In real estate appraisal, accurately estimating a property’s market value often requires making adjustments to comparable sales. These adjustments help account for differences between the subject property and the comparables to ensure a credible sales comparison analysis.
Appraisers use several types of adjustments, and they use a variety of methods and tools to make and support those adjustments.
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Types of Appraisal Adjustments
Appraisal adjustments can take several forms, depending on the property characteristics being compared. Each type of adjustment addresses a different element that may influence value. Below are descriptions of common adjustment categories and their uses, followed by a “cheat sheet” chart with examples.
Qualitative Adjustments
Qualitative adjustments are used when differences between the subject property and comparables (“comps”) cannot be quantified in dollar amounts. These adjustments rely on the appraiser’s professional judgment, informed by experience and market knowledge. They’re typically applied after quantitative adjustments and are especially useful when market data is limited or when buyer preferences are hard to quantify.
Quantitative Adjustments
Quantitative adjustments involve measurable, data-supported dollar amounts applied to comparable sales (comps) to account for differences with the subject property. These adjustments can be derived from paired sales analysis, statistical models, or other market-based techniques. Quantitative adjustments help bring comps in line with the subject to estimate a more accurate market value.
Transactional Adjustments
Transactional adjustments account for factors related to the conditions of a sale rather than the physical characteristics of the property, such as financing terms, conditions of sale (such as a distressed sale), and the motivations of the buyer and seller.
These adjustments aim to reflect what the property would have sold for under normal, arm’s-length conditions.
Market Conditions Adjustments
Market conditions adjustments reflect changes in the broader real estate market between the date of the comparable sale and the date of the appraisal. These adjustments are necessary when the market is appreciating or depreciating. They help ensure that time-related factors don’t distort the estimate of the subject property’s current market value.
Property Adjustments
Property adjustments address differences in physical characteristics between the subject and comparable properties. These adjustments can be either quantitative or qualitative and are essential for isolating the value impact of specific property features. By adjusting for these differences, the appraiser ensures a more apples-to-apples comparison among properties.
Locational Adjustments
Locational adjustments account for differences in the desirability or utility of a property’s location. Even within the same market area, properties in different neighborhoods—or even different blocks—may vary in value due to factors like school quality, proximity to amenities or nuisances, or neighborhood appeal. These adjustments help reflect how location influences buyer behavior and property value.
Cheat Sheet: The Adjustment Sequence Chart
This chart provides a quick-reference view of the six main types of appraisal adjustments, including brief descriptions and helpful examples of each type.
| Adjustment Type | Description | Example |
| Qualitative adjustments | Related to a component or characteristic that is considered superior or inferior based on a ranking process rather than based on numerical calculations. | If the subject property has a better view than a comparable (comp), the appraiser might note this difference using a ranking system (e.g., Excellent, Good, Average, Poor). |
| Quantitative adjustments | Related to a component or characteristic whose contributory value can be calculated numerically either through dollar or percent ($ or %) adjustments. | If a comp has a pool and the subject does not, and the market shows that pools add $10,000 in value, the appraiser subtracts $10,000 from the comp’s sale price. |
| Transactional adjustments | Tend to be completed first and have to do with the personal circumstances related to the sale, including: • Were the buyer and seller related? • Was the financing atypical? • Property Rights Conveyed • Financing Terms • Conditions of Sale • Immediate Expenditures | If a comparable was a foreclosure or part of a family transfer, its sale price might not reflect typical market behavior and would need to be adjusted accordingly. |
| Market conditions adjustments | Related to changes in the broader real estate market. These adjustments are often calculated using Matched Paired Sales or Grouping of Sales. | If the market has increased by 5% since a comparable sold, the appraiser would adjust the sale price upward to reflect current market conditions. |
| Property adjustments | Related to a property’s physical characteristics, such as: • Lot size • Gross living area (GLA) • Number of beds/baths • Age • Condition • Amenities (pools, fireplaces, garages) | If a comp is 200 square feet larger than the subject, and similar homes in the area indicate that additional living area is typically valued at $50 per square foot, the appraiser would subtract $10,000 (200 sq ft × $50) from the comp’s sale price. |
| Locational adjustments | Related to a property’s location, which can have positive attributes (progressive) or negative attributes (regressive). | If a comparable is located near a busy road and the subject is on a quiet cul-de-sac, the appraiser may adjust the comp’s sale price upward. |
Common Methods for Making Appraisal Adjustments
When applying the sales comparison approach, appraisers have several ways to develop adjustments. These methods can vary depending on the market and available data, but they typically fall into a few key categories.
1. Paired Sales (Matched Pairs) Analysis
- How it works: Compare two very similar sales that differ in only one feature to isolate the market’s reaction to that feature.
- Sub-techniques:
- Direct matched pairs
- Grouped data analysis (when perfect pairs aren’t available)
- When it’s used: In active markets with plenty of recent, comparable sales.
- Strengths: Most directly reflects actual market behavior.
Further reading: Paired Sales Analysis: Tips and Tools for Appraisers
2. Statistical (Regression) Analysis
- How it works: Use a dataset of multiple sales and statistical modeling to estimate the contributory value of features.
- Sub-techniques:
- Simple linear regression
- Multiple regression models
- Hedonic pricing models
- When it’s used: In markets with enough data for statistical reliability.
- Strengths: Reduces bias and captures broader trends.
3. Cost Analysis
- How it works: Base adjustments on the cost to replace, reproduce, or repair a feature, often adjusted for depreciation.
- Sub-techniques:
- Cost new (full replacement/reproduction cost today)
- Depreciated cost (cost new minus physical, functional, or external depreciation)
- Cost-to-cure (cost to repair or correct a deficiency)
- When it’s used: When market evidence is thin, or for unique features.
- Strengths: Logical, defensible, especially for building components or functional obsolescence.
4. Income Capitalization (Rent Difference)
- How it works: For income-producing properties, adjustments are based on the difference in rental income from a feature, capitalized into value.
- Sub-techniques:
- Direct capitalization of rent difference
- Yield capitalization / discounted cash flow (DCF)
- When it’s used: Multifamily, commercial, and mixed-use properties.
- Strengths: Links directly to investor decision-making.
5. Market Extraction (Allocation)
- How it works: Separate total sale price into land and improvement components, or extract feature value from overall market price ratios.
- Sub-techniques:
- Land value extraction
- Allocation based on assessor or market-derived ratios
- When it’s used: When sales of similar vacant land or improved property are available.
- Strengths: Useful in both improved property and land appraisals.
Appraiser Survey: What’s Your Go-To Method for Adjustments?
With so many techniques to choose from, we wanted to know which methods are preferred among professional real estate appraisers. As part of our monthly survey series, we asked our community of experienced appraisers, “What’s your go-to method for appraisal adjustments?”
Here’s a quick list of the methods and tools they named, followed by their additional comments below:
- Paired sales/matched pair analysis (Most popular answer!)
- Market extraction
- Linear regression
- Multiple regression analysis (MRA)
- Percentage
- Depreciated cost
- Retail costs and construction estimates
- The cost approach and median vacant land sales
- Component values per square foot
- Synapse
- MLS/Marshall & Swift
- RS Means
- Experience
- Flip a silver dollar!
“Matched pair analysis. It is the best [method] to get correct numbers.”
“I typically cover rural areas where sales are scarce and there is not enough data for meaningful statistical analysis to be performed. Due to this, paired sales analysis is the most reasonable and defensible analysis position available.”
“Paired sales when possible, otherwise retail costs and construction estimates.”
“Functional utility in that market segment using matched pairs. I generally have to use several different methods in a single report due to the lack of inventory in our region. Of course it depends, as always, on the availability of data.”
“I use linear regression to understand market changes and to calculate any necessary market change adjustments.”
“Depends on what item is being adjusted. If it is site or GLA, it is usually a percentage of the per acre or per square foot sales price. Other items are usually paired sales analysis or consideration for depreciated cost.”
“Multiple regression analysis (MRA). MRA is grounded in econometric principles, assuming validity (the model describes real-world relationships) and representativeness (data reflects the competitive market). It aligns with appraisal standards requiring market-supported adjustments.”
“Synapse. I used to do this by hand…never again.”
“When I do insurance cost approaches to value, I use RSMeans to find the replacement value of buildings. When I do local appraisals for lenders, etc., first I get local contractors’ advice for component values per square foot, which is most reliable for the area I work in.”
Further reading: What Tools Do You Use to Support Your Appraisal Adjustments?
Sharpen Your Appraisal Skills with McKissock CE Courses
Most appraisers use a variety of methods and tools to support their adjustments and boost the accuracy and defensibility of their reports. At McKissock Learning, we’re committed to bringing you the latest tools and techniques in the appraisal profession. We’re continually updating our courses to provide you with the knowledge and skills you need to stay ahead of the curve. To learn advanced techniques for complex valuation scenarios and keep up with industry best practices, engage in our continuing education classes, such as Supporting Adjustments: The Journey from Analysis to Adjusting.
Unlock access to our comprehensive library of appraisal CE courses, including The Sales Comparison Approach, new URAR and UAD 3.6 training, and so much more—all for one affordable price—when you sign up for McKissock Unlimited CE Membership.
