Limited Comps/ Overimprovement?

[Webbed Feet]

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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..<.....snip......>

It's very clear you and I don't read the same real estate appraisal reports in which the discussed, and so-called, "method" gets used. I'll take it you post about how you feel about what appraisers should be doing, not what it is they actually are doing in most cases.

 

[J Grant]

I don't know what appraisal reports you are reading. A cap for the threshold of where buyers stop paying for size is supposed to come from the market.

 

[Webbed Feet]

I don't know what appraisal reports you are reading. A cap for the threshold of where buyers stop paying for size is supposed to come from the market.

I didn't ask where adjustments are supposed to come from.

 

[hastalavista]

I agree with Webbed.
An over-improvement cannot be analyzed simply by looking at what has closed within the last year or two. The analysis has to include what exists in the market (sold or not sold) and should include where the alternative exists (does one exist in a competing neighborhood or do they only exist in superior neighborhoods?). Finally, one should also look at the specific element which is believed to be the over-improvement and determine if demand is growing for that element.

The first three (what has sold, what exists, and where do homes like the subject exist if they do not exist in the subject's market) should be routine for most mortgage-related appraisal assignments. The last (is this the beginning of a new demand?) may be necessary for more complicated assignments.

Good luck!

 

[J Grant]

from my post above # 12 -"A cap for the threshold of where buyers stop paying for size is supposed to come from the market."

I did not limit the market to simply looking at what closed within the last year or two..

That said, it is up to appraiser from research, talking to agents etc to decide how expanded a market is relevant to what a buyer for subject would consider. How far away do we look, if a buyer for subject is never going to consider such a far off location? How far back do we look- 3 years, 4 years, 5 years?. An appraiser is supposed to know the et area and from driving around can see what is being built/what exists. I certainly expand my search including competing communities, in these cases, often going back 3-4 years or X miles for competing/similar location/community. The point of an over improvement is when the research determined that virtually no, demand exists in the relevant area exist for such a large house, and what people buy/ build and eventually sell will reveal that. Like it or not, a mortgage lending appraisal is based on the SCA on a 1004 form. If someone is doing different work and client accepts a cost approach for a 20,000 sf house, go for it. ..

Webbed seems to imply that an over improvement does not exist. At least that is what I get from his posts. Otherwise I don't know what point he is trying to make

 

[J Grant]

Denis- " or do they only exist in superior neighborhoods?)."

That is a great point, Denis and the very definition of an over improvement. If the only place an appraiser finds a giant house is in a far superior/different area, that is NOT a comp for the subject, and it proves the subject is indeed over built for its market area/location.

 

[J Grant]

A great source of information about over improvement is the expired/cancelled listings. If the any similar size big homes (or the subject ) has been listed on and off the market for years at X price with no result, that's the market speaking right there. Usually, a buyer exists for an over improvement but only at Y $ lower price.

I feel confident about my abilities with it as over the years I have correctly identified big white elephant home over improvements for appraisal assignments .. because I was able to see in real time results when the owners, who ignored my opinion because the "other appraiser" came in so much higher..in both cases, the subject houses sat listed on the market listed at the igh $ amount the "other appraiser " came up with, and sat on the market, even if reduced a bit, for over three years. Ultimately both houses of big white elephant size ended up in foreclosure with lender taking them back, one lender contacted me afterward to appraise it ( again), and it ended up selling at a price very close to my value opinion.

These assignments if you want to do them right can become very time consuming , but keep digging and eventually the market will reveal itself, if one is willing to listen to what it is saying.

Some over improvements are not so dramatically over sized and those can be tougher to figure out