My question is, should I assume that the value of the remodel then would be approximately $44k? Or should I take $44k/Square Footage and use that in comparison to the subject property as the house I referenced that sold for $212k is 373 sq ft smaller than subject property.
Thanks in advance!
You shouldn't make the assumption (or do the calculation as you suggest) and infer that the result reflects the contributory value of the remodel (although it may be an indicator).
I'm assuming you have a two-part issue: (a) How do you, as a Realtor, price this property for a sale (or advise a buyer how much to pay for it) and (b) if it goes into contract, can you expect any appraisal issues?
As a Realtor, you can do your BPO process and certainly use older sales (adjusted for differences in the market conditions; i.e., appreciation or depreciation) and go to competing areas (a "competing area" is a market that is outside of the subject's primary geographical market area but is similar in all other respects such that the properties there would complete equally/similarly to the subject in its specific market area) to do some comparisons and calculate a value difference (remodel vs. standard); then apply it to the sales in your subject's specific market and voila!
That is all reasonable; however, it may get a little complicated finding and appropriately comparing properties from a competing neighborhood. This is not a "dis" on you: not all agents are trained to do this. Appraisers are supposed to be trained to do it so the advice we give on this makes perfect sense to us but may not be something you are familiar with.
As to the appraisal if you are listing the property...
You have the classic problem of having the best property of its class in a market that (at least for the last 6-12 months and within a relatively small area) hasn't caught-up with yet. And, when I say "caught up", I don't mean value/price but I do mean updates/remodeling.
Solving this appraisal problem is straightforward (but might require some additional steps). They involve all the things already mentioned: consider cost, go out to competing markets, go back more than 6-12 months, etc.
Solving this appraisal problem and meeting the lender's loan requirements may not be so straightforward. I want to be clear on this: Lenders like to make loans on properties where the appraisal confirms the collateral value with the lease amount of unexpected adjustments. Lenders start to get cold feet when the appraisal, conforming to sound appraisal methodology, doesn't fit exactly what they would like. It's the golden rule. So even if the appraisal is done consistent with sound practices, the property just may not fit the lender's risk/loan appetite. C'est la vie!
For the appraisal process, I would recommend that the seller work closely with their lender to ensure that (i) the lender understands the dynamics and is willing to go forward based on that understanding and (ii) they select an appraiser who is sufficiently competent to complete the extra steps that may be necessary. In my experience, a local lender would be more apt to take on this kind of scenario than a national lender (the local lender knows the market already).
And, after everything is said and done, be prepared for the potential outcome being the appraisal will conclude a value lower than the list or contract price.
In nearly every market, there is a "ceiling" that a typical buyer will not go above (once they hit that ceiling, they'll go to a superior neighborhood and buy an inferior home, or switch to a different type of home; detached SFR vs. townhouse, for example). Whatever the current owner did to their unit and whatever they spent, the value of the home is likely capped by that neighborhood ceiling.
Good luck!
