A California appraiser is valuing a soft-story building that has been retrofitted for seismic safety under the City of Los Angeles mandatory retrofit ordinance (LAMC Division 93). The retrofit cost $85,000. A comparable property subject to the same ordinance has NOT yet been retrofitted and sold for $680,000. How should the appraiser address this difference in the sales comparison approach?
Correct Answer
C) Determine the market-derived value contribution of the completed retrofit and adjust the comparable's sale price upward by that amount
Under USPAP and foundational appraisal principles, cost does not equal value. The appraiser must determine the market-derived value contribution of the completed seismic retrofit — that is, how much more the market pays for a compliant property versus a non-compliant one facing a mandatory retrofit obligation. This market-extracted adjustment may be less than, equal to, or greater than the $85,000 actual cost depending on buyer behavior in that market. The comparable, which has not been retrofitted, is inferior to the subject in this respect, so the comparable's sale price must be adjusted upward by the market-supported value difference to reflect what it would have sold for had it been compliant.
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An appraiser in Sacramento, California is using the sales comparison approach and must reconcile the values from five comparable sales. The adjusted values range from $420,000 to $465,000. Under USPAP and California appraisal practice, how should the appraiser reconcile these values?