Limited Comps/ Overimprovement?

[Keith953]

Working on an REO appraisal in the city of Barstow. Subject's GLA is almost 3,300 sf and sits on approximately 1/4 acre. It would appear to be an over improvement for the area. There were only 11 sales in the past 2 1/2 years of homes over 2,200 sf in the city. Many of them on much larger lots/acreage. Searched back 2 1/2 years and only found 2 descent older sales. Bending every rule for comp search criteria I was able to come up with 5 comps, three of which will require some major adjustments. Coming up with a 60 day value will be even more challenging as listing and pending sales are also very limited.

At this point I'm wondering if the opinions of value I come up with will be credible with such limited data.

Would appreciate any light you can shed on this assignment.

 

[J Grant]

Sounds like you have correctly identified an over improvement, as homes over 2200 sf are all on substantially larger lots.

What I do in cases like this is I use the largest comp sales ( 2200 sf), and to any other comp sales smaller I adjust up to the threshold of 2200 sf...as the surplus SF are the over improvement. They exist, a buyer might want them for value in use, but the typical buyer in area is looking for 2200 or smaller....above 2200 sf the buyers want the home on a bigger lot ( per what you posted)

Are the bigger lot large sf homes in a superior area, or just on a bigger lot within the area? Another option is to use one as a comp and adjust for the larger lot size /and or area...of course if the market area for larger lots is too superior it is no longer a comp. 60 day value does not have to be different than the opinion of value with reasonable market exposure, that is IF the reasonable exposure is 60 days or less. Or, you can estimate a discount for selling below 60 days...like 5% or 10%. Ask area RE agents for feedback what reductions are seen to sell a home faster ( and make careful note of the days on market of your comps...what is the DOM range?)

Some reports are just ugly with large adjustments...explain , it is what it is

 

[Tim The Enchanter]

Your first paragraph is a start. Flesh out the details as far as you think needed for the client.
Then a little more for insurance.
I'm not familiar with Barstow beyond the truck and car gas stop thing.
But, I guess your comps need to be in or around Barstow.

 

[Deleted member 128537]

We had a 35,000sf home sell in my market. It was a completely ridiculous over improvement. They had a terrible time selling it. It finally sold for 2.7 million; which is way below what it cost to build (15 million). But in our market anything over 5,000 or 6,000sf is practically non existent. I have been tasked to appraise a 9,000sf house (REO) for the bank. I'm not making any adjustments beyond 5,000 to 6,000sf depending upon the comparables I find. My rationalization is the 35,000sf home that basically sold for what a 5,000sf house would sell for on that site. The last appraisal done on it had the property listed at nearly 3 million to start with. Then they dropped it to 2 million. When I picked up the plans for the house at the broker's office I asked if they had any interest, and he said he had an offer around 1.3 million which ironically is about what Ithough it would sell for based upon other comparable sales in that area.

 

[Amy Perkins]

Working on an REO appraisal in the city of Barstow. Subject's GLA is almost 3,300 sf and sits on approximately 1/4 acre. It would appear to be an over improvement for the area. There were only 11 sales in the past 2 1/2 years of homes over 2,200 sf in the city. Many of them on much larger lots/acreage. Searched back 2 1/2 years and only found 2 descent older sales. Bending every rule for comp search criteria I was able to come up with 5 comps, three of which will require some major adjustments. Coming up with a 60 day value will be even more challenging as listing and pending sales are also very limited.

At this point I'm wondering if the opinions of value I come up with will be credible with such limited data.

Would appreciate any light you can shed on this assignment.

Can you go back in time and see how the market reacts to it before the crash? You may want to determine the functional depreciation by doing this as well as explain the inherent risk in an over-improved property.

 

[Amy Perkins]

Sometimes you have to break the rules to get to the truth in appraising a house. Just explain why you are breaking the rules, it's fine.

 

[Webbed Feet]

Working on an REO appraisal in the city of Barstow. Subject's GLA is almost 3,300 sf and sits on approximately 1/4 acre. It would appear to be an over improvement for the area. There were only 11 sales in the past 2 1/2 years of homes over 2,200 sf in the city. Many of them on much larger lots/acreage. Searched back 2 1/2 years and only found 2 descent older sales. Bending every rule for comp search criteria I was able to come up with 5 comps, three of which will require some major adjustments. Coming up with a 60 day value will be even more challenging as listing and pending sales are also very limited.

At this point I'm wondering if the opinions of value I come up with will be credible with such limited data.

Would appreciate any light you can shed on this assignment.

Based upon the offered information, I don't believe anyone can say anything has been "correctly" identified here. Way too many appraisers believe that over-improvement identification all begins and ends with what has sold. One reads virtually no discussion about what exists in the market area regardless of if those properties have been on the market or not.

More, it seems the only idea for addressing over-improvements most trade members seem to have is capping the GLA at an arbitrarily selected number and not adjusting for any GLA over that. Something that has nothing at all to do with using market driven adjustments, instead mostly only inserting the appraisers own bias. I'd recommend study of a few good appraisal books instead of forum advice on this topic.

 

[J Grant]

The concept of over improvement is present in appraisal books. As far as what exists, drive around a neighborhood , if only 1 or 2 huge house exists in a large subdivision, indicates low demand for it ( or more people would have built or expanded to large sf in neighborhood)

Appraisers dont' cap the sf at an "arbitrary number", they cap it at the point where from market research buyers stop paying, or pay far less per sf..because they can take that same $ after a certain point and build or buy that larger sf in a better area or bigger lot/site. Ask a cross section of area RE agents for feedback to confirm trends esp with limited product.

In the OP particular case, a 3300 sf house is not in white elephant territory, but it may have been built in the "wrong" neighborhood relative to its lot size , (or not), a question the OP will have to answer for themselves.

I've concluded differently for the possible over improvement factor depending on neighborhood and market area and what the data shows. The largest house in one neighborhood might command value for the additional sf, in another neighborhood it won't or only a marginal low $ amount. Appraiser has to separate out value in use vs market value...whoever built the large sf subject house found value in use from the big sf...but is it commanding value in the market? Do other buyers in subject neighborhood want large sf /willing to pay for it? At what point would a buyer with enough $ to pay for a substantially larger house choose a better neighborhood , or bigger lot where they can buy (or build) a large sf house?

It does become a judgement call, albeit one backed up by research. These assignments are difficult and time consuming but spend enough time slogging through and eventually the better supported conclusion emerges.

 

[Mike Kennedy]

http://www.realtor.com/realestateandhomes-search/Barstow_CA/sqft-13/sby-14

https://www.trulia.com/sold/Barstow,CA/3000-5000_sqft/

http://www.vvmls.com/Listing/ListingSearch.aspx

Suggest contacting a number of local agents/brokers who focus on Barstow.

 

[ZZGAMAZZ]

Based upon the offered information, I don't believe anyone can say anything has been "correctly" identified here. Way too many appraisers believe that over-improvement identification all begins and ends with what has sold. One reads virtually no discussion about what exists in the market area regardless of if those properties have been on the market or not.

More, it seems the only idea for addressing over-improvements most trade members seem to have is capping the GLA at an arbitrarily selected number and not adjusting for any GLA over that. Something that has nothing at all to do with using market driven adjustments, instead mostly only inserting the appraisers own bias. I'd recommend study of a few good appraisal books instead of forum advice on this topic.

Comments concerning "what has sold" go to the issue I unsuccessfully raised that are based upon my uncertainty that 1004 p.1 "1-Unit Neighborhood Housing" data should be based on open market, arms-length transactions, alone, which might not reflect the overall housing stock . . . although the only alternative I can envision would be to include appraisers' opinions of market value regardless of whether an assignment is sale-, refi-, divorce, or BK-related--with definition of value being an industry standard, with no functional difference between "market" and "fair market" values; with no distinction in the development or reporting of assignment results regardless of intended use or user; with entities that rely upon assignment results for various critical financial and familial decisions responsible to evaluate appraisals; and with licensed appraisers ostensibly competent and objective. Imagine the rich database comprised of the results of all appraisals presumably constrained by jurisdictional exception that requires the confidentiality of the results of certain assignments.