What’s the Deal with Stratification?

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Many of these posts are intended to assist the newer Assessment Professional in learning commercial and industrial (C/I) property valuation. Some folks have previously mastered the basics of single family residential (SFR) valuation, so the learning curve can be shorter since they already understand the stratification process.

The biggest difference between SFR and C/I is the complexity of stratification, as C/I contains many uniquely diverse property types. But both realms begin the stratification process with property type and subtype.

The relative desirability of location is specific to both type and subtype of use. For example, lodging and industrial developers rarely compete for the same sites, as hotels and warehouses are completely different property types. Similarly, the SFR subtypes of tract homes and large estates have different locational needs.

As in SFR where each jurisdiction is a collection of neighborhoods, C/I refers to submarkets. When valuing SFR, you may find three SFR neighborhoods rated the same among a collection of twelve neighborhoods. Similarly, there could be three hotel submarkets in one jurisdiction comprised of interstate, CBD, and university locations with the latter two rated identical in terms of locational desirability.

In both SFR and C/I, stratification only begins with type of use. Every other aspect of the comparison process depends on maintaining consistency of type. Most properties are not average in all respects – location, quality of construction, design, and functionality all combine to make the comparison process meaningful.

A winning hand in valuation starts with understanding stratification.