Contribution of detached workshop / garage

[AZguy33]

Subject has a detached 2,000 SqFt RV/Garage/Workshop with 1/2 bath and dedicated HVAC of good quality in good condition. Subject is located in Glendale, AZ on near acre lot. Detached garage/workshops are not uncommon in the area. A much smaller house sold recently that has a 950 SqFt detached workshop with 1/2 bath and HVAC. It is not a good comparable but I thought that I could use it to determine the contribution of the subject's workshop. What is the most accurate method of doing this? Thank you!

 

[hastalavista]

Detached garage/workshops are not uncommon in the area.

If that is the case, then you should have sufficient market data to extract a contributory value for your subject's improvement.
Compare sales with the workshop vs. sales without the workshop. Adjust for all differences (except for the workshop). Do enough of them, and a pattern (contributory value- no doubt a range of values) will emerge.
Be mindful of differences in market conditions and make sure the comps used for comparison/extraction are similar to the subject; i.e., I wouldn't want to extract the contributory value of a swimming pool from million-dollar homes if my subject is a $100k home.


Good luck.

 

[Metamorphic]

Subject has a detached 2,000 SqFt RV/Garage/Workshop with 1/2 bath and dedicated HVAC of good quality in good condition. Subject is located in Glendale, AZ on near acre lot. Detached garage/workshops are not uncommon in the area. A much smaller house sold recently that has a 950 SqFt detached workshop with 1/2 bath and HVAC. It is not a good comparable but I thought that I could use it to determine the contribution of the subject's workshop. What is the most accurate method of doing this? Thank you!

Sounds like a great opportunity for a matched pair. Find another 950 house without the shop, adjust for any minor difference. What ever difference in price remains is reasonably attributable to the garage.

Be mindful of what Dennis said though. The contributory value of amenities is not necessarily the same across different socio-economic levels. Effectively, while the typical buyer for the 950 SF house might *like* a big shop, if their housing purchasing power is limited to a subsistence level, they may only be able to pay pennies on the dollar of the actually worth of the garage. Where as in a more affluent neighborhood (one where the typical buyer is able to afford not just what they need, but also what they want), the overimproved garage workshop may contribute much more than just pennies on the dollar.

One other strategy is to look for other amenities that are generally equivalent. For instance a property with a granny unit could reasonably be seen as an equivalent amenity. While the dont have precisely the same appeal...the ability to have a home business in the shop could be seen as similar to the ability to keep grandma nearby or have a unit to rent, etc.

 

[AZguy33]

Ok so I compared the house with the workshop and the most similar comparable shows a $15k contribution for the workshop. Now since this workshop is half the size of the subject's workshop that I am appraising... can I use a percentage to determine the contribution of the subject's workshop. Thank you for the replies.

 

[Metamorphic]

Typically with overimprovement there is a decreasing of returns. So a 1000sf Shop that contributes $15k probably contributes less than $15/sf when scaled up to 2000sf. So maybe you say, "$15/sf is what I can support based on a 1000sf, but since the subject shop is larger i will assume $10/sf for the larger shop" or something like that. Alternately you could just say...."$15k for a shop is all I can find market evidence for " period stop end of story. You're getting into the part of the valuation process where opinion is a big part of the process.

I dont know what the total value of the deal is but once you get inside the reasonable margin of error base on the total value, you just have to stop, show your best evidence, temper it with your professional opinion and finish the job.

 

[AZguy33]

Yeah I think we are thinking the same. Thank you for the input.

 

[Terrel L. Shields]

can I use a percentage to determine the contribution of the subject's workshop. Thank you for the replies.

Except for the bathroom, most shop buildings are bid by SF so you can scale up and down, but I would make some accomodation for the bath fixtures since they would remain the same.

I did a study of a small subdivision where most homes have shops and only a few have no shop. It was ideal for developing a SF adjustment and it came out about $20 a SF with local construction costs running from $22-30/SF for new ones. These were typically from 3 - 5 years old. I concluded that outside physical wear and tear, there wasn't more than a 10% "functional" devaluation of the shop buildings. They were a desireable feature in this subdivision and buyers were willing to pay for them.

 

[Louis Pompeo]

The sales comparison 'paired sale' analysis is too weak. You only have 1 sale to do all those paired sales with. Try the Income and Cost Approaches for your adjustment.

Let's say you can rent the garage for $800/month = $10K/year.

Minus 10% vacancy = $9000/year

Minus 30% replacement reserves & OE = $6300/year

Capped at 12% = $52,500

Then do a cost approach on it and see what the as-is value is.

Reconcile the two values for your adjustment. This should be your upper limit of what the adjustment should be.

Your final value conclusion would have to be tempered with the statement, i.e. "The final estimate of value includes a substantial adjustment for the detached 2K garage/workshop. Although not uncommon for this area, it is doubtful that the entire buying market would pay for or even consider this feature an amenity. With somewhat less marketability, the property should realize this estimate of value to users who regard this feature as a positive contribution."

 

[Terrel L. Shields]

Let's say you can rent the garage for $800/month = $10K/year.

In my area it would be illegal to rent your shop out in a SF subdivision... You probably need to look at your rurban and rural sales to allocate a value rather than do simple paired sales. Allocation is less precise but beats guessing.

 

[Peacemaker]

I would not want to hang my hat on one comp and call it a matched pair when the feature I'm trying to value is half the size of my subject.

Go back in time, and expand your search area. Sometimes you can't find great data but you at least want to make sure no one else can (like a reviewer, or an attorney for the plaintiff when the thing goes into foreclosure). Me, I'd want as many comps in my workfile as I could find, even if they don't end up in the report. I'd look all over the west side, all the way to Waddell, anything on an acre or more. You want a bunch of matched pairs. Put 'em all in Excel and find the pattern in the data. Call the realtors, make notes on all the MLS sheets and stash in your file.

And, I wouldn't get TOO hung up on the HVAC, it's a shop, right, not living space, so that may be somewhat superadequate? I know a lot of guys with evaps in their shops but most of them would rather have a few more power tools, a riding lawn mower, and a Kegerator in their shop than AC (which is for wimps). Good luck!