New home vs. older renovated comps?

[New Orleans Guy]

I just finished up an appraisal in New Orleans. As you know a little storm called Katrina caused some damage here to a few 100 thousand homes. The subject is a brand new home and all the comps for many miles around are 20-30 year old, completely gutted and well renovated homes. The renovated homes have all new pipes, wiring up to new code, new insulation, roofs, sheetrock, granite counters, modern everything, some have even been completely recovered in stucco. The finish quality and style of some match my subject perfectly, BUT I know that there is no match for something that is actually "new". I made the same across the board adjustment on ALL the comps, I can't wait for the underwriter request for the new home sale that I already explained does not exist. I am looking for opinions on the adjustment. I already have a number that I used but I am curious and would like to know what my peers think as well. There of course was no scientific way to derive my adjustment. I gave it a lot of thought and based it on my experience in the market. (a.k.a. pulled it out my *****)

P.S. the price range of the comps was ~180k to 250k subject and comps range from 2,000-2,800 sq.ft.

 

[Michigan CG]

What you have is what I call a "fun" assignment. Lots of narrative, lots of thinking and lots of "how do I justify this number I pulled out of my ***".

Things I would consider would be the quality of the older homes (comps) construction, how the market accepts the new home in an old home neighborhood and the design of the new home and how it blends in with the surrounding homes.

I would also thoroughly address Utility, how the new home functions and how the utility of the new home compares to the surrounding properties.

Finally in my report I would include interviews with the top Realtors/Brokers in the area and I would directly quote them.

After 3-4 pages of narrative I think I can convince most clients why I am where I am and the justification for being there. OR, they just get tired of reading it and say "fine, I agree with him" so they can quit reading.

It is these types of assignments that good narrative/qualitative skills become very valuable.

 

[PropertyEconomics]

Lots of narrative, lots of thinking and lots of "how do I justify this number I pulled out of my ***".

SERIOUSLY???? Would you like to edit this post??????

 

[New Orleans Guy]

SERIOUSLY???? Would you like to edit this post??????

It was a joke.m2:

That is exactly what the underwriter is likely to THINK. I DID base my figure on what MY opinion of market reaction would be be. BUT just like Jesus, U.F.O.'s and some appraisal adjustments, a little bit of "faith" in the appraisers opinion is required. I can forsee an U.W. asking me to explain the magic formula to come up with the adjustment. But one does not exist of course.

I did put a good paragraph of narrative in there to try and explain the adjustment. It was not that large though. This is based on the fact that the comps in this area are seriously renovated including some of them moving walls, and most adding vaulted ceilings, redesigning kitchen layouts, oversized jacuzzi tubs, walk in custom steam showers, etc. They are just like the subject only they have an older slab and frame.

 

[Michigan CG]

SERIOUSLY???? Would you like to edit this post??????

No, but maybe I will edit yours.

Some things cannot be proven with quantitative evidence or sales. If one can explain rationale, other market indicators and reasons for adjustments in a thorough qualitative way it is better than ignoring the situation because there are no sales.

 

[New Orleans Guy]

No, but maybe I will edit yours.

Some things cannot be proven with quantitative evidence or sales. If one can explain rationale, other market indicators and reasons for adjustments in a thorough qualitative way it is better than ignoring the situation because there are no sales.

That is what I did. I took longer chewing on that adjustment than anything else in the whole report. I wanted to get it as "right" as possible given the limited indicators I have. Luckily there are a lot of new homes being built in older neighborhood througout the city. The only problem is they are being built by the land owners and not being sold very often. The only "new" sales I could find for several miles were little give away HUD homes that are NOT good comps to the subject.

P.S. I just appraised one of those today across the river. It was in a neighborhood where every home is identical, all sell for the same price under the same combo of state/HUD grants where the taxpayers "donate" most of the money. At least the appraisals are easy. I will get back a few hundred of MY tax dollars.... then I pay taxes on that income...... hmmm... I think I am giving more of my hard earned money away again.

 

[Terrel L. Shields]

Guessing... i do that a lot lately myself.

actually, where there is a minimum of data, the appraiser does have to rely on their judgment, their experience, and sometimes the client is expecting a more mathematical analysis than is possible. therein lies the rub.

 

[Mike Boyd]

If you have no way to support an adjustment, why make one? As Michigan CG says, talk to active Realtors in the area. A concensus of opinion by agents is acceptable support if none other exists.

 

[rijman]

I have a similar appraisal situation in San Diego in a neighborhood where many homes burned down in a fire 6 years ago and now most of the homes have been rebuilt larger of better quality materials than the orginals. I have a 4 year old home in a neighrhood of 25 year old homes with no recent sales of newer homes because they were built for the owners to occupy. My best comps in the neighborhood are completely remodeled homes. Will a buyer pay more for a 4 year old home than a completely remodeled 25 year old home? If the utility is the same and the interiors and exteriors are similar, buyers will not always pay more for a newer home. But, if the subject is brand new, never been lived in, that's different in my area because buyers pay a premium for brand new never lived in homes.

 

[Terrel L. Shields]

If you have no way to support an adjustment, why make one?

OK....You have a $500,000 house to appraise and there is a $400,000 horse barn on it...
You don't have a comp from the last year with a horse barn... so the horse barn is worth nothing..