Earth Sheltered Home: Appraisal And Comparable Problems

[Marant]

I live in a concrete earth sheltered home and am having problems with the local appraisal district. I have filed for an appeal of the district tax appraisal, but cannot find much data to present to them. The home is in central Texas, and is apparently one of very few of its type in the state, making the locating of a comparable very difficult. The appraisal district is using standard frame homes in the area as comparables.

I have tried to obtain an appraisal, but, once I describe the home no-one wants to take on the job. I understand it is a special case and would result in a more expensive appraisal. Is this common among appraisers? How can I obtain an accurate valuation to present to the appeal board?

In my research to prepare for the hearing I have been advised that the home suffers from 'obsolescence', both external, which is not curable, and functional (market), which is apparently the fact that the house does not meet the expectations of the typical buyer. I am not surprised that it does not appeal to the average buyer, but we are glad we built it and live in it. I know the appeal board will ask me what I think the home is worth and I really do not know what to say. Can anyone give me an idea of the percentage reduction from the value of a 'normal' house due to obsolescence would be? I have seen opinions of reductions all the way from 50% to none.

I have also found some indication that Fannie Mae, Freddie Mac, VA, and FHA are reluctant (or refuse) to purchase mortgages on earth contact homes, though some of the information is rather dated. Is this still the case? It appears to be related to the lack of actual comparable sales, and requires the appraiser to provide substantial additional evidence to support the appraisal.

It also appears that earth sheltered homes run afoul of the concept of 'gross living area' (GLA) in that when any of the level is in contact with earth the entire level cannot be considered GLA. In our case the home is on one level, built into a hillside, with all of one side in contact with the earth and with 2-3' of earth on the entire top. In essence, it is a daylight basement. Is it accurate that our entire home would be considered to have no GLA at all??

Is it possible to estimate the effect of being required to find a local lender who will retain the loan, or the reduction in sale price to find a cash buyer? I expect it would result in a higher interest rate and larger down payment, as well as a possibly substantially longer time on the market.


I understand that I am woefully ignorant about proper appraisal standards and am requesting a lot of help, but, at this point, it seems I have nowhere else to turn. I have been able to find very little pertinent information, probably because our type of home is rather rare. Guidance to relevant sources of information will be greatly appreciated.

Thank you all for your consideration of our situation.

 

[George Hatch]

If the appraisal district is using a different type of construction as comparables the reason is probably because that's all they have to work with. We have to work with what we've got.

With respect to unconventional construction methods we normally measure on the basis of utility rather than relying solely on finding the same type of construction 300 miles away. The overarching question at hand is how the property would be marketed, what types of buyers would be the typical buyers in that region, and how much would they pay for it.

If there was a robust market in your area for such construction you'd see other examples of it and most likely you'd see price differentials in a market that valued these alternate builds. The fact that they're not common in your area most likely speaks to a lack of demand for those specific features, as opposed to ample demand for the overall utility of the conventional construction types.

There is some literature about using alternate methods of valuation, but in at least some areas where we do have relevant sales data to work with we often run into results that basically disprove the effectiveness of these secondary methods the way their respective technology vendors are performing them. Cost doesn't necessarily equal additional resale value, and neither do the savings on the utility bills necessarily equal additional resale value - not according to at least some of these buyers, anyway.

In real life only certain markets in the nation have been reacting differently to these alternate construction methods, and so far it hasn't been by that much. I think the most aggressive result cited in the 3-day course on green home I just took was in the tech-savvy San Jose/Silicon Valley area, where they maxed out ~9% higher than the conventional construction. Other areas surveyed returned results in the 0-5% higher range.

All real estate is local, so unless you're in Austin then what's happening in Austin with these properties may not translate in your local market.

 

[hastalavista]

I have tried to obtain an appraisal, but, once I describe the home no-one wants to take on the job. I understand it is a special case and would result in a more expensive appraisal. Is this common among appraisers? How can I obtain an accurate valuation to present to the appeal board?

Unfortunately, you haven't called enough appraises.
For a fact, if you lived in my market, there may be 3 or 4 appraisers that I can think of who would be willing to take on such an assignment (me being one of them). The fee would be significant.

Normally, I recommend residential appraisers for residential assignments; that's what they specialize in and while some commercial appraisers also do residential, many don't and others don't do it that often and are not as good as at it as the residential appraisers who specialize in that work.
In this case, I would recommend you reach out to commercially-licensed appraisers. The biggest difference is (in my opinion) is that an experienced commercial appraiser may have more tools in their toolbox, all other things being equal, that they would apply to solve this valuation problem. However, you should still interview the commercial appraiser to confirm that they actually do residential appraisals (not one-offs... that they have experience in doing them on a regular basis... and not just for mortgage-finance work because, as you have found out, a house like yours doesn't usually fit in the mortgage-finance lending profile).

Here is a link to the Appraisal Institute's Website ("Find an Appraiser"): http://www.myappraisalinstitute.org/findappraiser/
The way this website works is it will first list those Institute Members with designations. I would look at those who have the "MAI/SRA" Designation. "MAI" is for general appraisal work, but is usually associated with commercial assignments. "SRA" is a designation that is specifically designed for residential assignments. If you find an appraiser with both designations, that implies they have had the training and background to do both property types.
A designation (any designation by any organization) is not, by itself, a guarantee of competency or excellence. What it does represent, in the Appraisal Institute's case, is that the holder has completed specific course work, passed examinations, and has demonstrated by their work that the have mastered the fundamental and some of the more complex elements of real property valuation.
Even with all of that, my guess is that the majority of appraisers you call from that list will pass on the assignment just like most others. I just think the chances of finding someone quicker using that resource is greater than random calling.

Good luck!

(Full Disclosure: I am a member of the Appraisal Institute)

 

[Renee Healion]

Wow I did one of those and I did not have two designations.
Interesting, but then I declined the next one.

The original poster should weigh how much the assessment would have to be reduced, assuming they prevailed, to offset in taxes a significant appraisal fee.

 

[Tim The Enchanter]

I live in a concrete earth sheltered home

You have an atypical or oddball property.
The responses you have are from some of the best people on here.
I have nothing else to add, except good luck.

 

[The Warrior Monk]

I've appraised a few over the years. I have no idea what your home is like, but most of the ones that I've appraised have basement-type construction; i.e., exterior walls a poured concrete, with a roof. The interior finishings may be similar to other homes, but overall nearly all of these homes have cost less notably less than conventional homes. They've also sold for notably less, all other factors being equal.

 

[bnmappraisal]

I have tried to obtain an appraisal, but, once I describe the home no-one wants to take on the job. I understand it is a special case and would result in a more expensive appraisal. Is this common among appraisers?

Short answer - Yes

There have been other very good responses above, by some very respected individuals on this forum.
I just wanted to add, IMO, the reason you're getting a lot of "no's" is most likely because they are not competent to appraise such a property. Personally, I would have to decline for this reason. One of the first things we have to abide by in our rules/regs is being competent to appraise a certain property.

I like Denis's answer where he said:

Unfortunately, you haven't called enough appraises.

It may take some time and several calls/emails, but I'm sure there's someone who is competent enough to help you.

I hope it works out for you

 

[Restrain]

Ok, so I know of some in the Palestine/Tyler area and some up in the Denton area. The problem will be a)finding the sales and b) applying the data to your situation. Go to the Appraisal Institute site and look for SRA/MAI appraisers in these areas as they would be more familiar with your type of property. What you can ask for is sales data of these homes vs the typical market and market resistance. Be ready to pay for this data research. Then your local appraiser can use this data to bounce against sales to estimate the impact on your home.

Good luck.

 

[Marant]

Thank you all for your insights. They are very helpful.

It looks like if I can get the appraisal reduced by at least 25% it would be financially worthwhile to get a private appraisal, particularly since the reduction in value (percentage) should logically carry over to future years.

Unfortunately, it also is clear such an appraisal would be complex and time consuming. Since the hearing will probably be within 30 days it is probably not realistic to expect to have the private appraisal done within that time frame. I am sure any attempt to do so would result in a higher, possibly much, fee, which is understandable. Possibly a better idea to plan for next year and take the time necessary to do it right.

This brings up the question of whether or not to even go to an appeal this year, with only the information I have been able to obtain, which may be insufficient. It might serve only to tip off the appraisal district with no tangible result. I know it is not within this group's purview, but would be interested in any comments as to the best strategy.

Thanks again.

 

[Terrel L. Shields]

Is this common among appraisers? How can I obtain an accurate valuation to present to the appeal board?

Most experienced appraisers have been burned by oddballs - bermed, log, geodesic, are difficult to value and suffer enormously from functionality issues. Post report howls from owners, bankers, and, underwriters in particular, means threats to sue or turn you into the state. I know TX is a tax PITA, but will they allow agents or brokers to testify at equalization hearings? They need to adjust for functional obsolescence. And 30% isn't too generous amount to lop off the improvement contribution.