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Do Appraisals Always Require Adjustments for Property Condition?

By Collateral Analytics |

Do Appraisals Always Require Adjustments for Property Condition?

In our latest study on property conditions we try and answer this question. There is no question that property conditions matter in the estimation of home value.  But how often do appraisers actually make adjustments for property condition and how often should they make adjustments?   Traditional appraisers will suggest that the home inspection of a subject property allows them to know the physical condition of a subject property. This is true, but the appraisers do not often know the physical condition of comparable property.

Here we have studied the distributions of property conditions within and across neighborhoods and come to the following conclusions:


1)  Within neighborhoods, property condition is highly correlated and 85% or more of the properties will be rated as average or good by appraisers and/or real estate agents. Thus, if all of the comparable properties are selected from within the same neighborhood as the subject property the absence of a property condition adjustment will have marginal or no effects on appraisal accuracy.

2)  Property condition is highly correlated with age and this may be a sufficient proxy within a neighborhood to account for differences in property condition.

3)  Property condition across neighborhoods is not accounted for by age and if proxies for condition are available they can enhance the valuation process.

4)  Property condition matters but the high correlation of similar aged properties within the same neighborhood suggests that the absence of adjustments specifically for condition is not necessarily a significant flaw, especially when age is considered.

5)  Without age and location adjustments property condition matters a great deal and across broader geographic markets, the inclusion of property condition will enhance the valuation process. This suggests that proxies for property condition such as prior appraisal reports or real estate agent comments are useful data that will produce more accurate valuations.

For a more detailed analysis, please see the attached paper:

How Much Does Property Condition Affect Residential Property Value?