Chapter 5

1. Chapter 5 Case Study - Applying Adjustments

2. Chapter 5: Learning Objectives • After completing this chapter, you will be able to: • Complete two mock appraisals. • Select comparables. • Make adjustments. • Write comments which explain and defend the adjustment. • Write an appraisal report which is both credible and defensible. • Defend adjustments.

3. Chapter Introduction • Working appraisers want to know how to apply what they have learned to everyday appraisal assignments. • In the past chapters, we’ve learned some distinctive ways to develop adjustments for green features, and more important, how to defend these adjustments.

4. Case Study #1 • Subject House • Your assignment is to appraise a two-year old Green house. Let’s look at the details.

5. Subject House • This house has a HERS rating of 60, and is an ENERGY STAR home. • It is located in a residential subdivision where the homes range in age from 0 -10 years old. • The subject is a Cape Cod style home, like most homes in this subdivision

6. Subject House • The room count is seven (7) rooms, three (3) bedrooms, and two (2) full and one half (.5) baths. • The house has 2,200 finished square feet above grade. • There is a screened porch, attached two-car garage, and a full unfinished basement. There is no attic, but there is generous eave storage.

7. Subject House • The house has vinyl siding and fiberglass roof shingles. • The lot size is 100 x 100. • The property is served by public water and sewer, and all underground utilities. • The house has a high efficiency gas forced air furnace with central air conditioning and a gas fireplace.

8. Subject House • The house has upgraded windows and exterior doors, including triple pane windows with a U-factor of .30. • The insulation package is an upgrade and is R-40 in the ceiling and R-24 in the walls. There is an on-demand tankless hot water heater.

9. Subject House • The house is being sold with the original (2-year old) ENERGY STAR Appliances: Dishwasher, gas range, refrigerator, built-in microwave, and high efficiency washer and gas dryer. • The house has typical landscaping, although the owners note all their plantings are native plants, which require less watering. • The builder anticipated the annual energy costs for this house at $100/month for both gas and electric, year round.

10. Subject House • The builder also noted at the time that annual energy costs for a standard home with a HERS rating of 100 would be $200/month. The owners have documented their actual total gas and electric bills, for a family of four, of $80/month. They attribute this to:

11. Subject House • Use of the heating and cooling zones in the house (there are four zones). • Programmable thermostats. • Use of CFL or LED light bulbs exclusively. • Never using the heated dry cycle on the dishwasher. • Washing clothes almost exclusively in cold water. • Drying some clothes on racks or a clothesline. • Setting the thermostat at 68° F in the winter and 78° F in the summer - as opposed to 72° year round, which is what the builder’s estimates were based on.

12. Choices • Now we will move on with six (6) choices to compare the subject house to.

13. Choice #1 • This house has a HERS rating of 70. • It is located within the same subdivision; this is also a Cape Cod style home. • The date of sale is six (6) months ago. The house was 18 months old at the time of sale.

14. Choice #1 • This house also has 2,200 square feet, and the same room count, lot size, porch, garage, fireplace, and heating and air conditioning system. • It has the standard double pane low-E windows, with a U value of .37. • The exterior doors are the same. • It has a conventional gas hot water heater, as opposed to an on-demand tankless hot water heater.

15. Choice #1 • The appliances are the same package as the Subject’s. • The insulation package is the builder’s standard. • The builder’s estimate of monthly gas and electric costs was $135 a month. Actual costs for operation of the utilities are not available in the MLS, nor did the listing agent have that data.

16. Choice #1 • This house sold for $249,900 with a three (3) percent seller’s assist for closing costs. • Let us look at choice #2, next.

17. Choice #2 • This house has a HERS rating of 60. • It is located within the same subdivision and is a two-story home. • The house was new (never occupied) when sold. • The date of sale is four (4) months ago.

18. Choice #2 • This house has 2,400 square feet, and the room count is eight (8) rooms, four (4) bedrooms, and two (2) full and one half (5) baths. • It has the same lot size, porch, garage, fireplace, and heating and air conditioning system as the Subject.

19. Choice #2 • It also has the upgraded windows, extra insulation package, and on-demand tankless hot water heater. • The appliance package is the same as the subject property. • The builder’s estimate of gas and electric costs was $110 a month.

20. Choice #2 • It sold for $288,600 with no seller assist. • Let us look at choice #3, next.

21. Choice #3 • This house has a HERS rating of 60. • It is located within the same subdivision and is a one-story, ranch style home. • The house was just over three (3) years old when it sold three (3) months ago. • This house has 1,900 square feet, with a room count of seven (7) rooms, three (3) bedrooms, and two (2) full and one half (.5) baths.

22. Choice #3 • It has the same porch, lot size, garage, fireplace, heating and air conditioning system as the subject, as well as the upgraded windows, an extra insulation package, an on demand tankless hot water heater, and the same appliance package. • The builder estimated gas and electric costs at $85 a month. The listing agent reported that, on average, the utility bills were the same as the builder predicted.

23. Choice #3 • The house sold for $255,900.

24. Discussion Question • Based on your knowledge, list several key differences that immediately stood out to you between the subject house and choices #1, #2, and #3

25. Discussion Answer • Difference in HERS ratings with choice #1. • Difference in hot water heater with choice #2. • Difference in builder’s estimate of monthly gas and electric with choices #1, #2 and #3. • Difference in style of home, square foot, and number of rooms with choices #1 and #2.

26. Choice from comparable neighborhoods • The choices we discussed (#1,#2,#3) are the only choices located within the same subdivision within the past twelve months. • There is a comparable neighborhood about one mile away - same school district, and equally convenient as the subject’s neighborhood to schools, shopping, and other amenities. • This subdivision has larger lots—the typical lot is around a half acre—and most of the houses there have ground source heat pumps.

27. Choice #4 • This is a LEED-certified Gold home. • It is located in the competing subdivision and is a Cape Cod style home. • The date of sale is two (2) months ago. The house was three (3) years old when it sold.

28. Choice #4 • It has 2,300 square feet, seven (7) rooms, three (3) bedrooms, and two full and one half (2.5) baths. • The lot size is 200 x 150. • It also features a two-car garage, screened porch, and gas fireplace.

29. Choice #4 • It has a ground source heat pump, the same U-rated windows, and the same R- ratings in insulation as the subject property. • It has solar panels on the roof. • The driveway is a permeable surface, and the garage is detached from the house.

30. Choice #4 • This house has zoned heat and the domestic hot water comes from the heat pump. • Appliances included are comparable to those at the subject property. • Energy costs for gas and electric were estimated by the builder at $100/month.

31. Choice #4 • The house sold for $290,000. • Let us look at choice #5, next.

32. Choice #5 • This is a LEED-certified Gold house. • It is also located in the competing subdivision. • It is a new Cape Cod and has never been occupied. • It sold one (1) month ago.

33. Choice #5 • It has 2,400 square feet, eight (8) rooms, four (4) bedrooms, and three full baths. • It also has a screened porch and a gas fireplace. • It features a ground source heat pump, and the same U-rated windows and R-ratings in insulation as the subject. • It has photovoltaic shingles.

34. Choice #5 • It has a permeable driveway surface and a two-car detached garage. • The lot size is 200 x 200, but the rear portion is quite steep. Your estimate of it is confirmed by the listing agent, who tells you that approximately 25 percent of the site was too steep to be used. • Appliances included are comparable to the subject property. • Builder estimates gas and electric costs total at $105 per month.

35. Choice #5 • It sold for $303,900. • Let us look at choice #6, next.

36. Choice #6 • This is a LEED-certified Platinum home; it is also a zero net energy home. • The house achieves a net zero rating (HERS rating of 0) by utilizing a ground source heat pump, photovoltaic shingles, and solar panels on the garage and the house.

37. Choice #6 • The style is somewhat contemporary, two-story, and the solar panels are quite obvious from the street view. • This is a one-year old home, which sold one (1) month ago. • It has windows comparable to the subject, and even more insulation, plus concrete siding, which adds R-value.

38. Choice #6 • The lot is 30,000 square feet. • There are 2,600 square feet of living space, with eight (8) rooms, four (4) bedrooms, and two and one-half (2.5) baths.

39. Choice #6 • It sold for $350,000.

40. Reviewing Choices • Without making any adjustments, but by simply reviewing the available choices, if you had to pick three choices to discard immediately, which three would they be and why?

41. Reviewing ChoiceAnswers • Choice. #1, because it lacks the U-rated windows and upgraded insulation package. • Choice. #3, because it is a ranch. • Choice. #6, because it is zero net energy. • Most appraisers will employ the logic that buyers of Cape Cods may consider two-story homes.

42. Comparable Choices • You have now decided to use choice #2, #4 and #5 as your comps 1, 2 and 3, respectively [1, 2, and 3 refers to their respective positions on the sales comparison grid].

43. Comparable Choices • For reference: • Choice #2 has become Comp. #1 • Choice #4 has become Comp. #2 • Choice #5 has become Comp. #3

44. Known Adjustments • Assume the following are known adjustments: • For land, adjust at 50 cents per square foot, but based on useable land. • For full bath versus half bath, adjust $5,000. • For a new house versus one that are one (1) to four (4) years old, adjust two percent (2%) of sales price. • For square footage differences, adjust at $40 per square foot.

45. Check your Knowledge 1. Based on these calculations, if you make adjustments to Choice #2 - which you are using as Comp. 1 - how many do you make? a. none b. one c. two d. three

46. Check your Knowledge (con’t) 1. Based on these calculations, if you make adjustments to Choice #2 - which you are using as Comp. 1 - how many do you make? a. none b. one c. two d. three

47. Check your Knowledge (con’t) 2. What is the total dollar amount you have adjusted for Comp. 1? a. $5,772 b. $8,000 c. $13,612 d. $13,772

48. Check your Knowledge (con’t) 2. What is the total dollar amount you have adjusted for Comp. 1? a. $5,772 b. $8,000 c. $13,612 d. $13,772

49. Check your Knowledge (con’t) 3. What is the reconciled value of Comp. 1? a. $275,000 b. $285,000 c. $280,100 d. $288,600

50. Check your Knowledge (con’t) 3. What is the reconciled value of Comp. 1? a. $275,000 b. $285,000 c. $280,100 d. $288,600