Functional Obsolescence

[Ranger15]

Help! I am appraising a property that has a functional obsolescence. As you enter the home, you must walk through the living room, a bedroom, and another bedroom to get to the kitchen. Additionally, the bathroom is located at the back of the second bedroom. The home is only fourteen feet wide. One could install a wall in the first bedroom making a hallway and 11'x10' bedroom and then consider the second bedroom a dining room making the property a one bedroom with no functional obsolescence. I cannot find any one bedroom comparables in the neighborhood, and none of the two bedroom properties exhibit the same functional obsolescence. I have been able to find five other properties that are the same design as the subject but none have transferred recently or were listed on the local MLS. One of the five properties is owned by a company that rents and flips properties. So I guess I have several questions:
1. Can I even perform an appraisal on a property I cannot determine the effect of the functional obsolescence?
2. If I am able to research the sale with the company that rents and flips properties, can I use that information to determine the effect of the functional obsolescene?
3. Can I appraise it as a one bedroom, if I can't find any one bedroom comparable in the neighborhood if one bedroom properties exist?
Any suggestions or thoughts would be much appreciated. Thanks!

 

[Paul K Moy]

Help! I am appraising a property that has a functional obsolescence. As you enter the home, you must walk through the living room, a bedroom, and another bedroom to get to the kitchen. Additionally, the bathroom is located at the back of the second bedroom. The home is only fourteen feet wide. One could install a wall in the first bedroom making a hallway and 11'x10' bedroom and then consider the second bedroom a dining room making the property a one bedroom with no functional obsolescence. I cannot find any one bedroom comparables in the neighborhood, and none of the two bedroom properties exhibit the same functional obsolescence. I have been able to find five other properties that are the same design as the subject but none have transferred recently or were listed on the local MLS. One of the five properties is owned by a company that rents and flips properties. So I guess I have several questions:
1. Can I even perform an appraisal on a property I cannot determine the effect of the functional obsolescence?
2. If I am able to research the sale with the company that rents and flips properties, can I use that information to determine the effect of the functional obsolescene?
3. Can I appraise it as a one bedroom, if I can't find any one bedroom comparable in the neighborhood if one bedroom properties exist?
Any suggestions or thoughts would be much appreciated. Thanks!

Wow, this is going to be ugly. As you are probably already aware, you're going to have to invest a lot of time on this.

First, what's H&BU? What does zoning say/allow? Once you figure that out, then you may get a better picture. What are the predominate building types with the subject's GLA? It may turn out that the land beneath may be worth more than the improvements...

OK, as you've found five comparables, I would definitely put them in the report, and explain what you put in this thread, i.e., that none have transferred recently, etc. I would then make market adjustments for those five comps. I would then find current sales with similar GLA. Are these sales with similar GLA two-bedrooms? Three-bedrooms, etc. If you find a value difference, which I believe you will, you've solved your problem (the value of the functional obsolescence). Or you may find that it's a teardown. I would imagine that once you determine the value for the subject, then compare it the ideal improvement, you can then figure out the cost to cure to make it into the ideal improvement. It may be incurable for that matter.

Talk to that company and talk to realtors, see what they say. Realtors are not our enemies.

Regardless, there are going to be a ton of adjustments, just explain why. After all, just think of what your peers will have to go through. It sounds like the adjustments are justifiable.

I hope you're getting a large fee for this one, good luck!

 

[Terrel L. Shields]

If I am able to research the sale with the company that rents and flips properties, can I use that information to determine the effect of the functional obsolescene?

why not? Do a quickee retro on these odd balls when they sold...should be able to find older non-FO sales and then compare the two to see the difference then. If it sold for say, $150,00 then and other houses same size were selling for $175,000, then the percentage should hold... so if the similar but not FO sales are now selling for $350k, then yours should sell for $300k... explain your support for the adjustment and go on.

 

[Michigan CG]

Sketch?

 

[J Grant]

Help! I am appraising a property that has a functional obsolescence. As you enter the home, you must walk through the living room, a bedroom, and another bedroom to get to the kitchen. Additionally, the bathroom is located at the back of the second bedroom. The home is only fourteen feet wide. One could install a wall in the first bedroom making a hallway and 11'x10' bedroom and then consider the second bedroom a dining room making the property a one bedroom with no functional obsolescence. I cannot find any one bedroom comparables in the neighborhood, and none of the two bedroom properties exhibit the same functional obsolescence. I have been able to find five other properties that are the same design as the subject but none have transferred recently or were listed on the local MLS. One of the five properties is owned by a company that rents and flips properties. So I guess I have several questions:
1. Can I even perform an appraisal on a property I cannot determine the effect of the functional obsolescence?
2. If I am able to research the sale with the company that rents and flips properties, can I use that information to determine the effect of the functional obsolescence?
3. Can I appraise it as a one bedroom, if I can't find any one bedroom comparable in the neighborhood if one bedroom properties exist?
Any suggestions or thoughts would be much appreciated. Thanks!

why are you thinking of installing a wall, to appraise it as a one bedroom? We don't add walls to properties ! ( unless appraisal is made subject to doing so )

It is not the functional obs of the subject that is the problem, its that you seem to have no "read" on this property- where it fits with a neighborhood trend, who the typically motivated buyer is. Is it a family looking for a starter home? They are on a budget, need a second bedroom , the fo is a compromise they accept Or is it in an urban area where buyers are yuppies- then the walk through "bedroom" might be as a home office or den. ( no fo for their use) you said the only sales you find of similar are owned by a company and rented? What did they pay for the properties ? They are owning them as a rental investment, not a fix and flip. Would the predominant buyer for subject be an investor? If yes, the the funct obs means little, they are looking for cash flow, and apparently these are performing well as rentals.

If you have no "read" on the neighborhood /trend/buyers, then you can not competently appraise it. Up to you whether to decline, or devote the time needed ( educational) to interview RE agents, the investor owner, the data understand the trends and demand in that particular market segment

BTW I often find some of the toughest appraisals turn out to those simple at first glance, small, lower price properties... for various reasons.

 

[CANative]

Some buyers would not mind this floor plan.

It's weird that you found sales of properties with a similar floor plan. It's evidence that people will buy these. Check the exposure time (dom) vs. other sales at the time. Talk to the listing/selling agents who sold those (if they're still around) and see if they recall those sales and what they think about them.

Compare each sale to another sale in the same area that doesn't have that design and see if there is a measurable difference in price. If there is you can apply a percentage adjustment you might have to make.

This one is not all that difficult. As long as you show that you did the work and write more than a sentence or two, who can criticize you?

 

[Renee Healion]

Is this sort of design deficiency something buyers are willing to accept to be able to buy a house property? What are their alternatives? Are they priced out of alternatives but able to manage this sort of property purchase? People use a house to suit their needs not necessarily in line with how we see them.

If the house is that narrow, look wider on satellite maps for other areas built with houses like that on narrow dense lots and then research sales there. Or was this once a mobile home? (12 ft + wood frame ext walls=14 ft?)

 

[gregb]

A "shotgun" house?

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[CANative]

I think shotgun bungalows had a central hallway where the front door and the back door lined up and rooms ran along this hall on the left and right with the kitchen and sometimes the bath and utility porch at the back.

There's a lot of these in the ocean side city of Fort Bragg, CA. Some have amazing handcrafted, clearheart, old growth redwood accents and built in hutches. And some idiots paint them.

 

[glenn walker]

WHEN ITEMS OF FUNCTIONAL OBSOLESCENCE ARE OBSERVED :

The following items of functional obsolescence have been observed in this house: This house is atypical of most in the neighborhood due to it's narrow design and a floor plan which requires the occupants to { List Items } to walk through the living room , a bedroom, and another bedroom to get to the kitchen. Additionally, the bathroom is located at the back of the second bedroom, the home is only fourteen feet wide, which may prevent someone from curing the functional obsolescence.

The appraiser completed a thorough search for recent sales of homes with similar designs and floor plans but none were located. There where a few found from older previous sale's and when comparing those sales prices "V" homes that had typical floor plans it appears buyers had paid ( 15%-20% ) less and that is one of the ways we extracted an-adjustment. The other method was to consult with local Realtors and Brokers to see what current buyers and market standards are on the Appeal & Marketability of this floor plan.

In our final reconciliation: The appraisal is being made "as is" which assumes these items will not be cured and
A deduction is being made for the functional obsolesce. The deduction in value is also included in the cost approach under "functional depreciation " which was estimated to be ( X-% )

Reviewers & Underwriters Typical Questions :
1-Is this Legal non-conforming and do these improvements conform to zoning regulations ?
2-Does the property generally conform to the neighborhood-functional utility, style, condition, construction ?
3-Are there any physical deficiencies or adverse conditions that affect the livability ?
4-In the event of a loss by a fire or natural disaster can the improvements be rebuilt ?
5-Does the floor plan with no hallway create a health & safety issue -Is there additional "egress " to exterior ?