Functional in 2 Bedroom Homes

[Kristina Ledesma]

Bear with me-

I appraised a 1500sf 2 bedroom home in an area of predominantly 3 bedroom homes. Even though I was LUCKY enough to find three 2 bedroom homes that were of similar square footage I commented that the home had functional obsolescence. Of course, since all three homes shared FO I made no adjustments in the grid.

My office reviewer bumped back the appraisal and stated that the comment needed to be removed from the report because "since all comps are 2 bedrooms; therefore, functional obsolescence does not exist"

This is how I have always approached similar homes. Any thoughts?

 

[Restrain]

Take a moment and compare against a similar 3 bedroom home. If the market shows a functional obsolescence, it should be noted and explained that the market shows a functional obsolescence. If no market differential, comment that the comparison indicates that there is no functional obsolescence. A 2 bedroom home does not automatically create a functional obsolescence.

 

[Em Tee]

I saved this which I think helps:

Functional obsolescence is the loss of value of the subject facility resulting from deficiencies, other than physical deterioration, that impair utility in the subject compared to a replacement facility.

Seems to me if you have other 2 bedroom homes, there isn't a functional obsolescence.

 

[Hall McClenahan]

Hi Kristina

Is there a market for 2 bedroom homes however limited?
If so there is no functional obsolescence just a smaller market.

I typically reserve the adjustment for "turn offs" compared to similar homes.
(example. to get to bedroom #2 you have to pass through bedroom #1, or no bathroom on bedroom level) not a typical situation and easily identifiable.

In your case as presented if the three comparables are 2 bedrooms with similar floor plans it appears they have the same function.

Don't confuse properties with different markets, as comparables with functional differences. Like a single family and a gas station they may be in the same neighborhood yet have different markets.

 

[Kristina Ledesma]

Yes there is a small market for 2 BR homes. However, with they typical buyer 2 bedroom homes have a stigma and tend to sell for a little less than a similar 3 BR home.

True the 2 bedroom comps all share similar floor plans and have the same function, thus no adjustments were made.

But had I used a 3 bedroom sale of the same GLA there would have been a notable difference in value, thus would have warranted an adjustment.

 

[Em Tee]

Yes there is a small market for 2 BR homes. However, with they typical buyer 2 bedroom homes have a stigma and tend to sell for a little less than a similar 3 BR home.
....
But had I used a 3 bedroom sale of the same GLA there would have been a notable difference in value, thus would have warranted an adjustment.

I would expect a 2 BR to sell for lower than a 3 BR, just like I would expect a 3 BR to sell for less than a 4 BR, but that doesn't mean it's functional obsolescence. It doesn't have a functional problem, just a different market.

 

[Mountain Man]

But you are using 2 BR comps... all are equal, so no FO. I'd only include the comment and address the FO if I were using two 3BR comps and one 2BR comp. But as is, you are staying within your market of 2BR comps and all is good... remove the comment.

 

[Kristina Ledesma]

Thanks all

Thanks for everyones input!

 

[Hank Henry]

To all those that said there is no functional obsolescence... If you were to do a cost approach for this two bedroom home and complete it (the cost approach) as if it were a three bedroom home, would there be a difference? Isn't this difference functional obsolescence?

 

[Mountain Man]

If you were to do a cost approach for this two bedroom home and complete it (the cost approach) as if it were a three bedroom home, would there be a difference?

Huh? Sorrry, but that statement makes no since to me. Number of bedrooms has nothing to do with the cost, the cost is broken down on a $ per SqFt. But if you gave me a choice of an 800SF house with 2 BR's vs 3BR's... I'd take the 2BR house. Who wants 3BR'w that would be 6X5 feet? In MY market, an 800 SF house will sell better with 2 larger bedrooms than 3 tiny BR's sqweezed into the square footage... so in this case the 3BR would suffer FO.

Three 2BR comparables were found, you are comparing apples to apples, so all is equal and no FO exist within the data set.