Functional Utility

[Carol Barber]

I am new to appraising with only a year of sporadic experience under my belt, as I am working as a limited appraiser on a very part time basis. I ran into a functional utility issue with a property where the only bathroom is accessed through one of the bedrooms. Does anyone have any suggestions as to how I would formulate an adjustment for this?

 

[Randolph Kinney]

I am new to appraising with only a year of sporadic experience under my belt, as I am working as a limited appraiser on a very part time basis. I ran into a functional utility issue with a property where the only bathroom is accessed through one of the bedrooms. Does anyone have any suggestions as to how I would formulate an adjustment for this?

You would need to perform a paired sale analysis to extract the functional utility difference. Are there any properties that have the same functional utility problem?

 

[c w d]

I am new to appraising with only a year of sporadic experience under my belt, as I am working as a limited appraiser on a very part time basis. I ran into a functional utility issue with a property where the only bathroom is accessed through one of the bedrooms. Does anyone have any suggestions as to how I would formulate an adjustment for this?

That is functional obsolescence . Could be curable or non-curable depending on the house. Not just an issue of functional utility necessarily.

The way you handle it is describe it. However, deriving an adjustment for the sales comparison approach is near impossible unless you can find other sales with such a bathroom. There are effects on marketability to consider as well. So, don't forget to mention that too.

In the cost approach you can use the marshall & swift handbook or call around to some of your contractor friends to determine what it would cost to add a bathroom freely accessible to the rest of the occupants. Lacking other data for the sales comparison approach you could apply the value you derive in the cost approach to indicate an effect on value there as well.

If you want to go insane you could call realtors and ask them if they've sold any properties like this in the past 12 months. Once you find one you can compare it to sales in its area to determine a "discount rate" and then apply that rate to the comparison you're doing for this appraisal.

I'm sure other more experienced posted may have a better way than what I mentioned for the cost approach so wait a bit longer but this should get you thinking.

 

[Mike Garrett RAA]

Why not use sales as comparables that have the same functional problem?

 

[Mztk1]

There are diffferent ways to measure functional depreciaton depending on how it can be cured. If your bath just needs a linen closet removed in the hall and a door installed to the bath from the hall, that will be different if a new addition with a common bath has to be built.

Starting on page 406 of the The Appraisal of Real Estate, 12th Edition, there are several ways shown to determine the amount of functional depreciation when you cannot garner the number from the market the way Randolph has suggested.

The basic formula is:

Step 1: Cost to Existing Item
Step 2: Less depreciation previously charged

plus

Step 3: Cost to cure (all costs)

or

Value of the loss

Step 4: Less cost if installed new
Step 5: Equals depreciation for functional obsolescence.


But you cannot make heads or tails out of that until you know what the exact steps are to cure the inadequacy.

 

[Mike Garrett RAA]

If one is not doing a cost approach...does it really matter?

 

[Carol Barber]

Thank you so much for all of your suggestions. I did begin the process of calling realtors and found only 1 sale (3 years ago) that any one of the 4 could remember with a similar problem. This was a bedroom that was accessible through another bedroom. Would this be considered similarly? I don't believe my analysis can be reliable based on one sale. Also, I found no other way to open up the bathroom by moving walls...etc. without significantly decreasing the size of the bedroom, so it appears to me that this problem is incurable. This is a very small, 600 sq. st. home, and there are few if no options.

 

[Brad Ellis]

Carol,

The bedroom set up in the other sale is called a tandem bedroom. Yes- similar functional inutility.

You will find more of those if you ask and look more; tandem bedrooms are fairly common and I'll bet most appraisers on this site have seen that.

So one is better than none and more is better than less in this issue.

But, you are starting with a 600 SF home and that by itself would be considered functionally obsolete in some markets. But I've been to Kzoo and there are plenty of older homes that could have such a problem. You may have more than one form of functional on this one. Check the selling prices per SF on these and more modern sized homes- you might see it.

And, of course, seeking help from one more experienced in this might be the way to go.

Brad

 

[RSW]

I would assume that the subject property is an older home and is located in a neighborhood where most of the homes are of similar size and age. It would not be uncommon to see this type of functional inadequacy in homes of that size. The market may already reflect the functional inadequacy and no adjustment necessary.

 

[Kevin A. Spellman]

I use the term privacy violation. This is where a detailed computer generated floor plan can assist the reader to understand the functional inadequacy. I use an arrow and then place text next to the arrow pointing to the privacy violation areas. There will be no indicators of value with similar inadequacies when you need them. Just understand if the subject was on the market and there are similar properties with comparable prices and similar overall utility and the only difference is the traffic pattern, the subject would be the last to sell.

“In the absence of a like traffic pattern within the indicators of value presented in this report, a nominal adjustment is applied for the subject’s privacy violation and is considered reasonable”. If this statement work for you, use it.