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  #1  
Old 09-20-2004, 01:40 PM
Pat Butler Pat Butler is offline
 
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I'm reviewing an appraisal of a new construction property located in a neighborhood of much older housing (50-100 years old.) The sales price range in this neighborhood is from about $50-$170K. The subject came in at $230K! The appraiser went to new construction subdivisions for comps and failed to adjust for the differing neighborhoods and lack of conformity of the subject with its neighborhood.

Anyway, I'm trying to find better comps but there's a lack of good data. I can find a few newer houses in this older neighborhood that were built on tear down sites (sites worth about $20K), but they are much smaller houses. Most of these rebuilds have about 1,000 sf versus the subject's 2,100 sf.

I'd like to stay away from new subdivisions entirely. The subject's neighborhood is a gang area and there's graffiti in some places. I'd rather stay in the same neighborhood and adjust the comps upwards. I certainly wouldn't have any comps to bracket the upper end- the new construction subdivisions are just in an entirely different class of neighborhood and conformity.

Sooo, it looks like all I can do is use comps that sold for less and adjust upwards, probably in excess of FNMA guidelines. I really don't have the option of bracketing the upper end and that's what concerns me.

Right now, I'm looking at older sales (3-4 years ago) of a few new properties in the neighborhood and trying to extract an adjustment as to how much %-wise they differed from other areas. Any ideas as to what other lousy data might be useful?
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  #2  
Old 09-20-2004, 02:12 PM
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Chris Harrison Chris Harrison is offline
 
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Pat,

I did one very similar last week. This is a complex property that would negate the use of typical FAMA guidelines. Remember they are guidelines for typical residential properties. You may need to do the un-thinkable and use 40-50 year old comparables and adjust for age and location, supported by newer homes in similar older neighborhoods. Forget the idea that 3 comparables will support your opinion or satisfy the investor on this property. Your idea of having all upward adjustments is not critical if supported by your data and full explained.

One question is are you doing a review or an appraisal? If you have determined that the appraisal under review is so misleading that is requires a complete complex appraisal assignment then that is what I would report and request a new assignment with an increased fee. There are times that your scope of work for a review assignment is not sufficient to allow you to give an opinion of value.

I can review an appraisal on a complex property for 300 beaver pelts without giving an opinion of value. The same property would require 600 beaver pelts to provide a supported opinion of value by me.

Just my .02
  #3  
Old 09-20-2004, 02:20 PM
leelansford leelansford is offline
 
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Pat-
Difficult to say how much, if any, that the subject is an over-improvement
Is the subject at the beginning of a trend in the neighborhood for development of such improvements? If so, this might be a real toughie! As an old appraiser once told me, "The pioneers get the arrows!"
Do you have anything the provides good market evidence as to the differences in site values between the neighborhoods?
Good luck.
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  #4  
Old 09-20-2004, 03:01 PM
Randy Beigh Randy Beigh is offline
 
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Pat

This city is made up of spot built housing. It is not uncommon, at all, to have a new or near new house, next to a 100 year old home, which is next a 50 year old home. This is true in all price categories.

I don't know how big your city is, but I would go other areas with spot built housing and get the sales. Find one in you immediate area for the neighborhood issues, one or more from other neighborhoods, use an older spot built(like Chris mentioned) from the neighborhood.

I agree with you that going into modern subdivisions in not a good idea. Suspect you could use one, but it would show the upper end of value. I think the market for subdivision homes and city homes are worlds apart.

Is this a sale or a custom?
  #5  
Old 09-20-2004, 04:36 PM
Jim Bartley Jim Bartley is offline
 
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Keep an open mind. I don't know where you are, but in my market (Richmond, VA) land prices have really taken off. Builder's and prospective buyers are snapping up the few remaining lots in existing neighborhoods. Do a lot of research, don't assume the property is "overbuilt". You may just learn something.
  #6  
Old 09-20-2004, 04:51 PM
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Terrel L. Shields Terrel L. Shields is online now
 
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Quote:
The appraiser went to new construction subdivisions for comps and failed to adjust for the differing neighborhoods and lack of conformity of the subject with its neighborhood.
Jim Bartley, agree with you entirely. In the small and large towns in my area there are very few places where a new house of typical size is overbuilt for the neighborhood. My girl buddy CPA has a 100 yr old house and next door a developer bought 3 old houses on 4 lots and built 4 new houses in a similar 2 story style. They sold like hotcakes and one has resold for even more. You are not going to find comps. Vandalism in our area is not centered in any one area, so location is not going to be a factor...In Pat's market, maybe it is. The overbuilt houses are 6,000 SF or something really garish.
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  #7  
Old 09-20-2004, 05:07 PM
Pat Butler Pat Butler is offline
 
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This is a review along with a revised value. The issue of the subject being spot built isn't a problem in itself. But, its high value in the appraisal is. This property is not worth anywhere near what similar housing in new construction subdivisions is going for.

The short street that the subject is on has some other newer houses that sold back in 2001 and 2002. I'm going to compare their sales prices back then with what the older houses sold for and extract out an adjustment from there.

I've done extensive searches and the only other spot built housing is of much smaller houses. It just doesn't pay to build a house in this neighborhood much over $170K.
  #8  
Old 09-20-2004, 07:24 PM
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Lysander in Charlotte Lysander in Charlotte is offline
 
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I second what Shields and Brantley said. In my town, a home on an inter-city "in fill" site can be worth substantially more than the identical home in the burbs. This can be true even if the inter city home does not conform.
  #9  
Old 09-21-2004, 06:47 AM
Linda M Lynch Linda M Lynch is offline
 
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I agree with those who say to keep your mind open on this one. I have watched older, depressed neighborhoods come back with a bang. Sometimes things turn around and people really want to live in older, established neighborhoods with wider demographics than those available in the typical burb. I did one a couple of years ago that was the first new house built in that neighborhood in 60 years. They recently sold it for twice what it cost to build it there.

And don't be so quick to judge the appraiser you are reviewing. They had the same problem you have in finding comps and the choices they made may have been based on knowledge of the area you don't have.
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