Exterior Feature Over improvement consideration

[Mtntown]

Hi all - I am completing a residential appraisal for a dwelling that has two large shops (6000 sf and 8600 sf). The larger of the two was recently completed. The borrower runs his trucking business out of the smaller of the two shops and the larger is being used as a car museum/storage building. There is sufficient market evidence to support the contributory value of the first shop but not the second, newer shop - particularly due to size. How might you handle the additional shop? Include data and explain it is an over improvement? Develop the CA but still give most consideration to the sales approach?

I did go back three years and expanded search area to adjacent markets to attempt to locate a relevant sale with two similar shops. Found 0. Thanks in advance for any direction.

 

[TerryRohrer]

I would not do a cost approach without the means to accurately estimate depreciation. That requires sales. That isn't uncommon in my market so would value them the same. Regression Analysis generally yields a reasonable contributory value per square foot. If your MLS is like mine, looking for these is like the needle in a haystack. I would search text fields or anywhere you can for "shop" or "barn" or any common term. Where data is thin, I generally lump all garages and outbuildings together and analyze as the same.

 

[Mtntown]

I would not do a cost approach without the means to accurately estimate depreciation. That requires sales. That isn't uncommon in my market so would value them the same. Regression Analysis generally yields a reasonable contributory value per square foot. If your MLS is like mine, looking for these is like the needle in a haystack. I would search text fields or anywhere you can for "shop" or "barn" or any common term. Where data is thin, I generally lump all garages and outbuildings together and analyze as the same.

Thanks Terry - would you still then give contributory value in the sales grid for both shops, even if the second appears to not be a market accepted amenity?

 

[Terrel L. Shields]

Do a cost related adjustment for the new building. Use another sale with an unusual feature as a proxy for the building and extract a functional obsolescence from it. The owner should have an exact number more or less of the cost new.

 

[Mtntown]

Do a cost related adjustment for the new building. Use another sale with an unusual feature as a proxy for the building and extract a functional obsolescence from it. The owner should have an exact number more or less of the cost new.

Yes - he did supply me with that number. Thanks - this is helpful.

 

[TerryRohrer]

To me, the challenge is in establishing what "market acceptance" means in terms of contributory value. I think it is more important to support zero value well than some positive number, because there would clearly be utility in that new shop, regardless of typical preferences.

I would look hard for big shops (total square footage), any time, anywhere. While looking for those, I would make note of any properties that have other atypical aspects. I have done a couple lately where I have grouped the cost or square footage of all the unique features together as a proxy for "bracketing" the feature I can't address directly.

All that to say I would be extremely reluctant to draw that hard line between one having value and the next none. If you have one odd ball, there are others. Use those somehow. In the end, you don't have to have anyone agree with how you reached your conclusion, but you do have to be ready and able to explain and defend it.

 

[Terrel L. Shields]

If you are anywhere near me in NW AR - I have several sales from the past 3 years with such vastly over-improved properties. One had 5 buildings used to store and restore old cars. On 5 acres with a large house and indoor swimming pool with bar, pool (like 8 ball), a waterfall and a BBQ enclosed kitchen... Brought well under half it's cost.

 

[Terrel L. Shields]

As for what something 'contributes' - I have seen sanctions over giving a substantial improvement a zero value. Outside of very old buildings, I can think of no sale where a new building does not contribute something. An old ploy a mentor used to use for additions and outbuildings that were newer was to say the building or addition will take on the effective age of the primary building. So, he would discount to the effective age of the dwelling or other outbuildings. Said it was easier for readers to understand as the term "functional obsolescence" glazed their eyes over. In reality, it is still a guess to some point, as an individual buyer may see it differently.

Rural property on small parcels often has such obsolescences however. And I have several to draw from for an estimate of obsolescence.

 

[J Grant]

These appraisals are time-consuming - without knowing the total acreage, size, or condition of the dwelling, it is hard to comment.

I appraise what I call semi-rural or hobby farm properties - while you can not always match the two shops' amenities, perhaps a garage and a barn, or a detached garage and a shop, etc, might suffice.
It is is an over-improvement, I would not simply drop a second shop I would lump them together and state the typically motivated buyer shows only a need maxing out at 6000 (for example) total for shops and garages and the subject combined 14600 shops are an over improvement so the excess 8600 sf was not valued or a lower $10 per sf contributory value

This is is an example of the value in use (an 8600 sf car museum ) vs market value because teh typically motivated buyer does not need it and therefore would not pay for it - MV is the typically motivated buyer, not the outlier buyer, that one person who might want or need a giant extra shop if it was on the market for 3 years...

 

[Fernando]

Hi all - I am completing a residential appraisal for a dwelling that has two large shops (6000 sf and 8600 sf). The larger of the two was recently completed. The borrower runs his trucking business out of the smaller of the two shops and the larger is being used as a car museum/storage building. There is sufficient market evidence to support the contributory value of the first shop but not the second, newer shop - particularly due to size. How might you handle the additional shop? Include data and explain it is an over improvement? Develop the CA but still give most consideration to the sales approach?

I did go back three years and expanded search area to adjacent markets to attempt to locate a relevant sale with two similar shops. Found 0. Thanks in advance for any direction.

Did you do a highest and best use analysis? Did you contact client of the commercial uses in the outbuildings?