Common Adjustment For A Detached 2 Car Garage

[Deleted member 134708]

$6k way to low. A market participant can easily see an option value of it being a granny unit too for rental income. (Couldn't care less if illegal use)

Go to your email, or Facebook. Send a mass message, what would you pay for this garage if 2 model matches next to each other. 1 has garage 1 doesn't.

I'd personally pay ~$25k more

 

[GWISC]

To the original poster: I apologize sincerely if you thought I was being less than helpfull. Your subsequent details indicate the garage is an added benefit. In my area, (I'm thinking of farmettes or rural subdivisions), the cost of the outbuildings is usually way more than the contributory value of said outbuilding even where it is an expected element of the property.

Look over the appraisal. Hopefully, one of the comparables has an additional garage or similar outbuilding. Hopefully, the appraisal has more than one comp with an additoinal garage, but then maybe they are very rare. What is the adjusted value (at the bottom of the grid) for the comparable or comparables with an additional garage? Are the comps or comp indicating a much higher indicated "adjusted" value than those without? That would be some evidence as to what the market is paying for this added benefit.

I respect your years in the profession. I know you have an idea as to the contributory value of the garage as you are on the cutting edge of the market talking to buyers. Appraisers can use depreciated cost, paired sales analysis (does not exist in the real world), income approach on a garage (Yes that works. find out what tenants pay for a garage and apply the grm).

Appraisers can also do what is called survey to determine adjusments. This one could be easily found by you as you are with buyers all the time. Simply ask them, how much more they would pay for an additional garage. I am sure you would get a wide range of answers which would tell you a lot about buyer's overall accumen. I know you have told homeowners when soliciting for listings that cost does not equal value. What do you think the garages contributory value is? Just curious.

 

[hastalavista]

I appreciate this forum and you guys taking the time to respond...
what typically would most appraisers adjust for if the subject property had an additional 2 car detached garage?

There is no typical. Your additional 2-car garage (4-car garage total) is atypical.
The appraisal should have some support for its adjustment. I said the following-

Did the report provide any evidence/support for how it arrived at its adjustment? If so (and if done correctly) that should satisfy your question.

What discussion was included in the report regarding the adjustment. I then asked this-

If not and since you are a broker, you can probably compare the extra garage homes vs. the standard garage homes and make some conclusions yourself. You can use your analysis as a reason to ask the lender for a Reconsideration of Value in regard to the contributory value of the additional 2-car garage.

What did your research conclude? How does it match-up with the $6k adjustment. Were you able to find conclusive market data to support a different adjustment. For example, if you did the research and found that homes with the additional 2-car garage sold for between $10k and $20k more (all other things being accounted for as best as possible) that would imply that an adjustment anywhere between $10k and $20k is reasonable. Likewise, if the analysis should the value difference between "zero" and $15k, then in theory any adjustment within that range would be reasonable. Common sense would argue that unless the 2nd 2-car garage interferes with the utility of the site, it a typical buyer would pay more for that amenity than one without it. But in a "zero to $15K analysis", where that point lies is one of subjectivity.

You know better than most how subjective buyers reaction to different amenities are. No two houses and no two buyers are the same. Real estate is imperfect, and there is inherent fuzziness in any analysis because all factors are not known.

Now, I'm not saying the $6k adjustment is right or wrong. I am saying that it is impossible for us to make a determination (but it is possible for you since you have the data).
I did say that it is reasonable to question the $6k adjustment, and I suggested you contact the lender which you did.
I understand the seemingly inconsistency in an appraisal report that makes a $3k for a security alarm system (I'd like to see the market evidence for that) and a $6k adjustment for an additional 2-car detached garage (I'd like to see the market evidence for that as well... or hear your market research to see what the data told you is more reasonable).

I'm making no excuses for poor appraisal practices. I always advocate in my posts that the more atypical the feature, the greater the expectation of the client (who is the lender) for an explanation in the report of how that atypical feature was analyzed.
"The client expects X, and when it doesn't get X, expects Y."
A client may expect that an additional but atypical 2-car garage would be valued in the market at a higher rate than $6k (that expectation is reasonable); so if the client's expectation isn't met, then the client's expectation is for an explanation of why it is different than what is expected.
Did the report provide that explanation of how it concluded its $6k adjustment?
Based on the market data you have available, what does your analysis indicate? Is there a discernible value difference between the typical 2-car garage homes and the atypical 2-car + 2-car detached homes? If so, what is that value difference range?

If I hire 3 appraisers and ask each to appraise the same house, the chances are, they will all be different because of the ability to insert opinion mainly in the adjustment area but comparables to.

That depends on the quality of data they have to consider their opinion. Would you expect them to come to different conclusions if they had 3 model matches sold for the same price and 4 similar homes that sold slightly above and slightly below the model matches, where the market was stable?
I'd expect a high degree of agreement. Especially if those model match sales all sold for a nice round number (say, $300k).

What if the data was not so precise? What if there were no model-match properties, and the sales price range was $275k to $310k. Would you expect the three appraisers to come in at the same price? And, what if the subject they were valuing had an atypical feature (an additional 2-car detached garage equaling 4-car garage parking in a neighborhood where the standard is 2-car garage parking)?

Not every appraiser is great, nor Realtor, nor lender, nor title company, ext. so don't get crazy about this. It just seems like there should be a way to have more consistency on adjustments.

(my bold)
You may think I'm slicing the baloney too thin here, but consistency of the adjustments is not the object. Consistency of the methodology used to conclude the adjustments is the objective. Sometimes the quality or quantity of data is very poor. When the quality is poor or there are few data points to consider, one should expect the results to be less clear than if one did an analysis using a lot of good quality data. As an agent who represents buyers and sellers, you should never want consistent adjustments. What you should want (and what the lender should expect) is that correct methodology is used in extracting those adjustments from the market. The market is not static; things fall in and out of fashion and prices go up and down. A feature that might represent 4% of a property's value 5-years ago could represent 8% of the property's value today; or be worth near-zero.

Again, thank you for your time in responding. Your time is valuable and I appreciate your answers.

Your concern regarding the market-reality of a $6k adjustment on the additional garage amenity is reasonable. That's the best most of us can say at this point. We can also say that the report should provide support for its adjustment.
If your analysis concludes a different number, and the analysis is done correctly, then there is something to evaluate the original appraisal's adjustment against.
If you can support your conclusions and the report doesn't, then it would be fair to say that your adjustment is the more reasonable of the two.
Unless that happens, you are unlikely to get any of us to say, "yeah, you are right and the report is wrong". The best you are going to get is, "you have a reasonable concern... you should do the research and contact the lender."

Good luck!

 

[bnmappraisal]

You may think I'm slicing the baloney too thin here, but consistency of the adjustments is not the object. Consistency of the methodology used to conclude the adjustments is the objective.

Excellent comment, Denis!

 

[nstanbru]

Excellent comment, Denis

Agreed, I especially enjoyed Chapter 2.

 

[Eli]

The fact the original poster didn't mention explanation of how the adjustment was derived speaks volumes to me. That would be my primary concern because there are recognized methods in appraisal practice and I would want to know which recognized method was utilized.

 

[Deleted member 128537]

My biggest question: Is a home with a 4 car garage an over improvement for the neighborhood? That will drastically affect the size of the adjustment. Cost has little to do with it at that point. For example in my area people sometimes build these large 50x100 pole buildings to store their stuff in. They often cost 100,000 to build. We rarely give them more 30,000, and more often about 10,000 to 20,000. It really depends upon how big or expensive the house is. For example someone that buys a very simple ranch with a 2 car garage is going to get little utility out of a large pole barn. They can't afford the stuff to fill it and then they just pay unnecessary taxes on it. So not a real high priority. And that's the question for the neighborhood, "How high of a priority is it for a another large garage?"

As per adjustment for fence and security system are those typical very typical and highly desirable amenities in your market? I seldom adjust for security systems because it's too small of an item. Most people don't install them in the county I work. And one security system to another can vary far too much. I will make a small adjustment for a fenced in yard in residential areas since people that have dogs and small children like them even on the lesser expensive homes.

Were there any other homes with 4 car garages in the report? If there was a 4 car garage used in the appraisal then maybe that adjustment was derived because it narrowed the adjusted values. And that's really how we do paired sales analysis. Over time we see that certain things tend to narrow the adjusted values. Also I know in one of my markets that a garage adjustment is between 2,000 to 6,000 per opening. The older and less expensive the house the smaller the adjustment. But in high end neighborhoods I will go to 10,000 per opening.

I would say the higher end and newer the neighborhood the higher the adjustment should be for a garage. I would question a 6,000 adjustment for a large detached garage in an expensive neighorhood. But again it will depend upon if this is an amenity people want. Think like a buyer since your an agent. So if people are renting storage spaces because they don't have places to store their cars, boats, etc. then a 4 car garage would be highly desirable. But if no one rents space, and they all feel like a 2 or 3 car garage is sufficient then maybe that 4 car garage is a bit over done for the market.

For example I have a large 3 car garage. Love it. But I have no need for another 2 car garage. Wouldn't really pay much for it. If that is the predominant sentiment the adjustment could be correct.

Good luck.

 

[Meandering]

What is 'Marginal Utility'
Marginal utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important economic concept because economists use it to determine how much of an item a consumer will buy. Positive marginal utility is when the consumption of an additional item increases the total utility. Negative marginal utility is when the consumption of an additional item decreases the total utility.

BREAKING DOWN 'Marginal Utility'
For example, if you were really thirsty you'd get a certain amount of satisfaction from a glass of water. This satisfaction would probably decrease with the second glass, and then decrease even more with the third glass. The additional amount of satisfaction that comes with each additional glass of water is marginal utility.

Read more: Marginal Utility Definition | Investopedia http://www.investopedia.com/terms/m/marginalutility.asp#ixzz43yxMPYVp

Equalizing marginal utility per dollar spent
Instructional video
https://www.khanacademy.org/economi.../equalizing-marginal-utility-per-dollar-spent

 

[Terrel L. Shields]

I was reading a post a few hours ago and an appraiser stated that they used $2,500.00 as their adjustment for each garage no matter the price point because that was how she was taught.

Sadly, this sort of rule of thumb is way common. And was taught as an expedient basically assuming the appraiser would understand when it could be applied and when not to apply it (only useful when comparing say 1 and 2 garage homes in a given area.) Supporting a per space adjustment is fine...to a point. It does not work outside the typical scenario I just described. And most appraisers should have enough sense to realize it. I have no confidence that is the case. Why? Because fees are way too low. Appraisers have no time to consider what they are doing...they "just do it" because at $250 - 400 fees on complex $500,000 homes they have not got the luxury of being able to think about what they are doing on the same scale they did back when we got a $300 fee for a $50,000- $80,000 house.

the chances are, they will all be different

That is true but the real test is that if they used various metrics, the metrics can be quite disparate yet arrive at similar final results. So I can adjust at a higher SF or I can adjust at a lower SF and adjust for room count, etc. yet arrive at the same basic value.

Surely there is a way to form basic amenity values per geographical area but can still be adjusted for based on some unique property characteristics involving said amenity.

It would be nice if we just had the "list" of big adjustments, like a Marshal & Swift where the "value" is given and we simply plug in the local multiplier. It does not work that way. Why? Perhaps an example is appropriate.

Say some small town in the Panhandle of Oklahoma... Isolated. We have a farmer who builds two houses. One identical to the other. But the first on his 640 acre farm 10 miles from Guymon and the other in the town itself. He builds an 1,800 SF rancher and equips each identically. The town has a simple town lot of 14,000 SF. He builds the houses each with a two car garage, and decides he needs the following on the farm. A shop building of 4,000 SF; a machine shed for his tractors and equipment; a barn for his cows; and, finally a detached garage to put his RV and farm truck in. Then in town, he thinks I will build an identical detached garage so I can store my bass boat in and when I drive the farm truck to town, I can put it there as well. He lives in town in winter and only goes to check the cattle on the ranch. But in spring planting season, summer and harvest, he lives on the ranch.

Can we believe that there is an identical impact for the construction of the detached garage in each case? Probably not. The first obstacle? Does the house alone contribute the same in town as it would 10 miles out on a ranch? What about if that rural home was only 14,000 SF? And what market differences dominate? So the contributory value is a very subjective and difficult thing to assess. And since banks don't want to pay, and AMCs want to pay even less, we either do arm waving and hope we are right, or we work for $5 an hour as we actually take the time to do it right and even then, understanding that the nature of the beast often dictates the magnitude of the market variation possible. The fact I might conclude the value of the improvements in the rural setting may be less than that in the town, does not mean I have any great handle upon why that is the case. There is no book on it....and I venture never will be.

 

[bnmappraisal]

Great example, Terrel