Earth Sheltered Home: Appraisal And Comparable Problems

[Tim The Enchanter]

Not sure why the OP's residence should be so difficult to appraise.

View attachment 35709

Is that it? Pics links did not work for me.

Looks like a normal 1 story. If the back wall is a retaining wall against the hill, I'm inclined to think BFD.
You have no back yard.

 

[timd354]

The regulated institution shall be responsible for making the final determination of whether the appraisal is complex. If during the course of the appraisal a licensed appraiser identifies factors that would result in the property, form of ownership, or market conditions being considered atypical,​

complex is the bank's call but in my mind when secondary market basically redlines earth sheltered homes, then "market conditions" as well as the unique construction is a complicating factor in valuation.

While some lenders don't want to do them, the secondary market does not redline earth sheltered or berm homes as I know for a fact that my company as insured the mortgages for several such properties. as most of the the time the underwriters are afraid to decision such files and it ends up on my desk. The key to us accepting such homes is for the appraisal to adequately support the marketability through the use of at least one comp of another oddball type property - it is great (and easy when there is a berm/earth sheltered home comp), but as long as the appraiser can provide some sort of oddball comparable sale whether it is a geo-desic dome, an octagonal home, straw bale home, rammed earth constructed home,pole barn home, etc. to prove that there is a market for oddball type homes (and to demonstrate any difference in value and marketability there may be with traditional stick-built homes), then there is a good chance we can get comfortable with the property. It is my experience from reviewing appraisals from all over the country, that there are very few areas in which other oddball properties cannot be found and used as comps if the appraiser looks hard enough.

 

[George Hatch]

Is that it? Pics links did not work for me.

I posted the link to their blog. It has lots of pics.

Looking at the overheads for the property only the north side of the house appears to be earth sheltered and the exposed garage and concrete driveway are on the east (morning) side of the house rather than the west (afternoon) side, so that might be why they're getting more heat during the summer. And they're now on solar so that's good.

But with 3 sides exposed the only other notable elements are the green roof and the poured concrete mode of construction. The exposed elevations have that contemporary design we see a lot out in Palm Springs and other such areas, so maybe that's a big deal in TX.

I wouldn't be that nervous about appraising this property.

 

[Terrel L. Shields]

the secondary market does not redline earth sheltered or berm homes

It is de facto redlining when appraisers are given L for such assignments ditto rural homes. And if Fannie didn't realize that is, for all practical purposes, then why would they put out a letter disclaiming they discriminate against rural property. (Nixonian response, "I'm not a crook") Fannie knows they have a problem with aggressive underwriting of rural and unique property. The appraiser should not have to tell the lender that data are sparse and adjustments likely high in those instances. What long time appraiser hasn't been picked to death by underwriting? My partner and I were told we only needed one geodesic done Comp. We found it only to get zinged for a second one. So we provided a second, twice as large, on a lake, 60 miles away, and twice the price. Pointless punishment of the appraiser for absolutely no reason. Call it meat loaf, but it amounts to the same thing - redlining, making certain properties "off limits" and don't go there or we slap you with low CU rating, your fault or not.

 

[Marant]

I guess I understand why a replacement cost approach might be used if there were no comparables. It is apparently the one the County is using. What I have trouble understanding is how cost relates to actual value. In a cost approach doesn't one still have to apply functional and external obsolescence to arrive at a final value? I cannot believe a financial institution would use a pure cost value in granting a loan or purchasing a loan.

I can think of a number of situations where replacement cost would have absolutely no relation to value. As a ridiculous but graphic example several houses in Hawaii come to mind right now.

 

[Marant]

I posted the link to their blog. It has lots of pics.

Looking at the overheads for the property only the north side of the house appears to be earth sheltered and the exposed garage and concrete driveway are on the east (morning) side of the house rather than the west (afternoon) side, so that might be why they're getting more heat during the summer. And they're now on solar so that's good.

But with 3 sides exposed the only other notable elements are the green roof and the poured concrete mode of construction. The exposed elevations have that contemporary design we see a lot out in Palm Springs and other such areas, so maybe that's a big deal in TX.

I wouldn't be that nervous about appraising this property.

Thanks for your help, George.
Mike

 

[Mark K]

What I have trouble understanding is how cost relates to actual value.

.

In a nutshell...the Cost Approach is one of the three generally accepted methods for appraising real estate.

Lets say there's someone of like mind that desires a house similar to yours. Since there are no others around and yours happens to be for sale, their options are 1.) Build one like yours or 2.) Buy yours.

They know that it will cost $300K to build one like yours (just a number thrown out there, insert any you like). They start thinking. Let's see...Yours is 10 yrs. old, the furnace/AC, plumbing/wiring are 10 yrs. old, windows/doors/flooring, etc. are all 10 yrs. old. How much of a discount from new is required to entice them to purchase yours considering the physical depreciation? Is $250K a good price? $230K? You get the idea?

Normally I agree and don't really care about the cost, I only care about the value as perceived by the buyers of similar properties. However, in the case of new construction or unique homes without reasonable comps, the cost approach can be given a lot of weight in an appraisal.

The other two options for appraisers are the Income Approach or the Market (Sales Comparison) Approach.

Income Approach? I doubt that your house would be considered a good income producing property.

Sales comparison? The lack of similar houses mostly rules this one out but appraisers can distill some supporting data from the market.

 

[JTip]

The op is assuming that the valuation of an earth sheltered home would be LESS than a traditional stick built.

Are you positive you should be paying LESS taxes? What happens if you end up paying MORE taxes?

 

[George Hatch]

I guess I understand why a replacement cost approach might be used if there were no comparables. It is apparently the one the County is using. What I have trouble understanding is how cost relates to actual value. In a cost approach doesn't one still have to apply functional and external obsolescence to arrive at a final value? I cannot believe a financial institution would use a pure cost value in granting a loan or purchasing a loan.

I can think of a number of situations where replacement cost would have absolutely no relation to value. As a ridiculous but graphic example several houses in Hawaii come to mind right now.

Completely right - cost doesn't necessarily equal value. Sometimes value is more, sometimes its less. The difference when we do a cost analysis is we cost it out based on a developer doing everything you did - for a profit if there is one, or a loss if there's a loss. Those costs will often be higher than what an owner-builder does when acting as their own general contractor.

Factors that might affect an assessment include the point that the 4 parcels (including yours) on the west side of that green look to be about 3x the size of most of the other parcels to the east of your site, and aside from your neighbor to the east most of the other homes appear to be smaller and older. So you're not in a neighborhood comprised *primarily( of other homes of comparable age, finish quality and overall appeal - which would normally lead to a higher value.

But, all real estate is local; so only the appraisers who work in that area would be able to get an adequate understanding of how these factors affect your particular situation.

 

[Artemis Fowl]

Kinda looks like a typical house with some dirt on the roof and some below grade parts to the rear. I was expecting a hobbit-hole looking thing.