Functional obsolescence/HBU

[Airstream]

I have had many similar situations on lakefront properties. It's not always easy to determine exactly if one should tear it down or renew what is there. Let me give you a couple of examples:
1) I did an appraisal of a brick house that had been updated and had not functional obsolescence. The architecture was a bit different, but it was all in good shape. I appraised it for an estate, and I thought it should be worth about $750,000 "as is." They listed it for nearly a million. I continued to watch to see what would happen. It was on the market a very long time and after dropping the price numerous times it finally sold for $560,000. I was shocked, because that is what the site value. I called the agent and asked what occurred and he said, "No one liked the style of the house. They bought it for the lot and are tearing it down."
2) On another situation a property sold with a very old house on it that was a mess. The site was worth over a million and had a very nice pier. I used it to kind of determine a site value on another property and figured they would tear the house down and rebuild on it. Well lo and behold they remodeled the house. I was shocked. The guy next door bought the property and remade the present house in to a pool house, and he built a big pool in front of it.

I only bring this up because it is often hard to determine what is and what is not a tear down based upon external obsolescence or HBU. You can only make a judgment, and then do so with a great deal of humility.

 

[Terrel L. Shields]

It is kind of a guess upon the part of an appraiser if something is a tear-down or not. Only after the sale do we find out if the buyers tear down or remodel. So it is the appraisers judgment...do the best you can and explain why you made that decision.

 

[CGinMN]

Sometimes buyers do stuff that is contrary to the HBU. Doesn’t mean the appraiser’s HBU analysis was wrong.

 

[Terrel L. Shields]

Sometimes buyers do stuff that is contrary to the HBU. Doesn’t mean the appraiser’s HBU analysis was wrong.

And sometimes it does mean the appraiser was wrong. I saw one the other day that I appraised for an estate a few years ago. Termites were so bad that they had eaten through the hardwood floor and into cardboard boxes in the closet. The buyers tore it down, but another appraiser apparently had valued it far more than it was worth (this was some years later) and they paid too much. But at some point, they realized the fix was not worth it.

Another one near my house was land with an older house that was advertised as "good" condition. But the buyer tore it down and built a new home. I suspect the "good" condition was an exaggeration because this house was old and outdated 55 years ago when i was courting a girl that lived there. The house was easily 120 years old. I see no small number of houses advertised on the MLS with interior pix that are not that bad looking but you'd better wait a month or two after closing to see if they are tearing it down, remodeling, or living in it as is. Others are accurately described. I did a house and acreage where the barns and house were past saving, especially in light of the demand for large sites to redevelop. The agent astutely said it was worth nothing and the barns were worthless. She was right.

My own uncles old farm sold recently and the lady who lived there for the past 30 years had done nothing to it. The buyer was a developer. He has left the house but left unoccupied and almost certainly will be a tear down. It was my G-grandmothers house built by her father in the 1910s. Originally 2 story my uncle inherited it and remodeled it twice, the last time in the 1970s. It was shot. But an appraiser from a distance seeing its rock exterior might be fooled and give the house some contributory value. Next door the same developer bought similar acres (both tracts were once in my family) but there was a house on this one that was 20 years old and verry good quality as well as a shop building that is good. The developer has a hired hand in the house and built an additional shop for his construction business. He parks perhaps 10 trucks, tractors, and skid-steers on the site. So. what is the HBU? It seems to be an interim utility until he decides to develop both properties.