An Over Improved Property Question

[gotnoworrys]

Hello Fellow Appraisers!
I am appraising an over improved property. I have no comparables in the area that can bracket the subject based on the numerous upgraded features. Is it acceptable to use the best comparables even if they will all adjust upward?
I am not comfortable with this as this is not your everyday issue. But I know that there are times when we have to step to the side of the "norms" and utilize the best we have. So... does anyone have any advice on how to handle an Over-improvement?

Thanks in advance.

 

[Joyce Potts]

First, you're using a sacred avatar.

Second, the fact that you have no comparables to bracket the subject's high side or upgrades is a clear indication it's probably an overimprovement. If you were able to bracket it, chances are it wouldn't be as big of an overimprovement as you thought. There are scenarios where subdivisions have a wide range of GLA's and/or upgrades, but nothing on the high end like your subject sold. So it's not an overimprovement in relation to many of other homes within the development, it's just that your recent data sampling has no sales within the last six months or more within the immediate location. You have no choice but to expand your search and explain. Do what you say and say what you do.

 

[gotnoworrys]

You are correct. I do not have data that would tell me the conditions of all the homes and therefore it may not be an over-improvement for the neighborhood, just of those I have to work with (except the Realtor indicated that it is).
So you would suggest I expand my search. I have already expanded all parameters including distance to 4 miles. Further is my only option then...

So... you like my avatar? "Scared" is good, right?

 

[CANative]

Agree with the Betty Boop avatar. It was used almost exclusively by a forum member who was almost revered by many.

I don't agree with going outside of the market area to find comps unless it's from a neighborhood with similar characteristics and would be a suitable alternative to the subject's market or neighborhood.

 

[gotnoworrys]

Agree with the Betty Boop avatar. It was used almost exclusively by a forum member who was almost revered by many.

I don't agree with going outside of the market area to find comps unless it's from a neighborhood with similar characteristics and would be a suitable alternative to the subject's market or neighborhood.

Okay.... So I "should NOT" expand my search geographically.
That leaves me with a 50/50 vote. Anyone care to break this tie?

I am a newbie to this forum and can only say that Betty is buddy... Perhaps one of a newer generation. I do not know of whom you refer. But it sounds like I walk inside of big foot prints. I shall tread lightly.

 

[Deleted member 128537]

Expand the search area and time. Make location adjustments if different by looking at median sale prices in both localities. And make time adjustments if necessary.

But some things just can't be done. I had one like that a few years back. No way no how was I going to find comparable sales. I turned the assignment down and went on my merry way.

Sometimes you just have to cut bait.

 

[J Grant]

Do you have MLS access ? ( you mention no access to get conditions of properties)

Expand back in time. if NOTHING shows up with comparable upgrades, it could be an over improvement, at which point the upgrades are not seen to return value in market because they are so atypical for area (MV references the typically motivated buyer, not the atypical one, ) It sounds odd no home sales upgraded? What do the upgrades consist of?

 

[Joyce Potts]

Sacred is earned.

 

[hastalavista]

Most neighborhoods have a price range that they can support. To live in that neighborhood, you'll have to pay at least $X. Once in, you can do all kinds of things to your house, but you cannot do anything to the neighborhood, so a property can be updated/improved/expanded/etc. to the nines, but at some price-point, the typical buyer will opt to go to a superior neighborhood even if that means purchasing an inferior (size, quality, condition) home (There are exceptions to this rule, but this is what is typical).
It really is this simple: Past a certain price-point, a buyer would be paying a premium to live in an inferior neighborhood; and the typical buyer doesn't do that. The typical buyer will move up to the superior neighborhood, even if that means they'd be moving into an inferior house.

In cases like this, the house is only worth what the neighborhood's price range can support. That upper-end price-point is likely not defined by the highest sale in the last 6-months. I wouldn't have an issue going back 3-years or so; past that (in my areas) the market was still reeling from the housing bust, and I wouldn't rely on data from within that market dynamic to use today. Like CAN suggests, I'd go to competing markets. But, I'd want to do a fair amount of research (which might include comparing household incomes) to make sure that it was truly competitive. But you still run into the problem of making sure you can define the upper-end of the value range that the neighborhood will support.

When you arrive at your value, I recommend you do a gut-check: "Would the typical buyer really pay that much to live in this neighborhood... even with the super-house? Or would they move up into the better neighborhood over on the other side of the tracks, even if it means moving into an inferior home?"
In fact, when I'm appraising a home that has been over-improved, I state in my report that past a certain price-point, the typical buyer would opt to move to a superior neighborhood rather than pay a premium to live in the subject's neighborhood. I've yet to have a lender not understand that concept.

Good luck!

 

[Terrel L. Shields]

I hope you earn that avatar in the same way Pam did. God Bless her for standing up at a time when few would. And I remember the solidarity of this forum when many of us changed our avatar to a Betty B. after Pam was sued.

I frequently encounter a house which is above and beyond. It is the most expensive house in the subdivision, area, neighborhood. And it gets discounted. But rarely is it going to sell for no more than the top of the remaining homes. It will be discounted and as an "over-improvement" the question is are the features and fixtures really an over-improvement (functional obsolescence) or are they a reflection of a mis-matched highest and best use, which reflects an "off site" factor, "the market". If "the market" cannot support such dwellings, then perhaps it is better called an "externality". So, for me, the down and dirty way to estimate that "defect" is the difference in the value of the subject lot and a lot that is more ideal for a bigger better home. So say you have a 3,000 SF McMansion in a small lot subdivision of 1,500 SF starter homes. The starter home lots are worth $20,000. The lots in a nearby "estate" subdivision sell for $60,000. The difference is $40,000, and the home would suffer that much price wise, perhaps more. Also, it is likely to exceed the normal marketing time for that subdivision...or even the McMansion subdivision.

So, yes. Every neighborhood has its "best" home and that "best" home almost always will be discounted somewhat. And to bracket same, I suggest you find a similar home outside the neighborhood to set a top to the value, and adjust for that difference in land value that almost certainly will accrue.