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Highest And Best Use

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robertwells

robertwells

Junior Member
Joined
Jul 13, 2006
Professional Status
Certified Residential Appraiser
State
California
Working on a refi of a 2 bed/2.5 bath house of 2116 sq.ft. Have no recent sales of this floorplan. The floorplan does include a master retreat, that apparently some owners have converted into a 3rd bedroom. I dont have anything truly comparable in size with 2 bedrooms...and if using 2 bedroom comps that were dissimilar in size, value would be skewed low (because using significantly smaller homes)...It seems to me, the best way to value is with a cost to convert the retreat to a 3rd bedroom, and in that way, have a pool of comparables that are most similar in total living area to the subject. I guess if I were getting precise, I would check to see if ok with HOA, and of course as I would be appraising that which does not exist, it would have to be ok with client...Thoughts?

Thanks,

Bob
 
Please describe master "retreat"??
 
A master bedroom retreat would be a sitting area as part of the main bedroom-

Some builder offer this option in lieu of another bedroom.

masterbedroom_0.jpg
 
robertwells said:
Working on a refi of a 2 bed/2.5 bath house of 2116 sq.ft. Have no recent sales of this floorplan. The floorplan does include a master retreat, that apparently some owners have converted into a 3rd bedroom. I dont have anything truly comparable in size with 2 bedrooms...and if using 2 bedroom comps that were dissimilar in size, value would be skewed low (because using significantly smaller homes)...It seems to me, the best way to value is with a cost to convert the retreat to a 3rd bedroom, and in that way, have a pool of comparables that are most similar in total living area to the subject. I guess if I were getting precise, I would check to see if ok with HOA, and of course as I would be appraising that which does not exist, it would have to be ok with client...Thoughts?
Thanks,Bob
Click to expand...

I would not use a cost to cure because there is nothing that needs curing, some owners just opted to change the large master bedroom into 2 smaller rooms, creating 3 bedrooms from former 2. I'd use the sales of sale size in subdivision where the MB has been changed to a 3rd bedroom, and then search back in time ( as long as 3 years perhaps), and in an expanded area search of similar appeal, use the largest 2 bedroom home sales you can find and adjust up for the inferior sf. Best comps would be older 2 bedroom sales in subject subdivision if available, as that kind of 2 bedroom floorplan sounds like an upscale type house/community.
 
What is the demographic of your market? In a market where the primary buying population is older, it can be argues that there is no market resistance as the typical buyer would be an 'empty nester'.
 
We can't just start re configuring our subject properties to make them worth more ! (or because we can't find comps lol)
I assume HBU is asked and anwered, residential as exists so this is not an HBU issue, it is an evaluation issue for a subject with no recent similar exact floorplan/bedroom count recent sales.

Go back in time in subdivision, surely in years past houses with the subject 2 bedroom configuration and the same sf /model converted to 3 bedrooms sold? What was the price differences, if any, between them? That will provide support for your adjustment (or lack of one) , You also might find an older comp of the 2 bedroom and make a time adjustment.

Add support for conclusion by surveying RE agents, knowing your market re Restrain noted above.
 
IMO, the OP is asking the wrong question.

The question is not what you can get away with in an appraisal. The question is who you believe the typical buyers for this property would be and how you think they would treat the existing property attributes. If you think the typical buyer in this market segment would spend the $2500 to add the demising wall and doorway to the hall in order to utilize this space as a bedroom, then a discount based in part off this factor might be indicative of that kind of reaction.

If the market is hot and there aren't a lot of alternatives in the neighborhood then somebody might just bite at this property without even deducting the discount. If the market is slow and there are lots of alternatives then the discount (relative to those alternatives) it takes to move this property under those conditions will be much greater.

You need to get a handle on what's going on in this market. This is one reason our market analysis shouldn't be limited to the 3 or 4 closed sales we include in the Sales Comparison but ideally should flow from the macro to the micro with the comps being chosen at the end in order to demonstrate those trends.
 
Added to say

Unless your assignment actually includes a request for the value after a conversion into a 3bd unit, then the "as is" value is still the thing. The only purpose of a "what if @ 3bd" value is as an interim step toward reconciling for your "as is" value, which is the valuation scenario being requested.
 
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