Help please! Location vs. number of bedrooms.

[Reader]

This is a beach condo. Appraiser chose comps with same number of bedrooms as the property being appraised, but at different locations with different geographic characteristics, different construction, and different rental patterns from the property being appraised. One was sold in distress at auction, two others sold in a prior year. He did not use similar property in complex next door with one more bedroom, same architecture, same construction, same relationship to the beach, same kind of beach, same orientation to north and south. It was sold in the same year as the "as of" appraisal date.

Historically a relationship of sales between the two adjacent complexes has developed and the market has followed it fairly consistently. It would seem more reasonable to use the next door property and adjust for bedrooms and square footage. This would give the proper consideration to location, construction, rental patterns, and atmosphere of the complex. It would also give me a better result, and it seems justifiable. I am not asking him to do anything improper, but I am asking that within the range of acceptable values he choose one better for my purposes. This appraisal is as of a date in the past and is to establish tax basis. It is not for a loan.

He seems to be saying that number of bedrooms is paramount. Is that a requirement? There are very few one bedroom units on the island, and even fewer sales of them. Most of them are in two large complexes that are very different from that of the property being appraised. Those are the complexes he used.

Also he said he would be doing the appraisal and that we would discuss the results before they were finalized. We had one discussion in which he started with the distress sale value. He agreed to consider further, made some adjustments, but then sent the appraisal by email with no further discussion. It was signed by his younger brother who did the inspection.

The resulting value is exactly half of the sale price of the two bedroom unit next door. The historical pattern is that one bedroom beachfront units in my complex sell at about 2/3 of the sale price of the two bedroom beachfront units next door. I have not yet brought this up to him yet. I didn't realize that I needed to know how to do the appraisal myself to get a reasonable outcome.

Is there any chance of a revision?

 

[Walter Kirk]

Get another appraiser.

 

[Webbed Feet]

<......snip......> I am not asking him to do anything improper, but I am asking that within the range of acceptable values he choose one better for my purposes. This appraisal is as of a date in the past and is to establish tax basis. It is not for a loan.

A real estate appraiser cannot act as your advocate for your opinion of what you think the value should be. Asking an appraiser to choose anything 'better for" your "purposes" is asking the appraiser to advocate for you. We are required to be unbiased.... not biased.

He seems to be saying that number of bedrooms is paramount. Is that a requirement? There are very few one bedroom units on the island, and even fewer sales of them. Most of them are in two large complexes that are very different from that of the property being appraised. Those are the complexes he used.

You are asking a country of real estate appraisers what the most appropriate actions would be to appraise YOUR property? .... Sir, or Maam, we have not seen your property and are not informed about the market situation there. Your post is not remotely enough for this.

Also he said he would be doing the appraisal and that we would discuss the results before they were finalized. We had one discussion in which he started with the distress sale value. He agreed to consider further, made some adjustments, but then sent the appraisal by email with no further discussion. It was signed by his younger brother who did the inspection.

Did you obtain a specific engagement contract, that spelled out what the services would entail? Who did you engage to be the real estate appraiser for you? If you have acts that were not per your contract for services, I recommend you take those acts up with the other party, an attorney, or the state appraisal board. Or all of the above.

The resulting value is exactly half of the sale price of the two bedroom unit next door. The historical pattern is that one bedroom beachfront units in my complex sell at about 2/3 of the sale price of the two bedroom beachfront units next door. I have not yet brought this up to him yet. I didn't realize that I needed to know how to do the appraisal myself to get a reasonable outcome.

Is there any chance of a revision?

Reasonable outcome according to whom? Historical facts do not dictate a certain future that is going to only go the way the past did. You've stated several reasons for concern. The value outcome is not one of them to another real estate appraiser. A purpose of tax basis would be expected for the appraiser involved to have used a defintion of value called "Fair Market Value" so to be compliant with IRS requirements. Using a comparable from an auction for that defintion of value I would expect to be a big No No .. .. If the appraiser YOU engaged did not sign the appraisal report... that is an issue. Beyond these things, you need a different local appraiser to review that work and answer your questions.

Asking us if a revision is possible would be like asking McDonalds to refund your money for a bad Burger King sandwich. Any appraiser certainly can opt to correct inadequate work and should correct it. Or simple correct a view made on a bad hair day. But if any specific appraiser does or not is not up to members of this forum.

 

[Paul Isolda]

Your question, and apparently the unit being appraised, are quite complex. I have a few comments for you.

It would also give me a better result, and it seems justifiable. I am not asking him to do anything improper, but I am asking that within the range of acceptable values he choose one better for my purposes.

This would get my back up as an appraiser. Do not approach the appraiser with this kind of statement. Never would an ethical appraiser use any comparable because it is better for the purposes of the client. It either is or is not a good comparable for the subject.

He seems to be saying that number of bedrooms is paramount. Is that a requirement?

No. But I will tell you that in my market I would have a hard time justifying the use of a 2 bedroom unit as a comparable for a 1 bedroom. The principle of substitution guides our selection of comparables and the typical buyer for your unit would have to consider the comparable as a reasonable substitute. Rarely do I see in my market where a buyer would consider a 2 bedroom a reasonable substitute for a 1 bedroom. However, in cases where there are no good comparables or very few available for the subject, I will choose what I think are the most important features of the subject and try to match those characteristics with one or more of the comparables. If I had nothing that matched the important features of your unit I might use a few of the best 1 bedroom comparables I could find, then a few comparables that matched the location with less concern for the number of bedrooms. Maybe that sale could be used because it matches some of the other characteristics you describe that the other comparables are not matching.

Also he said he would be doing the appraisal and that we would discuss the results before they were finalized. We had one discussion in which he started with the distress sale value. He agreed to consider further, made some adjustments, but then sent the appraisal by email with no further discussion.

The appraisal assignment is not a negotiation between the appraiser and the client. The appraiser develops their opinion of value and communicates it to the client. If you had specific market data you wanted the appraiser to consider, it would have best been provided at the outset of the assignment. This does not preclude it from being considered after the fact. You should write a very brief description of your concerns with the appraisers selection of the comparables and provide any you feel should be considered. The appraiser should address these issues but is under no obligation to use the data you provide. As a professional and a business person, they should respond to your concerns.

The historical pattern is that one bedroom beachfront units in my complex sell at about 2/3 of the sale price of the two bedroom beachfront units next door.

If you have market evidence of this, provide it to the appraiser.

I didn't realize that I needed to know how to do the appraisal myself to get a reasonable outcome.

You don't, and if you come across like this to the appraiser they will probably be much less likely to listen to the factual evidence you provide that may or may not have an impact on their opinion of value. If the appraiser you chose is professional, they will be willing to discuss your concerns with you. If you can provide actual data that is more pertinent then what they have, they should be willing to include it. Whether they feel it's enough to warrant a change in their opinion of value is impossible to discuss here. If you approach this the right way you will likely get a better result. Not because it favors your cause but because the appraiser could have considered other, possibly better, data that may result in a different value conclusion.

 

[William Rightsell]

But I will tell you that in my market I would have a hard time justifying the use of a 2 bedroom unit as a comparable for a 1 bedroom...Rarely do I see in my market where a buyer would consider a 2 bedroom a reasonable substitute for a 1 bedroom.

I tend to disagree with this statement. In my market, its more about location. Thats the biggie. If the comps used (1BR) were in a different type of market then they may not be the best comps simply because they are 1BR. Two bedroom sales could compare just as well if not better depending on location and market charactieristics.

As for the end of that statement, I think most buyers would have no problem considering a 2 bedroom unit a substitute for a 1 bedroom....If they want 1BR and get 2 its a bonus...not a deal killer. Now....to turn it around, most buyers who want 2BR's will not consider a 1BR because it most likely will not meet their needs and they will most likely not conisider it to be a viable alternative.

Just food for thought.

todd

 

[Paul Isolda]

I tend to disagree with this statement. In my market, its more about location. Thats the biggie. If the comps used (1BR) were in a different type of market then they may not be the best comps simply because they are 1BR. Two bedroom sales could compare just as well if not better depending on location and market charactieristics.

As for the end of that statement, I think most buyers would have no problem considering a 2 bedroom unit a substitute for a 1 bedroom....If they want 1BR and get 2 its a bonus...not a deal killer. Now....to turn it around, most buyers who want 2BR's will not consider a 1BR because it most likely will not meet their needs and they will most likely not conisider it to be a viable alternative.

Just food for thought.

todd

A reasonable substitute has to work both ways. If you standing in a 2,000 sf ranch and the owner is telling you about the 4,000 sf colonial across the street that sold would you use it as a comparable? Would the owner of the 4,000 sf colonial even bring up the 2,000 sf ranch across the street that sold. It is not a reasonable substitute in either case. In many instances, the 2 br condo will be priced out of range of the 1 br buyer. There is a functional utility difference that really makes it a different animal either way you're looking, 1 vs 2 or 2 vs 1. It is also subject to different market situations. If we're talking waterfront, I'm less concerned about the number of bedrooms than I would be normally.

 

[josephdifranco]

I'm going to side with the group which says location is paramount. I don't think two bedrooms in other location should be ignored, but you've got to give serious weight to location in any appraisal. IF your statement is true that you have a special location which consistently outsells the competition, you have a case.

You could have a realtor compare average prices for similar units in each of the two locations to possibly prove there is a difference.

I don't know your situation, but sometimes appraisers are brought in who don't have geographic competence. MAYBE thats your situation here.

Good Luck to you.