Tuesday , 27 October 2020

Quality vs. Condition

Quality and Condition are different lines on the grid for appraisal analysis. I can see how these two can become easily intertwined, but they are two separate and distinct issues. In practice, these two items are often comingled and intertwined.

Here is the best analogy I heard identifying the difference between Quality vs. Condition. I can’t take credit for it. Let’s consider a 30 year Rolls Royce with a crunched fender and torn leather seats that had all the bells and whistles for a car of its age. The quality of the vehicle is at the top of its class and most likely a Q1 quality rating. However, in its current condition, a C4 or C5 rating would sound reasonable. Now, let’s look at a Chevy Spark right off the assembly line. The Chevy Spark would be a C1 for its condition because it is brand new and never “occupied” but would hardly be considered top quality for an automobile. More likely a Q4 for quality rating.

The tricky part is when style and tastes change over decades. A comparable with the typical décor from 1980 with the cream laminate cabinets with wood trim, which were in style at the time, is considered to be average construction quality. Based on today’s trends, these cabinets look very dated. They may still be in very good condition, but they are average quality. The quality rating doesn’t change over time. Quality is quality. In contrast, condition may erode over time if not maintained. When comparing these outdated laminate cabinets to a newly updated kitchen of big box  average quality but trendier cabinets, it is difficult to isolate the quality component because the style can trip us up. The new cabinets just LOOK so much nicer. These new cabinets are in current style, but they are no better quality.

At times, the distinction can get a little muddier. Homes may have new wood flooring and new granite counter tops, but original cabinets, trim, windows, doors, lighting, etc. Since this is not a substantial rehab, it would definitely not qualify as a C2 for condition. Even if the dwelling as an entirely new kitchen, it is not considered to be substantially updated to qualify for a C2. With the updating, it may be superior in condition, but it has not it extensively been rebuilt. This would most likely be a C3.

It is permissible to make a condition or quality adjustment within the same Q or C rating. Perhaps some appraisers feel the need to reflect different ratings across the grid to justify an adjustment, but that is not correct and could even be misleading. The subject may be freshly painted with new carpet and the comparable sale in similar overall condition EXCEPT for these two components. Both the subject and comparable could have C3 ratings, but adjustment is supported by the subject’s new paint and carpet.

Isolating these quality and condition components will elevate your appraisal analysis. Independently analyzing and adjusting for quality and condition separately may help to identify other features that were not sufficiently considered. Overall, your appraisal results will be better supported.

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About Carol Trice

Carol Trice
Carol Trice | Director of Quality and Review Services for Clarocity, Inc. Carol Trice has over 30 years of real estate appraising experience, including 11 years in commercial valuation. Carol earned the MAI designation in 1990 but resigned in good standing when her career shifted from the commercial area to residential valuation in the late 1990’s. With the switch to residential valuation, Carol owned and operated Trice Appraisal based in Charlotte, NC. A relocation to FL brought Carol to Bank of America as a staff appraiser and team lead. After 5 years, Carol spent the next 8 years with Hudson Advisors/Caliber Home Loans, Inc. managing the capital markets and servicing valuation department. Caliber Home Loans, Inc. is a mortgage servicer specializing in default products owned by a private equity fund. Carol Trice is a Certified General Appraiser in Texas and a Certified Residential Appraiser in Florida.

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