Appraising The Overimprovement

[Have Laser-Will Travel]

Have you examine rental properties and rent analysis? It may point to differences in neighborhoods and how much of an over improvement there is.

There is also the cost approach.

Between the two, you can reconcile the obsolesce or depreciation.

There was a 4,000 sq. ft. 4-unit that sold for $735k.

 

[J Grant]

It's not an over improvement unless there is virtually no market for the improvements ( if virtually no buyers would pay anything more for it being bigger/better). But if there is a viable market , even if more limited due to location, then its not an over improvement, its atypical for the neighborhood in being the biggest or nicest (or both)

It may command less $ than if it were located in a superior neighborhood, but it will still get more $ within its' own neighborhood for being bigger/nicer...if you determine there's marketability/demand. Talking to some area RE agents can help as well.

 

[Randolph Kinney]

There was a 4,000 sq. ft. 4-unit that sold for $735k.

That's not what I meant. You need single family homes and what they rent for.

 

[Have Laser-Will Travel]

Have you examine rental properties and rent analysis? It may point to differences in neighborhoods and how much of an over improvement there is.

There is also the cost approach.

Between the two, you can reconcile the obsolesce or depreciation.

There was a 4,000 sq. ft. 4-unit that sold for $735k.

Then you have the basis for extracting improvement contribution to market value from comps.

Have you look at the history of sales in the neighborhoods? Has your subject sold in the past. What was the largest size home sold in the past?

As an exercise for me in the past, I plotted M & S price per square foot and did a curve fit to see if I could mathematically predict. You can.

There are 13 other dwellings in the neighborhood of 2,900 sf or more, the largest being 4,600 sf. The last time the subject sold was 2004. The most recent sale was 2 years ago, 3000 sf but it was just very plain on the inside and sold for $525k.

 

[Have Laser-Will Travel]

That's not what I meant. You need single family homes and what they rent for.

Yes, there are but I have to confess, this is a new approach for me.

 

[Randolph Kinney]

There are 13 other dwellings in the neighborhood of 2,900 sf or more, the largest being 4,600 sf. The last time the subject sold was 2004. The most recent sale was 2 years ago, 3000 sf but it was just very plain on the inside and sold for $525k.

Go back to 2004 and see the comparison to what sold. You should be able to extract price per foot (non linear) showing a decreasing price for increasing GLA.

Use the time frame for the 4000 sf home and do the same. Same for the 3000 sf home.

 

[J Grant]

What did the subject sell for back in 2004? That was a decent market, before the boom , it would be some kind of indicator at least.

 

[Have Laser-Will Travel]

It's been my experience with residential over-improvements that the GLA adjustment/sf is relatively low. For example, if you typically use something around $50 to $75/sf for price points in the $600k to $700k range, the appropriate adjustment in this case might resemble something closer to $20 and $30/sf, maybe even lower. With regards to determining an appropriate location adjustment for bringing in a sale from a neighborhood you suspect to be superior, the land analysis is your secret weapon. Just my one penny's worth.

So I am going to compare land sales in both neighborhoods and the difference is the indication for the amount of adjustment due to location?

 

[Randolph Kinney]

Yes, there are but I have to confess, this is a new approach for me.

There is a relationship called GRM (selling price divided by monthly rent). You would use that relationship to show what difference does it make for larger size homes.

 

[Have Laser-Will Travel]

Go back to 2004 and see the comparison to what sold. You should be able to extract price per foot (non linear) showing a decreasing price for increasing GLA.

Use the time frame for the 4000 sf home and do the same. Same for the 3000 sf home.

Brilliant! (The 4000 sf home is a quadruplex though?)