Real Estate Appraisal Forum

appraisersforum.com logo
The Premiere Online Community for Real Estate Appraisers!
 Fastest Way to Find a Real Estate Appraiser Enter Zip Code:
 
 
Go Back   Appraisers Forum > Real Estate Appraisal Forums > Urgent - Help Needed
Register Help Our Rules Calendar Archives Mark Forums Read


Closed Thread
 
Thread Tools
  #1  
Old 10-21-2011, 02:40 PM
WindyJRTX WindyJRTX is offline
 
Join Date: Oct 2008
State: Virginia
Professional Status: Appraiser Trainee
Posts: 6
Default Comparable sale has rental cottage

I am appraising a single-family home with square footage that is somewhat higher than the average for the neighborhood. One of the few comparable homes I can find with similar GLA is a pending sale, but it also has a cottage on site that rents for $575/month. Should I include this sale, and if so, how do I adjust for the cottage? Will this sale raise to many red flags with underwriters to bother with? Thanks to anyone with advice to offer!

By the way, I am NOT a trainee, I am licensed since '08 with 5 years prior trainee experience; I'm not sure why my professional status says "Appraiser Trainee". I have appraised using comps with rental accessory units in the past, but cannot remember how I approached it as I have lost access to my old appraisal files. I was let go from my prior appraisal company due to slow business and am now on my own with fewer reference files, and therefore reaching out to fellow appraisers! Thanks!

Last edited by WindyJRTX : 10-21-2011 at 04:31 PM. Reason: Additional Comment
Sponsored Links

  #2  
Old 10-21-2011, 05:34 PM
VolcanoLvr's Avatar
VolcanoLvr VolcanoLvr is offline
 
Join Date: Oct 2003
Location: Inside the ring of fire
State: Washington
Professional Status: Certified Residential Appraiser
Posts: 2,669
Default

You can 'adjust out' the Guest House using a depreciated cost to build, as a line item adjustment at the bottom of the grid. Hopefully your assessor data will show the size of that structure.

On my forms I have the line below Garage/Carport as "Outbuilding/Other" ... that's where I make these kind of adjustments. U/W's don't challenge this.

Don't sweat the rental income.

--
As far as your status.....send a note to Wayne via PM and ask him to change it.
  #3  
Old 10-21-2011, 06:41 PM
leelansford leelansford is offline
 
Join Date: Mar 2002
State: Illinois
Professional Status: Certified Residential Appraiser
Posts: 13,473
Default

Quote:
Originally Posted by WindyJRTX View Post
I am appraising a single-family home with square footage that is somewhat higher than the average for the neighborhood. One of the few comparable homes I can find with similar GLA is a pending sale, but it also has a cottage on site that rents for $575/month. Should I include this sale, and if so, how do I adjust for the cottage? Will this sale raise to many red flags with underwriters to bother with? Thanks to anyone with advice to offer!

By the way, I am NOT a trainee, I am licensed since '08 with 5 years prior trainee experience; I'm not sure why my professional status says "Appraiser Trainee". I have appraised using comps with rental accessory units in the past, but cannot remember how I approached it as I have lost access to my old appraisal files. I was let go from my prior appraisal company due to slow business and am now on my own with fewer reference files, and therefore reaching out to fellow appraisers! Thanks!

1st, what is your analysis of the other market data indicating to you as to the affect of this accessory unit specific to the price paid for this property?

2nd, you may want to talk to both the selling and buying agents regarding the affect of the accessory unit as to the price paid for the property.
__________________
Lee Lansford, IFA
"My opinions & my opinions only!"
  #4  
Old 10-21-2011, 08:05 PM
NorthTexValuation NorthTexValuation is offline
 
Join Date: Sep 2011
State: Texas
Professional Status: Certified Residential Appraiser
Posts: 1,095
Default

If it was one of the three best comparable sales I might use it, but since it's just a pending I would not bother with it. Also, if the subject is significantly larger than al other hosues in the neighborhood, that pending's listed GLA might include the cottage. Just check it out if you end up using it. Talk with both brokers and ask their opinion on how much a typical buyer would pay for a cottage with that rental income.
  #5  
Old 10-25-2011, 01:03 PM
Ed Falkowski's Avatar
Ed Falkowski Ed Falkowski is offline
 
Join Date: Jun 2007
State: Pennsylvania
Professional Status: Certified General Appraiser
Posts: 1,251
Default

Quote:
Originally Posted by VolcanoLvr View Post
You can 'adjust out' the Guest House using a depreciated cost to build, as a line item adjustment at the bottom of the grid. Hopefully your assessor data will show the size of that structure.

On my forms I have the line below Garage/Carport as "Outbuilding/Other" ... that's where I make these kind of adjustments. U/W's don't challenge this.

Don't sweat the rental income.

--
As far as your status.....send a note to Wayne via PM and ask him to change it.
Aside from contacting Wayne (he resides as "Head Surfer"), I don't know if I 100% agree with anything else on this post. If all else fails, I would look at the depreciated cost... but not after exploring other options. For instance, some adjustments in the SCA for income-producing property are based on just that... income. Take a hypothetical scenario for the property in question:

Sale Price: $100,000 (house + cottage)
Monthly rental income of cottage: $575
Yearly NOI (assuming 40% opex ratio): $4,140 annual rental income
Cap rate for small rental property product: 9%
Value added (and associated negative adjustment) as a result of the cottage: $46,000 (or 46% of the sale price)

Now, consider this...

A 30 year loan at 4.5% with an 80% LTV equates to a monthly payment of $405/month. Your monthly NOI is $345. Therefore, you could almost live in your house free and clear and just sit back and collect a rent check every month. Not a bad deal, if you ask me and something that would heavily affect a sale price for a property in this price range.

Of course, these numbers could be changed based on sale price. Let's ramp it up to a $500,000 property... the same calculations would be in effect for the total adjustment but the percentage adjustment would then be 9.2%. Obviously, the NOI of $345/month would not cover an 80% debt service on this property... which would then put further credence that the overall percentage adjustment would be lower as well (it would still eat up some of your monthly mortgage payment, though!).

Since the cottage is an income-producing element on the property then I would always try and extract the value on an income-producing basis. As follow up support, I would try the depreciated cost technique and see how that lines up with your income adjustment. If the cost to build the cottage outpaces the value added by its income-producing capability, then this would be a good proof for whatever form of obsolescence is attributable to the higher building cost (usually either functional or economic obsolescence... but in more extreme cases it might be physical).

Just my $0.02.
__________________
"I don't want an appraisal. I just want an opinion of value."
  #6  
Old 10-25-2011, 01:13 PM
CANative's Avatar
CANative CANative is online now
 
Join Date: Jun 2003
Location: Hopland, CA
State: California
Professional Status: Certified Residential Appraiser
Posts: 44,643
Default

I assumed:

$575 x 12 = $6,900 with 25% expenses (NOI $5,175) and a 12 cap ($43,125.)
__________________
"OMG! What's wrong with you?"
  #7  
Old 10-25-2011, 01:20 PM
Ariba's Avatar
Ariba Ariba is offline
 
Join Date: Feb 2004
Location: Colorado
State: Colorado
Professional Status: Certified Residential Appraiser
Posts: 2,438
Default

Quote:
Originally Posted by VolcanoLvr View Post
You can 'adjust out' the Guest House using a depreciated cost to build, as a line item adjustment at the bottom of the grid. Hopefully your assessor data will show the size of that structure.

On my forms I have the line below Garage/Carport as "Outbuilding/Other" ... that's where I make these kind of adjustments. U/W's don't challenge this.

Don't sweat the rental income.
OMG. Need I say more?
  #8  
Old 10-25-2011, 03:40 PM
Zero Zero is offline
 
Join Date: Jun 2006
Location: Everywhere
State: Virginia
Professional Status: Certified Residential Appraiser
Posts: 573
Default

Quote:
Originally Posted by NorthTexValuation View Post
If it was one of the three best comparable sales I might use it, but since it's just a pending I would not bother with it. Also, if the subject is significantly larger than al other hosues in the neighborhood, that pending's listed GLA might include the cottage. Just check it out if you end up using it. Talk with both brokers and ask their opinion on how much a typical buyer would pay for a cottage with that rental income.
Agree. Unless you absolutely can't live without this comp, you might set it aside. Verification and analysis of an income producing, residential property, which may or may not be subdividable, with recorded GLA that may or may not include the cottage, which may or may not be legally rented....
  #9  
Old 10-25-2011, 06:17 PM
Joyce Potts's Avatar
Joyce Potts Joyce Potts is offline
 
Join Date: Feb 2005
Location: Central Florida
State: Florida
Professional Status: Certified Residential Appraiser
Posts: 8,023
Default

Pollyanna says who cares about what red flags underwriters. Be concerned about USPAP. I did a 1600+- sf Florida Cracker home on three acres just this week-- with not one but TWO, I said 2 detached cottages, 2 barns, lakefront in west Orange County/Orlando. Not pretty, but it is what it is. No way will it ever come close to appraisal guideline compliance. There is no right or wrong answer. It's about approaching the assignment pursuant to USPOOP guidelines with sound, established appraisal methodology and standards and make your best, compelling argument as to the approach you took and why. Make a diligent attempt at supporting your land value--In my case, I tried, but came up with vastly erratic and inconsistent conclusions. But my workfile and appraisal estabishes and discloses that I tried. As long as you're disclosing the problem, the options to the problem, the road you took, etc., you hedge your bet against civil or regulatory liability. Or do it like the lender suggested as a tri-plex, small income producing property even though none of the accessory cottages were rented and even if they were, that market is NOT driven my income or investor activity based on my research.

My theory, that no one agrees with, is that I write my reports as if I were writing to a reviewer, a lawyer looking to sue or a potential regulatory complaint. Underwriters are the least of my concern because whatever you submit it's never what they think they're looking for anyway.
__________________
If you have something to say,
keep your mouth shut!
  #10  
Old 10-25-2011, 08:16 PM
PropertyEconomics's Avatar
PropertyEconomics PropertyEconomics is offline
 
Join Date: Jun 2007
Location: Central New Mexico
State: New Mexico
Professional Status: Certified General Appraiser
Posts: 18,715
Default

Quote:
Originally Posted by CANative View Post
I assumed:

$575 x 12 = $6,900 with 25% expenses (NOI $5,175) and a 12 cap ($43,125.)

Does the market use cap rates on individual units???? Is there support for the "expenses"? How about a GRM measured from the market against the income???????????????
__________________
Foxtrot, Uniform, Charlie, Kilo Cancer ... In memory of our friend Bill Waite!
Sponsored Links

Closed Thread


Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump




Copyright © 2000-, AppraisersForum.com, All Rights Reserved
     Terms of Use  Privacy Policy
AppraisersForum.com is proudly hosted by the folks at AppraiserSites.com

Fastest Way to Find a Real Estate Appraiser Enter Zip Code:
Partner Sites:
AppraiserUSA.com - National Appraiser Directory AllDomainsUSA.com - Domain Name Registration
DeadbeatListings.com - Deadbeat ListingsAppraiserSites.com - Web Hosting for the Professional Real Estate Appraiser
Find FHA Appraisers - FHA Appraiser Search Commercial Appraisers - Commercial Appraiser Search
Relocation Appraisal - Find Relocation Appraisers Domain Reseller - Business Opportunity
Home Security Buzz - Home Security Info Radon Testing - Radon Gas Info
My Medicare Forum - Medicare Info Stop Smoking Help - Help Quitting Smoking
CordlessPhoneStore.com - Great Cordless Phones AndroidTabletCity.com - Android Tablet Computers

Follow AppraisersForum.com:          Find us on Facebook            Follow us on Twitter


All times are GMT -5. The time now is 05:08 PM.

SiteMap: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93