Comp Selection In Rural Areas

[undergroundPOP]

As the title suggests, how would you go about selecting comps in a rural area where sales of similar SFR on 50+ acres has been extremely limited in the last 12 months? By extremely limited, I mean only 1 sale in the last 3 years...

I'm thinking about going outside of the immediate market area to other rural areas of the county and maybe including some older comps as well.

What are your thoughts?

 

[Rlong]

Yes, that is what one has to do in these type markets. And then explain the situation well in your narrative.
Bob in CO

 

[JTip]

Be wary about those 50+ acre improved parcels. Have a SOLID H&BU paragraph justifying why your license has the scope to do the job.

 

[undergroundPOP]

Be wary about those 50+ acre improved parcels. Have a SOLID H&BU paragraph justifying why your license has the scope to do the job.

Has this been an issue for you in the past? In California, the OREA dictates that Licensed Residential Appraisers can appraise any residential properties under a value of $1 million. 50+ AC agricultural parcels are often times used for residential purposes, so I don't think there will be a H&BU issue.

 

[Gobears81]

I don't think there will be a H&BU issue.

The lack of sales with a comparable site area could be a sign (but not something to, in itself, hang your hat on) that the market is viewing the additional land as either excess or surplus. What are the most comparable properties (in design/ location of the house) exhibiting in respect to site area and is the placement of the house/ characteristics of the site such that it could feasibly warrant separation of this area? License or not, there is a genuine HBU issue here. The HBU would dictate whether the sales that are selected based solely on site area are the best one. If you do recognize excess land, be sure to consider the market's reaction on the contributory value vs market value of the excess land, rather than blindly adding it in.

 

[Michigan CG]

Welcome to your two page Highest and Best Use discussion.

You will need land sales in the report to justify the difference in value to the similar homes you use that have smaller site areas.

Going outside the market into a different market will cause a lot of headaches if the markets are different.

 

[BRCJR]

Rural county, say 20-40 miles wide, has one "main" town, normally the county seat. 10 miles north, east, south or west is many times the same/competing market.
Using the definitions USDA does for "farms", many times, the aforementioned is nothing more than a "lifestyle" farm. Rural residential or an intermediate farm (gross less than 100,000) is very common use. Any competent Appraiser should be capable of doing that appraisal, in my opinion.

 

[reviewbe]

You go further distant or further back in time for sales. One good thing about rural appraising is that you usually only have a few sales to choose from. Expanding the area only gets you a few more. If your subject didn't sell too long ago, can always put it in too, might be a sort of beacon on value.

Agree that your H&BU is likely to be difficult, and adjustments too. There may be a reason why there aren't any sales of properties like your subject.

 

[Deleted member 128537]

I prefer to go back in time rather than expand the search radius. It is easier to make a time adjustment (IMHO) than a location adjustment unless you have plenty of data. But I agree, once a house is put on the site we suddenly have excess land and surplus land issues. I just got asked to do an appraisal of a house on 39 acres. I turned it down. It is obvious there is AG activity on the land. It is use value assessed. To me that throws up many red flags regarding land value. Now I have to start looking at the value of that tillable land. Just think that is moving into Agriculture appraising and don't want to go there. Then there is the issue of surplus land. I have found doing appraisals in my market that when acreage hits a certain amount (about 10 to 20 acres), people WILL not pay for that extra acreage. I did an analysis and found that homes on 20 acres sold for basically the same as on 40 acres.

This was born out by a friend of mine that had his house on 15 acres outside of Green Bay. He just couldn't sell it, and I told him people are probably not wanting to pay for the land. They don't find it useful or necessary. It just increases their taxes. So I suggested he parcel it off, and then make the house with a smaller acreage. He did that and sure enough he sold it pretty quickly. Now he can sell the small parcels and actually come out ahead.

So once a house is on 40 acres, that 40 acres is not going to go for as much as if it would be vacant. Of course this will depend upon zoning as to how that would be affected, but surplus and excess land issues are very real and must be taken into consideration.

 

[ucbruin]

Has this been an issue for you in the past? In California, the OREA dictates that Licensed Residential Appraisers can appraise any residential properties under a value of $1 million. 50+ AC agricultural parcels are often times used for residential purposes, so I don't think there will be a H&BU issue.

Not to sidetrack you but I believe the $1,000,000.00 refers to the loan amount and not the value of the property....