How do you adjust for location differences when valuing properties?

2 Location adjustment challenges

Adjusting for location differences in property valuation is a complex process, as there are many factors that can affect the value of a property. For example, it can be difficult to find comparable properties that are similar in size, condition, features, and location. Additionally, it is important to consider the time lag between the sale of comparable properties and the valuation date, as market conditions may change over time. Furthermore, it is necessary to measure the impact of location-specific factors, such as proximity to amenities, transportation, schools, parks, noise, crime, and environmental issues. Lastly, it is important to take into account the subjectivity and variability of location factors, as different buyers and sellers may have different preferences and expectations for different locations.

3 Location adjustment tips

When attempting to overcome the challenges of location adjustment in property valuation, it is important to use multiple sources of data and methods to cross-check and validate your results. Recent and relevant data should be used to reflect the current market conditions and trends, and location factors should be specific and appropriate for the type and purpose of the property and the valuation. Additionally, location factors should be consistent and transparent, and professional judgment and experience should be used to weigh the importance and influence of different location factors. Explaining how the location factors were derived and applied is also essential.

4 Location adjustment examples

To illustrate how location adjustment works in property valuation, let's look at an example. Suppose you want to value a 3-bedroom, 2-bathroom, single-family home in a suburban area. You find three comparable properties that have sold recently in the same or similar markets, and their prices and features are as follows: Property A: $300,000, 1,500 sq ft, 0.2 acre lot, 10 miles from downtown, near a highway, average condition; Property B: $320,000, 1,600 sq ft, 0.25 acre lot, 8 miles from downtown, near a park, good condition; Property C: $340,000, 1,700 sq ft, 0.3 acre lot, 6 miles from downtown, near a lake, excellent condition. The property you want to value has the following features: Property D: 1,650 sq ft, 0.28 acre lot, 7 miles from downtown, near a school, good condition. To adjust for location differences, you need to estimate the location factors for each property based on the market data and your judgment. For example, you may assign the following location factors: Property A: 0.9, as it is far from downtown and near a noisy highway; Property B: 1.0, as it is closer to downtown and near a park; Property C: 1.1, as it is closest to downtown and near a lake; Property D: 1.05, as it is between property B and C in terms of distance and amenity. Then, you need to apply the location factors to the prices of the comparable properties to get the adjusted prices. For example, you may calculate the adjusted prices as follows: Property A: $300,000 x 0.9 = $270,000; Property B: $320,000 x 1.0 = $320,000; Property C: $340,000 x 1.1 = $374,000. Finally, you need to use the adjusted prices to estimate the value of the property you want to value. For instance, you may use the average of the adjusted prices as the value of property D: ($270,000 + $320,000 + $374,000) / 3 = $321,333. This is one possible way to adjust for location differences in property valuation, but there are other methods and factors that may be used depending on the situation and the data.