So you completed your appraisal and sent it off to the Lender to have it come back with please bracket the subject’s pool, or living area, or bedroom count, or bathroom count, or lot size, or in-law unit, or design style, or age, or etc… The list can go on forever.
What exactly is this bracketing the underwriter is talking about?
Bracketing, as defined in The Dictionary of Real Estate Appraisal, Fourth Edition, Appraisal Institute, is “a process in which the an appraiser determines a probable range of values for a property by applying qualitative techniques of comparative analysis to a group of comparable sales. The array of comparable sales may be divided into two groups – those superior to the subject and those inferior to the subject. The adjusted sales prices reflected by these two groups limit the probable range of value for the subject and identify a bracket in which the final value opinion will fall.”
The logic behind selecting superior and inferior sale comparables is making appropriate adjustments to the sale comparables. For instance, if a sale is superior to the subject property, the appraiser needs to make a downward adjustment to the sale whereas if a sale is inferior, then an upward sales adjustment will be made.
Here is an example of bracketing the bedroom count.
Assume the subject has three bedrooms and there are no three bedroom dwellings which have sold to compare to the subject. Then, to bracket the bedroom count you would like to have at least one sale comparable with a bedroom count of less than three bedrooms, say two, and one sale comparable with more than three bedrooms, say four bedrooms. Of course, if the market warrants a bedroom adjustment, you would adjust the bedroom count for each sale comparable accordingly.
Assuming that in the subject’s market, additional bedrooms have additional market value. Then, in the case of the two bedroom sale comparable, you would add the value for the additional bedroom and in the case of the four bedroom dwelling; you would subtract the value of the fourth bedroom.
Is it mandatory to perform bracketing in an appraisal?
No. It is not mandatory to perform bracketing in an appraisal. However, it is a good practice to perform bracketing and recommended by such organizations as HUD. If bracketing is not possible, HUD wants the appraiser to explain why.
What if I cannot find a sale comparable with a similar feature?
If a certain feature cannot be bracketed, explain why. Explain how far you went out to find a property with a similar feature. Explain how far back you went to find a property with a similar feature. Explain, explain, explain…
Although, there is no written rule that an appraiser has to use bracketing, it aids in supporting sales adjustments and determining the final opinion of value.