences of a few hundred square feet are often not measurable.
Market conditions: adjust upward about 0.5 percent per month for the time since sale. Comp 1 at two months adds about 1 percent (about $8,150); Comp 2 at three months about 1.5 percent (about $12,900); Comp 3 at four months about 2 percent (about $15,800); Comp 4 at five months about 2.5 percent (about $21,125).
After these adjustments, the comparables cluster in the low-to-mid $840,000s to about $870,000. Reconcile to a range, giving most weight to Comps 2 and 4 because they share the pool feature, and conclude a value near the contract price of $855,000 if the adjusted range supports it.
2. The contract price is $855,000. What should you do if your reconciled value comes out at $835,000?
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You should report your independent value opinion, not adjust it to match the contract. The contract price is evidence of market value, but it is not the definition of it. If your reconciled value is $835,000, you should explain the difference: perhaps the buyer overpaid, perhaps the market is moving faster than your time adjustment, or perhaps a feature of the subject (condition, view, lot) was not fully captured.
You should recheck your adjustments, confirm the contract date and any seller concessions, and verify whether the contract includes personal property or financing terms that affect price. You should disclose the contract price, analyze it, and state why your opinion differs. You should not simply adopt the contract price to avoid conflict, and you should not conceal the contract from the lender.