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First Appraisal, Can You Believe I Have A Question

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Smokehouse

Junior Member
Joined
May 7, 2003
Professional Status
Certified Residential Appraiser
State
Florida
Just wanted to get yall's opinion on this, my supervisor and I discussed it for quite a while today which was very helpful, but I wanted to see what you would do. I hope I give enough information....


Subject is brand new construction in an area where the ages of the homes range from 60-90 years old. The vacant lot, which is unheard of in this area was listed for about 19,000 and the liting expired, according to the tax records it ended up selling for $6,000 2 years ago. The home was built in the predominant style of the area and is a very nice home, about 1200sqft.

My main question came when trying to do the Cost section. it's looking like it would be better to build than it would to buy, but where would you find the land to build on and I would think that most people looking to buy in this area are there because they want an older home. The subject took longer to sell than most of the other sales in the area, I am thinking this is part of the reason.

It seems that in this area $6,000 is pretty low for a vacant lot considering how rare they are to come by....

So what is your opinion on the approach to valuing the land?

Sorry for the newb question but with the amount of knowledge on this board
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
Rare is not always desireable.
(Rare could also mean no one wanted the orphan lot)
Valuation of an infill lot lacking a sale in the last 60 years is a guess.

Valuation of a lot which had adequate exposure and a two year old valid sale beats the heck out of guessing.

The subject.
:confused: lot, or improved property?
took longer to sell than most of the other sales in the area, I am thinking this is part of the reason.
HUNH?'Splain to me I's confused.

lot took longer, improved property took longer ~ what?!?!?
 

Keith

Sophomore Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
Subject is brand new construction in an area where the ages of the homes range from 60-90 years old. The vacant lot, which is unheard of in this area was listed for about 19,000 and the liting expired, according to the tax records it ended up selling for $6,000 2 years ago. The home was built in the predominant style of the area and is a very nice home, about 1200sqft.

The lot sale does not appear to be an arms length transaction. It's time to make some phone calls to find out!
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
What is the median price of homes in the area?

What is the contract amount for the property you are appraising?

What is the contributory value the lot provides to those properties?

We don't have any $6,000 lots in our market, new home sales of median priced homes have lot values of, say, $30,000 to $75,000. Typical improved site values are from 25% to 35% of the total value.

Since you are working with an "in-fill" situation, you may have to just extract the site value. Cite other land sales in areas of new construction of homes of similar size and quality to support your conclusion. An "in-fill" is really a more complex appraisal than a newbie should be doing without substantial help from the mentor.

The last one I did required 6 comps....all from competing subdivision more than 3 miles distant from the subject. The builder was a custom builder who only does two or three homes a year. The subject was a definite "over improvement" for the neighborhood. In rough numbers...existing homes were 15 to 20 years older selling for $150,000 to $175,000. The subject was a two story with full finished basement and about 30% larger than the largest home in the neighborhood. The contract was around $225,000 and a comparable new home in another neighborhood would sell for about $250,000 to $275,000.

I was not able to appraise the property for it's contract price. The bad part was the buyer put a substantial amount down and was attempting to get a 100% VA loan so they could get their "down payment" money paid to the builder back so they could landscape and furnish the home. Someone appraised the property for a construction loan at $250,000 using comps for new construction with no adjustment for location.

The builder went ballestic....called the VA, called his congressman, called me (every name in the book). The VA told him to sit on it and stuck by my appraisal. The deal finally closed with the buyer getting a VA loan for the appraised amount and they sued the builder and the other appraiser. It was settled out of court. The builder said he will never do another home if the buyer wants a VA loan.
 

wyecoyote

Senior Member
Joined
Jan 15, 2002
Professional Status
Gvmt Agency, FNMA, HUD, VA etc.
State
Washington
My take on it is this we have many areas where the age of the housing is typically from the 1890's to 1920's with some sporadic ages of houses in between. Typically no true vacant land sales unless a older house is torn down or an older house has a vacant lot as excess land. These vacant lots usually won't sell for to much because most people buying in this type of area are looking for the older house that is 1) restored 2) remodeled 3) in need of restoration or remodel. And people want the "old world charm". So the houses built in the 1970's to new construction take longer to sell and in some areas will actually sell for less than similar size/style of the older houses. In this area I find that site extraction works better than using the few if any vacant land sales. Use a mix of comparables perhaps 6 or more unless you have three model match sales in the area. Explain fully what you had to do and if any required location adjustments are required. It will be a real hands on one for you and your mentor and IMHO you should put this one in a special file for if you every do something similar to this in the future you can reference this report to see how you handled this situation.
 

Fred

Elite Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
Kendall,
You say the main problem is the cost section? What else is new? :D
Leave it out. B) Finish your sales approach and call it a day.

The pretzel-logic :D of the cost approach can lead you astray. Just look at your thrd paragraph. It seems to me your conclusion
it's looking like it would be better to build than it would to buy,
does not fit with the underlying information and analysis?
but where would you find the land to build on and I would think that most people looking to buy in this area are there because they want an older home. The subject took longer to sell than most of the other sales in the area, I am thinking this is part of the reason.

Why would it be better to own something the market does not want than it is to own something the market does want ? How can it be better to build something, if there is no place to build it?

Why give yourself a headache trying to figure the value of vacant land that doesn't exist and therefore doesn't sell, when you can accomplish the purpose of your assignment without it?
 

jtrotta

Senior Member
Joined
Jan 16, 2002
Kendall

is that U in the Plain ;) - well anyway onto the quiz; Did you speak with the Realtor to find out why it didn't sell :question: - did you ask the assessor (don't know if you have an assessor or town clerk) about the sale price :question: and how do they figure that into the equation regarding "Land Valuation's" :question: (could be good fer U to know when you git into Tax Appraisal work)

of course you don't have to do any of that, jus skip the - cost approach and go home B)

:ph34r:
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
I'm going to take a little different track here.

#1) It's very possible that in this circumstance the Cost Approach could easily be higher than the Sales Comparison. It's also very possible that this lot as though vacant really is only worth $6,000+/-.

#2) If both the lot and the new house took a long time to sell and the older houses in average to good condition readily sell...... That particular sub-market wants the older houses.

#3) What is the price range of the surrounding older homes? What is the sale price of the subject?

What I have found is that building a new house amid all older homes on one of the few vacant lots available in that area, that new house needs to be priced near the high end of the similar GLA houses surrounding it - or don't build it. I just helped work on one similar to this and it sat on the market for about 6 months with the builder continually lowering the price, and still didn't appraise for the contract price.

Is this Functional or External Obsolescence - or both???

I would use sales from the surrounding area and maybe a couple from the next nearest area that has newer houses. It's highly likely a location adjustment will be necessary for the latter ones. If the Cost Approach comes in higher than the sales comparison..... that difference is the subject's obsolescence and also relates to the location adjustment.... IMHO
 

Pam Wyant

Senior Member
Joined
Feb 12, 2003
Professional Status
Certified Residential Appraiser
State
West Virginia
The lot issue appears to have been well addressed - check the original sale out & make sure it is arm's length, see if you can find similar sales in competing areas, talk to the tax assessor, and calculate the site by extraction & see if these methods some up close to each other.

I would argue the point that the cost approach should be completed on a new construction. FHA requires it on homes under one year, which might be considered to set a standard for its use.

Pamela is right - if your cost approach is appreciably higher, functional obsolenscence comes in (home is an overimprovement for the site). The amount of functional is determined by the difference between cost & sales approaches.

Pam
 

Fred

Elite Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
I took Kendall’s remark that it is “better” to build 1,200 sf than buy 1,200 sf to mean building a new one is “cheaper.” Maybe he will clarify that.
 
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