Plus/Minus Features Market Value

[ValuMan]

[FONT=&quot]One thing I r e a l l y don't understand in some appraisals. I was taught years ago and I have continued to do what I was taught - really work out the Market Value of different features of the residence in the appraisal. To simplify, If you are comparing a 4 bedroom home in the near Million dollar value range, to a very similar 3 bedroom home, you not only adjust for $$ per square foot (usually over +- 100 s.f.) but you adjust for Market Value of that room. Same with 1/2 baths, full baths, family room or den, spas and pools and any special features. [/FONT]
[FONT=&quot]Further example, the detached guest already in the Gross Living Area (GLA) square footage, has an added Market Value for just being a detached and very useful separate guest unit over and above its simple GLA square footage. I don't understand appraisals that assign room values like they were in appraisals made in 1960. An added bedroom in a close to $1,000,000 house is not a $3,000 difference. The extra two bathrooms are not a Market value of $4,000. The added spa in that custom salt water, inlaid pool combo is not $2,000. Where do some appraisers get off on these adjustments?I've seen examples of this recently.
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[FONT=&quot]Is it because someone tells them FNMA doesn't like adjustments over a very low (+-) 6% or so? Any adjustments that are justified, are OK - all they want is an attached simple but clear explanation why. Some of my adjustments are quite high but they surely bring the comparables in line with an accurate value of the Subject. To show a Market Value of a Million dollar house bedroom so low, as the example I have seen and quoted, says a lot for how little that Appraiser really knew about Market Value. [/FONT]
[FONT=&quot]Even the simple, smaller and less valuable tract homes or condos shouldn’t be compared at 1960 adjustments. What are the Appraisal Schools teaching?
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[FONT=&quot]Current day homes are not selling at $28,000 so don’t value the quality features as if they were. My absolutely lowest value for an inexpensive California tract home bedroom, nowadays, is $8,000. Some of the custom homes are between $20,000 and $35,000 a bedroom and that can be conservative. [/FONT]
[FONT=&quot]I have never been challenged, because I explain WHY and HOW I reached that conclusion. The simplest of spas is $7,000 the custom spas $14,000 to $20,000+ (again, Market Value. The original or current Construction Value may be much higher) [/FONT]
[FONT=&quot]Appraising now for over 24 years my Market Value adjustments have risen (and fallen) through multiple up and down Market Value Cycles and, during the inflationary period 2005 thru 2007, a side explanation often intimated values were inflating too fast. On that latter note, the lenders didn’t seem to care, but that is a different discussion. [/FONT]

 

[David Mescon]

Further example, the detached guest already in the Gross Living Area (GLA) square footage, has an added Market Value for just being a detached and very useful separate guest unit over and above its simple GLA square footage.

Really??? What part of California do you work in that a detached guest quarters is part of the GLA?

 

[JasonHaskell]

I totally agree. I do a lot of review work and see adjustments all the time that clearly are only meant to fall within some certain guideline and have nothing to do with actual value of the item. Quality adjustments for a 3,000 square foot house of $4,000? What is that for? Site size adjustments not based on market site values but some arbitrary $.50 per square foot...what is that based on other than the fact that the resulting adjustment wont raise any red flags. Totally renovated homes that get a $2,500 condition adjustment. What world do you live in where a full home renovation adds only $2,500? I'm guessing the AMC monkies love those type appraisers. Never an adjustment over 10% never a gross or net outside of guidelines....must mean they are great appraisers right?

 

[David Mescon]

The list is the list. Watcha gonna do?

 

[Motown Matt]

Sounds fine if there is indeed a market reaction to the room count above and beyond the GLA. Many markets I've seen do not show a difference in values between 3 and 4 bedrooms of similar GLA currently (or 4 and 5 bedrooms). It could be that you are adjusting too low on your actual GLA adjustment and adding a bedroom adjustment to make up for it (or a family room adjustment, etc, as you stated). Typical buyers aren't going to pay extra for an additional room for a 3,000sf house vs another 3,000sf house with 1 less room, all other factors being equal. If you can prove that in your market, though, by all means make the adjustment.

 

[Riick]

First, I long ago decided that appraisers are not part of the right social class to value Million plus plus plus properties.

We really don't understand why that house with the clay courts and polished brass faucets, rose marble floors and glass tiled bath is worth an extra $500k over that tacky 4900 sq.ft. property around the corner, the one with the grass courts, circular Belgian-block driveway and gray Corinthian marble columns, and 12-burner double range- that only brought $2.65m

OTOH, though $2,000 is a ludicrous amount to adjust anything in a mufti-million dollar property, other than number of dog-houses.... still appraiser may have been what they used to call giving a nod to the fact that yes he sees there is a difference between X and Y, but not enough to make a discernible difference in market value.

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[Terrel L. Shields]

Sounds like a lot of double dipping to avoid confronting the issue that the land value is maybe 75% of the value....What I don't understand is how GLA can be adjusted at $250/SF when the RCN of GLA is $170....BUT what does an Arkie know? Your $1,000,000 home is $250,000 here.

 

[Michigan CG]

[FONT=&quot]........Even the simple, smaller and less valuable tract homes or condos shouldn’t be compared at 1960 adjustments. What are the Appraisal Schools teaching?.......[/FONT]

It isn't the school, it is the mentor. There are two appraisers in my market that adjust every SFR at $20/SF for GLA. It could be a home on the east side worth $15,000 or the 8,000 SF home worth $1,000,000.

I reviewed a report the other day where the appraiser adjusted $18/SF for a $200,000 home. A garage stall is worth $1,500? Really? The cost is $7,000 +/-. So the home built in 2005 with a cost of $7,000 for a garage gets a $1,500 adjustment. That indicates that the garage has incurred $5,500 in total obsolescence of 78%?

In litigation or tax appeal the other appraiser can't answer the question of how the garage can have 78% less value than the cost to build in 7 years yet they state the home has a remaining economic life of 50 years. According to their own numbers the garage will have fully depreciated in two more years. So the garage will be worthless in two years but the home will have 48 more years of life???? Huh?

Many do not realize that a seasoned appraiser can make one look very bad because of different pieces of the appraisal. Effective age on one page, an adjustment on a different page and a remaining economic life on another page can be used to discredit an appraiser very easily when the adjustments are derived from a questionable list issued in 2002.

Another place that the adjustments can be questioned is the results of a cost approach. Comparing the above and the cost approach results can show that the adjustments are not market derived.

 

[Doug DeMars]

Plenty of boneheads out there....that's for certain.

I typically stay away from adjustments unless they reach or exceed 2% of the price range of the subject property. I'll dip my toe into the 1% adjustment range if I'm in the right mood and feel cocky.

There is simply no place for a $10K adjustment for a $1M dollar house...IMO. The ante should start at $20K...anything below that is silly.

 

[J Grant]

The gold standard is that the aprox amounts should come from the market. Cost approach is one test, how much would it cost to replace or build the amenity, and what is present value of depreciated amenity per cost. That has limited reliability though, as one has to see how the market reaction lines up ...it can return less, more , or the same as depreciated cost. The amenity has to be shown in the market to appeal to the typically motivated buyer for that property type. There may be one random buyer out there who will pay for an oddball amenity, but if they are few and far between, that does not make them the typically motivated buyer.

For example, if a seller has to market a house for three years to find a buyer willing to pay high $ for an elaborate pool, then you'd better put down 3 years market exposure if you adjust high $ cost value for that pool. If reasonable market exposure is six months for houses with pools, and data and discussions with realtors show that in 6 months exposure most buyers won't pay more for an elaborate pool versus a standard one, then the appraiser has to make no adjustment or a minor one if using 6 months marketing time.

Bedroom count usually commands a premium in lower price ranges and smaller houses or in condos and townhomes where one can't physically expand the house. A large home over 3000 sf and approaching the million dollar range or above, I rarely adjust for bedrooms because most often no market reaction is present.

Buyer purchase a house as a "package", and after one accounts for the major features they are paying extra for, it may not be supportable to extract a line item adjustment for minor features. Sometimes additonal features add to market appeal, but don't increase price.

A combination of cost studies, paired sales, talking to market particpants, past experience in the market area and home type, all of it goes into deriving credible market based adjustments. Market based adjustments can never be 100% exact, because what buyers pay for a bath in one home might differ for what they would pay in another house. Appraisers apply adjustments with consistency for report development, but in reality, the market is not consistent even for similar homes. There is always variances in prices due to emotion and motivation of particpants.

Buyers buy a house as a package, and are willing to pay more (to a point) for certain amenities, or expect a discount (to a point) for deficiencies. When buyers reach that "tipping" point, where they won't pay more for an amenity in a certain home type or price range, that is the point where over improvment or marketability issues are seen.