Over Improvement Pool & Outdoor Kitchen

[Workbox]

Subject is under contract and over $20,000 more than the highest sale in the neighborhood. The home has had extensive updates and prepped for sale to the market. Fresh paint, tile floors, hardware. Yet it corners a major thoroughfare and it fronts the neighborhood entry.

No comps with pools or other type of improvement to use as to compare, unless I review per years past. I believe that the pool and the large outdoor kitchen have no contributory value since the market has no other similar exposed sales. At the same time when you view aerial views, there are no other pools.

My question is, at what point do these over improvements do not have any contributory value and how to quantify any adjustments. What I are some typical comments to express the condition?

I like magic, but not with my appraisals.

 

[Elliott]

What indicators do you have that they are over-improvements? My brother has a typical tract home in Palm Springs, the first improvements they made was a lap pool w/water feature and a full feature outdoor kitchen island. It might be an over-improvement in OR and WA where it rains a lot.

 

[Workbox]

What indicators do you have that they are over-improvements?

Had to go back to 2013 to find a comp. Also, the market area due to socoal economic factors, most homeowners would not consider that as an add-on to their home, they would rather convert their garages to living space and rather have the outdoor kitchen. This is a $60k to 150k market area. Even new construction has a had time staying above the $150k market.

I could be wrong, just trying to wrap my head around any adjustments that I would make if any are warranted.

 

[Workbox]

Found this from FNMA:
"Over-Improvements
An over-improvement is an improvement that is larger or costlier than what is typical for the neighborhood. For example, a 4,000 square foot home located in an area of homes where the typical home is 2,000 square feet may be considered an over-improvement. Furthermore, a home with an in ground pool in an area where pools are not typical may also be considered an over-improvement. The appraiser must comment on over-improvements and indicate their contributory value in the Sales Comparison Approach adjustment grid.

Improvements can represent an over-improvement for the neighborhood, but still be within the neighborhood price range, such as a property with an in-ground swimming pool, a large addition, or an oversized garage in a market that does not demand these kinds of improvements.

The fact that the property is an over-improvement does not necessarily make the property ineligible. However, lenders must review appraisals on properties with over-improvements that may not be acceptable to the typical purchaser to ensure that only the contributory value of the over-improvement is reflected in the appraisal analysis."

 

[Randolph Kinney]

Here in Carlsbad California I have documented the price effect of pools as it goes from the coast to 20 miles inland. It comes down to two influences. How hot and how many months can the pool be used versus quality scale.

Smaller cheaper homes near the coast a pool has minimum value. Larger more expensive homes near the coast a pool has more value.

The farther away from the coast, pools gain more value.

Pools use electricity which is very expensive in California. For the larger upscale homes, it is common to have solar PV panels and solar hot water systems along with the pools. Some pools are enclosed as part of the house near the coast.

Land is very expensive near the coast which means the smaller lot size denser development won't have pools. Lot size has has to be large enough to accommodate a pool and its construction.

 

[J Grant]

Well, your subject buyer paid 20 k more for it in contract. I am certainly not one for appraising to SC price with no other support,, but this shows at least one buyer thinks it is worth more. The question is, did other buyers....as MV is based on the idea of a typically motivated buyer.

Ask RE agent if they had other offers on subject, and what is marketing time of subject vs other comps. Did the house with pool back in 2013 sell for more then those with no pools?

Of course a problem is , the pool/outdoor kitchen may have a positive impact, but then have to adjust negative for busy road (if there is an adjustment for it). Go to another nearby community in similar price range, see if any homes with pools sold there in last 2 years and was there a price difference.

 

[Workbox]

Good point RK, it is at least over 100 miles inland. These types of pools are not common and the market rather add or convert into living space. A lot of garage conversions.

Grant, I have gone to 5 different similar neighborhoods looking for pools and only 2013 produced a $6250 difference for pool. This a low income market area and I can start seeing longer DOM's. I did ask the realtor to send me her comps and are the same 2 $150k comps.

 

[Randolph Kinney]

Good point RK, it is at least over 100 miles inland. These types of pools are not common and the market rather add or convert into living space. A lot of garage conversions.

How big are the lots in your development? How big are the GLAs?

Some developments have premium lots that are over size for the development. They can command a premium for those who want to put in a pool or expand the GLA. What about yours?

Not everyone wants a pool amenity.

 

[J Grant]

IT can cost as little as 2k to convert a garage but typically around 20k or more for a pool. If subject has a garage, it still can be converted so I don't get the comparison in cost or feature. If your market area has a short summer time for swimming, indeed pool might be an over improvement....though nice to have when weather allows.

I get it's a lower price range area. Either use the small increase of price you saw in 2013 (i often round off and find pool contribution is present but less in a lower price area such as 5k), and use that sale as reference or put it on grid, or make no adjustment , your call.

 

[Mark K]

Not everyone wants a pool amenity.

Agree, that's why, IMO, the subject pool likely has value but only to a smaller market segment. Your 'typical' buyer will be someone that wants a pool and they will pay a premium.

Its more of a reduction in market size, hence potentially longer marketing time, than the fact that the 'typical' buyer won't pay more.

Same situation with negative location influences like airports and freeways. Some people won't buy near them at all; other don't care and the sales prices are similar to those properties a reasonable distance away.

An over-improvement contributes LESS value than it costs; I'd be very cautious about stating that a costly amenity adds NO value just because it can't be easily quantified.