Confused about amenities

[Randa Zenthoefer]

I have a piece of rural property in E. Tn. - 4.8 acres with a 2280sq ft manufactured home on perm. foundation. This land was undeveloped when we bought it. In 3yrs we've we added a $5000 pond, cross fencing, permanent sheds, and a $3000 wood plank fence. When we got it appraised to refinance, it came back at less than we originally paid. The appraisor said there weren't any good comps and that she could not adjust the price any higher than the highest (not comparable really) property she found. She did go back and find another property and adjusted it somewhat.
My question is: How do appraisers adjust or allow for differences on properties when there just isn't anything close to compare it to? What if my neighbor has the same house and acres with nothing on it, and I have all the "amenities"? They have to count for something don't they?
Thanks for any insight and advice.

 

[Renee Healion]

They may count. It is the low bidders or newbie who whine that there are NO comps usually. If there is a good reason, the appraiser may have to search a wider area, or go back farther in time, or even both.

There may not be a good reason. Say, you put something only you would pay to have on your property, or only you and very few others. We have to report what a typical buyer would do when considering your property. If what you did was purely customize it for your own use, then the typical buyer would be indifferent to your additions. But if buyers would respond to what you have done--meaning the additions truly are amenities--then that typical buyer would be expected to adjust his purchase offer up (or down, if not desirable) by how the amenity affected his expectations.

Sometimes it takes more time to research and no one wants to pay for the time. Sometimes it is customization. Maybe someone who knows your area could comment more specifically.

 

[Mike Kennedy]

"This land was undeveloped when we bought it. In 3yrs we've we added a $5000 pond, cross fencing, permanent sheds, and a $3000 wood plank fence. When we got it appraised to refinance, it came back at less than we originally paid. "

Z- assuming your improvements included the dwelling, then it's possible land values declined in your market which offset appreciation of the property as improved. suggest you check the appraisal for the signature and title and license number of the appraiser to ascertain if MORE than 1 signatory is listed. If so, the appraiser on the left is most likely a trainee. If only 1 person signed the appraisal - couple factors might apply -

a. he/she is not from your market, therefore, perhaps does not have access to specific market data or

b. if he/she does - then perhaps he/she is not experienced enough in your market. Both are grounds to request the lender (if applicable) for a reconsideration of value.

If, to the contrary, the appraiser is competent, local or regional, with access to data, then it's likely the first comment above might apply. Suggest visiting the Assessor's office in your local, governing, municipality and request data on recent land sales of similar parcels - vacant, and improved with similar dwelling.

Note: additional improvements beyond the dwelling (and the dwelling itself) may represent under-improvement OR over-improvement of the site. Cost of an improvement has NO BEARING on market value. i.e. return on investment can be Cost, or Cost Plus, or Cost Minus (depending on the markets' demand for the improvements which can and do fluctuate). Appraisers rely upon the best available market data (closed, contracted, and active listings) on LOCAL properties (and in more rural areas similar/competing regional areas) ......to allow the market to determine which is the case.

Also note there is no "set allowance" for amenities.....no "standard adjustments" which apply. In appraising, and buying or selling, "it depends".
Remember - an Appraisal renders an Opinion of Value.

Find a local experienced, fully license or certified appraiser and get a second opinion. Well worth it given your concern over the appraisal you have. Good Luck.

 

[hastalavista]

Randa-

A key item missing in your post is, "What is the intended use (purpose) of the appraisal report?" This may have a significant impact on how your property can be appraised.
(edit insert: Sorry, Randa; I now clearly see you posted that the appraisal was for a refinance)

It is a widely held belief that all appraisals are completed the same way, and necessarily conclude a same (or similar) value. This is incorrect.

If the intended use of the appraisal was for a mortgage finance transaction, the assignment must also take into consideration lender guidelines. In one sentence, these guidelines are designed to-
1. Protect the lender's/investor's interest.

I'm giving you my general feedback concerning a Mortgage Finance Transaction (MFT) appraisal. Others may disagree:

The purpose (Intended Use) of a MFT appraisal is to provide a lender with a value opinion about a piece of property (real property) so that the lender can evaluate (along with other criteria) the loan package and make a lending decision.

Many lenders require direct evidence of value for the subject property. When I say "direct", I mean as evidenced by another property that has sold on the open market (usually called a "comparable sale"). As a rule, lenders are most comfortable with-
A. Properties that are the same/similar in configuration to the subject in question.
B. Properties that are close in distance to the subject.
C. Properties that have recently closed.

Finding comparable sales with all the ABC's above is not always easy. Sometimes, it cannot be done. When it cannot be done, then the appraiser tries her/his best to find the most similar properties and apply "market adjustments" for the differences, and arrive at a reasonable value range based on the adjusted properties. Within that range, the final value opinion is usually concluded.

Now, the lender's guidelines may prohibit the appraiser from doing a number of things- usually adjusting a subject property "up" over-and-above what the other sales in the area have closed at. So, if the highest sale in the neighborhood is $200k, a lender may "cap" the value of the subject land at $200k. The appraiser has the ability to review the available data and search for comparables in the overall market or in what is called competing markets. So, a subject's individual market may be a 5+/- mile radius. There could be a competing area/market 15+ miles away. The process first would be to look at the local market. If the subject is so significantly different that nothing is similar, then a competing market may be in order.

In your specific case, what you post is that your property is improved above and beyond what the neighboring properties (comparables) have been improved. Therefore, why isn't your property worth more than the neighbors? The answer is, if you sold your property, it may be worth more, but from the lender's perspective, the market has "maxed out" at a certain sale price; the lender will limit its lending value on that high sale.

If the appraisal report has brought your property's value in at the high end of the "unadjusted" (raw sale price) of the comparables, the report is saying
the subject is worth as much as the highest selling property in the area that was discovered.
Even this conclusion makes many lenders pause; it is a "risk" to loan at the high end of the market, because if things decline, the high sale will usually be the first to fall. Lending beyond the "high sale" is even riskier, because there is no market "evidence" that someone will actually pay a higher price than what has been paid (there is an ultimate price in every neighborhood that one will not pay above; at that point, the buyer will go to a better neighborhood).

If your appraisal was for tax or estate purposes, or litigation, these "caps" do not apply because no one is "lending" money on the property. But for a MFT, the risk analysis by the lender is a process of determining where your property "fits" in relation to the rest of the properties, so that if the lender is forced to take the property over, it has a reasonable idea of what it can sell the property for to recoup its loss.

Again, my comments are intended as a general description; every individual situation is unique.

Good luck!

 

[Otis Key]

Randa, welcome to the forum. Hopefully some of the answers above and below will help you understand. I'm going to answer some of your comments directly in the quote.

I have a piece of rural property in E. Tn. - 4.8 acres with a 2280sq ft manufactured home on perm. foundation. This land was undeveloped when we bought it. In 3yrs we've we added a $5000 pond, cross fencing, permanent sheds, and a $3000 wood plank fence. Most of us are not familiar with TN, but there are a few on here that live and work in that state. When we got it appraised to refinance, it came back at less than we originally paid. I'm a little confused and don't want to read into your question but you said the land was undeveloped when you bought it so I doubt it came in below what you originally paid for the land; maybe you mean when you bought the land and added the manufactured house. The appraisor said there weren't any good comps and that she could not adjust the price any higher than the highest (not comparable really) property she found. She did go back and find another property and adjusted it somewhat.
My question is: How do appraisers adjust or allow for differences on properties when there just isn't anything close to compare it to? Experienced appraisers will consider the market areas that prospective purchasers will consider when they are looking to purchase. Sometimes it's a narrowly defined market and sometimes it can be as wide as 20 miles, depending upon the area, market, improvements, intended use, etc. What if my neighbor has the same house and acres with nothing on it, and I have all the "amenities"? I believe from that statement and the sentence following this reply that you might have the perception that cost equals value; unfortunately that is not the case. Almost all appraisers know, or research extensively (should), the cost of items, amenities and construction. Those items, improvements, amenities, etc., are then analyzed by the resale market for those "contributory value amounts". They have to count for something don't they?
Thanks for any insight and advice.

I'm not sure that this helps you but it is a factual aspect of appraising and real estate. As some said, the property values may have gone down, all new properties (typically) have an initial decline in value before then turning around appreciating. Also, declines and rises in property values are never a guaranteed factor in one direction. It depends upon the supply and demand within the market.

Also, as Denis posted, the requirements for a mortgage finance transaction are more strict and defined than for taxation or estate or portfolio analysis. In the end, it comes down to the fact that you did get (it sounds like) your house refinanced and probably at the standard market rates. Hope it helps.

 

[xm39hnu]

Randa,
I hope Peter LeQuire sees your post; he works east TN. I'm in west TN, and Doug Bingham and several others are in middle TN south of Nashville. In my rural corner of TN, rural land values not associated with a major population center have risen slowly, generally at the same pace as inflation. I don't see any diminution in selling prices in my area except after a timber harvest. But there's no major leap in prices except near larger population centers like Jackson and Memphis. In your area, that would correspond to Chatanooga and Knoxville.

But you said you'd improved the place with a manufactured home. Are you sure you didn't overpay for that? I've turned down many orders for people trying to finance a manufactured home and needing $120,000 for the deal to fly. I'm sure they obtained financing somewhere, but they did not do it using comparable resales from this area, which shows the highest priced resale of a manufactured home around $85,000 on five acres. Even with a halfway-supported time adjustment, you'd have trouble topping $90,000. Yet these things are financed all the time.

"How?" you may ask. Well, you received advice above to find a competent, qualified appraiser. Good luck making that determination. There are far too many appraisers who will look at the "value needed," and try to make the data fit that value. They'll report as market value whatever the broker needs in order to make his deal. On this forum, we call this type of appraiser "Skippy." We're doing our best to eliminate them, but it's like trying to empty your pond with a teaspoon. The TN Real Estate Appraisers Commission is overwhelmed with complaints, and those complaints are resolved very slowly.

I'm guessing that your second appraisal may have been the more accurate reflection of market value, but I can't say for sure without reviewing both reports. Estimating too low is as bad as estimating too high, but the latter is far more prevalent than the former.

 

[TN Pro]

Randa, where in East Tn.?
I am located in Knoxville, will be glad to answer any questions for you. (865) 389-3261.

Dean

 

[Peter LeQuire]

Mr. Z -

Like Mr. House, I'm in the Knoxville area, but don't know whether you're near Mountain City or Chattanooga. Nonetheless..........

The others who have responded to your concerns have offered good insight. My experience is that, in appraising acreage house sites with more than a minimum of site improvements (say, improvements beyond driveway, septic system, well, etc.) it gets really difficult trying to extract significant contributory value attributable to such "amenities" as a fencing, ponds, etc: it can be done, but doing so is generally outside the scope of a "typical" residential appraisal assignment. This is probably a part of what we do where the well-worn phrase "cost does not necessarily equal value" certainly applies. (I've also seen instances in which the existence of an "amenity" actually has an adverse effect on value: one person may see a pond as an asset - a place to fish or paddle a canoe with the grandchildren - while someone else sees nothing more than a maintenance headache and a huge, wet potential liability.

Also, you didn't say whether the manufactured housing unit was in place when you bought the property, but if you bought the unit new from a dealer and placed it on your property, or bought it new as part of a package deal, available comparable sales - "used" or existing manufactured units - may indicate a significant amount of depreciation in the early years of such units which affects the result of the appraisal of your property.

It's not possible to give you a definitive assessment of the appraisal with the information available in this forum, but I'm sure that, if you feel it prudent to pursue the matter, you can find a competent appraiser in your vicinity who would be glad to help.

 

[Roberta Workman]

I think you got the same incompetent appraiser I did in east TN. He managed to make 42.45 acres and a 2016 sf upgraded Craftsman bungalow only worth $220,000. He never went up to the barn or any of the outbuildings including a separate 2 car garage, 8 stall barn, and brick workshop. He claimed to have walked the property on a Saturday when we were home and never saw him. He couldn't have walked it...he weighed 400 lbs and got out of breath walking 40 feet from his truck to the front door. I sold 7.55 acres of the property for $2000 an acre. He called and asked what I sold it for, then put a value of $1800 an acre on the remaining property. ????

Unfortunately the oldtimers here in TN still think land is $500 an acre and until some starts selling for more, they'll never get the value up where it belongs.

We ended up having to cut our selling price by $20,000 to keep our buyers. I could have requested a second appraisal, but, guess what? The buyers' bank got to pick the appraiser and I would have had to pay for it. They're all in each other's pockets here. I didn't stand a chance of fighting it.

 

[DB]

Ms. Workman,

While you may be correct in your particular instance, I can assure you that not all appraisers and bankers are in each others pockets.

Ms. Zenthoefer,

I have personally never seen a case where amenities and additions EVER returned a dollar for dollar return in value. This is a common misconception among homeowners. If you have a $200,000 appraisal and you add a $5000 fence, your property is not worth $205,000.00. The value of the amenities is based on how the market will react to your additions, and in some cases, it will not react at all. Your $5000 fence may have no significant value whatsoever, to a potential buyer.

In the majority of TN, rarely will a MFH appreciate, period. In most cases, in my experience, the MFH will usually depreciate at rate slightly higher than the land can appreciate. It is not unusual for a property of this type to decrease in value, in the short term, but will usually balance out in the long term and may actual increase with continued maintenance and upkeep. Market reaction to MFH's with acreage is rarely good, except with the buyer plans to move the MFH and build or leave it for the in-laws and still build.

Also keep in mind that the larger the acreage, the less per acre, it generally sells for. A 5-10 acre tract will bring a higher price per acre than a 30-50 acre tract.

Like the others, I will be glad to talk to you, but I can assure you from my own experience that Mr. LeQuire and Mr. House are more than qualified, are not in anyone's pocket, and have the integrity to "shoot you straight", even though the answers may not be exactly what you want to hear at this point.

Good luck and let me know if I can help in any way.