Postage stamp lots new construction

[J Grant]

Ugh. I inspected a new construction home Friday. A single family 2 sotry home with garage, aprox 2000 sf .

I was shocked to find it on a postage size lot...around 3500 sf. The wole small subdivision is like that...there are some townhomes, then a few streets of freestanding homes but they might as well be townhomes...the houses are 10 Feet either side from neighbor with tiny back yards too small to put a pool in or even enjoy.

This is not the norm here...housed like this avg lot aprox 6000 sf and above.

The sales in subdivision "comp out" in price, however, imo, the lot of of them are over priced. What buyer in their right mind would buy them? The neighborhood s borderline spotty... a sort of nice area but with mixed commercial use right across street and a rail road track one block away and near crappy pawn shops and such 2 blocks away. True, a half mile from beach but not that close to it. My subject house (of course), backs up to the road...moderate traffic, not super busy, but still...though the other houses back right up to the neighbor so which is worse?

Typical standard new home mid range upgrades, decent construction quality. Crowded streets due to close proximity of houses the place will be awful when fully built out with cars backing in and of of tiny short driveways.

The price points are 300-320k. Are they kidding me? You can get a newish, built 1-5 years ago, similar size house nearby, with a pool, or a lake view on a 6000 sf lot in a nicer community for 250-300k.

The sales sold around same as price subject, including one backing the road, however, the sales were all, except for one, financed through the builders "preferred lender". That means that high probability the "preferred lender" appraiser rubber stamped all the sales prices.

How to best handle an appraisal like this? ( will work on it Monday

 

[Terrel L. Shields]

Mention the additional fire hazard. We had some lots like that and a fire in one spread to two others.

 

[Wm. Hattaway]

That "the sales were all, except for one, financed through the builders preferred lender" would be a red flag for me.

 

[J Grant]

That "the sales were all, except for one, financed through the builders preferred lender" would be a red flag for me.

Red flag waving in the wind..

The construction quality is good, CBS on both stories, everything else about it sub par. I will see where the research takes me, but I would not be surprised to be the first appraiser not to make CS price in this subdivision. (it is small , about 40 homes and 50 townhomes)

Just did a tiny bit of research...sales sold 6 month ago for 260-290k in subdivision, then builder raised prices and of course whoever was appraising these for "preferred lender" automatically adjusted values up to meet the new higher sales prices. What else would we expect .The houses likely weren't worth even the 280-290k for this model back then but I will see what other research reveals tomorrow.

 

[hastalavista]

The kind of development you describe ( detached and attached, 40-50 units, located in an older neighborhood, on smaller/individual lots) occurs in almost every one of my markets. 3,500sf would be a large lot for a townhouse-style home; I typically see them at 1,500 - 2,000sf.

Medium-density housing is becoming more popular. Both ends of the demographic range (younger/older) might prefer a low-maintenance home (although multi-story is not ideal for the older generation).

You know your market, so I'll defer to you. But it seems you may be a bit quick in judging the appeal of the development (it is obvious you wouldn't buy there... maybe less obvious that it has a viable market appeal to others).

 

[J Grant]

The kind of development you describe ( detached and attached, 40-50 units, located in an older neighborhood, on smaller/individual lots) occurs in almost every one of my markets. 3,500sf would be a large lot for a townhouse-style home; I typically see them at 1,500 - 2,000sf.

Medium-density housing is becoming more popular. Both ends of the demographic range (younger/older) might prefer a low-maintenance home (although multi-story is not ideal for the older generation).

You know your market, so I'll defer to you. But it seems you may be a bit quick in judging the appeal of the development (it is obvious you wouldn't buy there... maybe less obvious that it has a viable market appeal to others).

I am trying to keep an open mind and will "officially " do the research tomorrow. This kind of postage stamp lot development is NOT common in my market area. That is why I was shocked to see it. We do have townhomes of course with this tiny lot size, but that is to be expected. Here and there is a development of detached homes on tiny lots, but typically in desirable areas such as block from the beach or downtown.

But this is at best an average location.... a weird neighborhood of mixed use res and commercial and ugly commercial...car dealerships and repair shops not high end commercial or nice restaurants etc.

Will see what happens , but I have done many reports close proximity to subject and there are so many very many nicer choices out there for buyers.

This sales office appeals to the ignorant...their big selling point was comparing cost of renting vs buying one of their homes.

They were lucky as their roll out came at super low interest rate surge last year. So yes, if their first time or not well informed buyers compared renting costs vs owning one of these now homes bought at the very lowest interest rates, seems like a good deal.

The fly in the ointment is that as soon as interest rates return to normal, already happening, home sales slow and values tend to stagnate or decline. And s soon as subject community no longer has the appeal of C1 new, it competes with all the rest of the recently built, much nicer home choices out there.

A good chance the house on this 3000 sf lot in 2 years will be hard to sell at anywhere near price paid for it when the owner has to compete with other home sales built within 6 years with bigger lots and offering a pool, nice view, etc.

Which leads me to believe these buyers can't possibly be well informed if their major purchase decision was cost to rent vs owning without considering the dismal quality of what they are actually owning and that historically, such below par developments lose 10-30% of their initial value here within the first two years of ownership.

The real "cost " of owning such a sub par home not understood by these buyers...if they go to sell later and are under water, they will not just lose their e down payment but also have to short sell or REO default, damaging their credit rating and they still may be responsible for repaying difference in loan amount and other fees. That is the real "cost" of owning vs renting when a buyer overpays .

There have been a few new home communities here where the WHOLE community was later identified and investigated for fraud...inflated appraisals and sales to straw buyers and the like.

PS, I would be fine with the appeal and design of the tiny lots/hulking 2 story boxes if the price points were commensurate...230-250 k for a starter home, for example.

There are plenty of places I appraise where I would not want to live, but if the value is there, what do I care about personal tastes....when value is out of whack for home type and choices then it is...no matter the location. I hope my research proves me wrong but am not getting a good vibe from this one!

 

[Mike Garrett RAA]

We see that in MY MARKET. Usually zoned PUD (planned unit development) so that the lots don't have to meet minimum size requirement for R-1 which is 6,000 sf minimum. In my opinion those properties should not be compared to other properties on standard size lots so I would use sales in same subdivision or find another PUD subdivision for comparison.

My personal residence is on a 3,500 sf lot in a PUD with 8 homes on each cul-de-sac. While I guess you could say there might be a fire hazard I know of none in this type community where the proximity caused another property to burn down. We lost several thousand homes to fire here in the past year and none of it was caused by houses being too close to each other. In fact, some were on 5 to 10 acre sites. Wild fire is a *****!

 

[George Hatch]

These infil projects serve their purpose. At a price.

At any rate, you do have to be mindful of what comprises an arm's length transaction. 3 years from now when all the transactions are being financed by different lenders the story may be real different.

 

[J Grant]

Thanks for all replies.

We have a lot of PUD developments here, but this is the first I have seen in years with large homes on tiny lots. The 2 story house arpox 2000 sf, the lot, 3000 sf.

We have many townhomes and attached villas on small lots, but usually, those communities have compensating factors...green areas, amenities etc. This little subdivision has a small common area pool and that's it..

nothing wrong with a basic community homes close together in a mediocre location, but the price points imo should reflect that.

To me, this is a much harder appraisal than many multi million dollar home appraisals...I just appraised a 3 million pus property that was easier .

I usually use a larger than typical number of comps than normal in a situation like this, and will try to find houses on small as possible lots.....will keep in touch as I develop the research on this nightmare assignment!

 

[George Hatch]

Regardless of your value conclusion on this assignment it might make some sense to provide a list of 1-liners of otherwise comparable properties nearby on the larger lots, just to show the relationship between the two datasets. And maybe some vacant lot sales data to support site value.

Realistically, in a $300k neighborhood there probably isn't that much difference in price between a 6,000 sf subdivision lot vs a 3,500 sf lot if such lots were available and sold off individually. Most of the value is going to occur in having a minimally acceptable lot - the contributory difference in the additional lot area for such homes will *usually* be incremental, not proportionate.

The extra info won't affect your conclusions but they could provide some indication to their decision makers that future values for this project may not retain the same relationship to the rest of the market that this builder has succeeded in getting for these sales.