Basement Vs. No Basement

[ChinnyChinChin]

ChinnyChinChin: I just recently had an appraisal completed which seems a little off to me.

We have 2200 sq/ft above grade and about 1800 sq/ft of finished basement.

Our appraiser only used comps that were 2000-2300 sq/ft homes with no basements...so obviously the sale prices were MUCH lower.

He told me he doesn't think a 2600 sq/ft house with no basement is a comp and therefore my value was much lower.

$35k lower than i paid in 2006...an appraisal which he also did.

Any insight on this?

I have a number of comps in the area that are 400-500 sq/feet larger with no basements which sold for more than my appraised value...I'd love to use those comps

I have 2 homes within 1/4 mile that are 2600 and 2700 both both without basements that sold for more than my appraised value. I
asked why he didn't include such nice new comps and he said they aren't comps

Welcome to the forum.
Don't post the appraisal.

Some things here; what was the purpose of the appraisal? Lending?

Lending has its own rules for what is, and what is not "a comp", which can vary by lender through assignment conditions.

Regardless, the lack of comparables, or even non-comparable sales with basements should have been addressed in the report, as a matter of good practice. But it is important to understand that the report is produced for the lender, and for the lender's understanding. So if the lender understands you have a basement, and no sales support a value contribution for a basement, the lender has the choice of addressing the issue future with the appraiser, or, just letting you believe that you could convince the appraiser differently and that would make any difference to your loan application.

Sadly, the second option seems to be the case. If the lender did not ask the appraiser to address the lack of value contribution of the basement, and left it to you, well, the lender's decision is made concerning your loan.

Instead of looking for bigger homes, you need to look for sales of homes with basements, and compare them to similar homes without basements to extract any value contribution recognized in the sale price differences. Not just look for bigger homes, because they are two different considerations. Some buyers don't want basements, some will not buy anything that doesn't have a basement. But it's going to be very market specific, and depends on the pool of potential typical buyers in an area.

Hope this helps.

.

Actually we had the appraisal done to decide on if we wanted to sell our house or not...no lenders involved. Just an appraiser and his opinion.

 

[ChinnyChinChin]

Maybe having an appraisal done early on for info purposes was a bad idea...lol.

 

[Meandering]

Well, I want to apologize to you from my profession.

The appraiser should have addressed your basement more thoroughly for you to understand it's acceptance in your local market place.

Appraisers have to make their reports credible for their intended use and users. Since you were the client, you were the intended user, hence, you can get after that appraiser to perform the analysis so that you understand the value contribution or not, of your basement.

Don't let them off the hook as it is a USPAP concern that the report be credible to the client (you) and apparently it is not credible to you.

.

 

[ChinnyChinChin]

Well, I want to apologize to you from my profession.

The appraiser should have addressed your basement more thoroughly for you to understand it's acceptance in your local market place.

Appraisers have to make their reports credible for their intended use and users. Since you were the client, you were the intended user, hence, you can get after that appraiser to perform the analysis so that you understand the value contribution or not, of your basement.

Don't let them off the hook as it is a USPAP concern that the report be credible to the client (you) and apparently it is not credible to you.

.

Thank you for the reply. All he would tell me is that he valuated my basement very well due it's good construction quality. There haven't been a lot of basement homes in my neighborhood moving recently, mostly crawl-space homes at this point. However these crawl-space homes are selling for more than my appraised value with only 300-500 more sq/ft above grade.

 

[Meandering]

Okay,

You wanted to the appraisal to decide if you could sell your property.

Here is my advice, and I will tell you I am both an active Realtor sales agent and a Certified General Appraiser.

Call a local Real Estate Sales Office. Ask for any agent that has at least 10 years experience in your area. Ask that agent for a CMA to decide if you want to sell, and at what price the agent thinks they could sell your house for.

But,

I would wait until after the holidays to do this. There are many reasons why, but I can tell you as both an agent and an appraiser, if sales aren't scheduled to close by now, there won't be many lookers or buyers before Christmas, and if snow is an issue in your area, there won't be many until after the worst of winter weather has passed. Your local agent can give you an idea of when the "best" time to try and sell a property in your local area is, but generally, you want to be fresh and active when there are the most potential buyers, that will bring you the best price.

Conversely, appraisers need closed sales to opine values. Now they will be reliant upon the summer sales for comps, as we get closer to the holidays, the early spring sales age out of the analysis.

However, this year will be somewhat hairy as the Fed is talking about raising rates, which means loans become more expensive, which may impact spring activity, but so far hasn't pushed buyers into the holiday season, at least here.

That's why you need a local sales agent to help you determine pricing, as sales are forward looking, while appraisals are backward looking.

Good luck.

 

[JTip]

However these crawl-space homes are selling for more than my appraised value with only 300-500 more sq/ft above grade.

Hmmm....sounds like maybe your market doesn't like basements. I'd prefer another 500sf above grade (in a master suite or extended kitchen or office) than deal with a cold dark basement, finished or not. Just because it's there doesn't meant it's worth more. Something to think about.

Kind of like ranch homes selling for more (on a unit value) than two story homes due to the ease of accessibility.

 

[Terrel L. Shields]

If no comps had finished basements, then they are not "comps"...just sales.

 

[mikep7394]

I was thinking along with jTip on this one. I noticed you mentioned that homes with basements are not moving in your area... maybe an indication that typical prospective buyers prefer no basement? It's always difficult to have an opinion on a market with which one is not familiar, but that one piece of information may be important. In my area basements are common and preferred by most buyers, but perhaps in your area buyers in the market now would rather not have one or at least may not be willing to pay a premium for the feature. I'm a little surprised however that the appraiser did not provide at least one comparable sale with a basement, even if he/she had to go outside the market area. I would think including a similar style house, even if it meant additional adjustment(s) for location or living area, would assist with developing an opinion of your home.

 

[Deleted member 128537]

1. Are basements uncommon because of high water tables and or cost of constructing them? In my area we have few homes with basements because of these issues. I have a basement in my house and that is very uncommon for my area. This is more of a soil issue for my county. Also some people don't want basements because of the water table issues. They get wet too often and aren't good useable space.
2. A $30,000 positive adjustment for a basement that is finished might be pretty reasonable on a home in that price range. In my market we typically adjust $5 to $10 for unfinished area (walkout? daylight? age? all can increase or decrease value) and $15 to $35 for finished area depending upon quality and extent of the basement finish. Then I typically make a separate bathroom adjustment if it is below grade. You might ask how he/she calculated the adjustment.
3. I make my adjustment based somewhat on cost less depreciation and on past experience in the market when I have the data. I use cost if I don't have basement comparables (which is often).
4. So on a home I can do a $50sf above grade adjustment, but then a $20sf below grade adjustment.
5. I believe your appraiser is correct in not using homes with 400 to 500sf more above grade GLA when he has comparables with more similar GLA. The rule of thumb is to be within 10% of the subject's GLA if possible.
6. I might use a home with more GLA if it has a finished basement to see how the two work themselves out. But I might not weight it much in my final analysis. It has been found that consumers like homes from 2400 to 2800sf more than smaller homes.
7. Also I tend to be a bit conservative when I give people prospective sale prices and I always tell them a range. The reason is because if I say the home should sell for $400,000 and it sells for $375,000 the seller is miffed. But in reality it may well be within the margin of error for my area. So I'll tell a seller $350,000 +/- 5% or 10% depending upon how good of comparable sales I have.

 

[Terrel L. Shields]

In my area basements are common and preferred by most buyers

Here basements are referred to as underground pools. The last flat ground basement I was in was perhaps 10 years ago and the floor was standing water. Unusable for anything but growing mushrooms. The house happened to be owned by a former girlfriend of mine. She was from NY where they always had a basement and they got a rude surprise. I valued the place after she and her mother moved on. It was one of three homes on the farm and when her father suddenly died, it became a real problem for the family to manage. So they sold out. I shoulda married her and I might be on a 1200 acre ranch now..