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Predominant Market & Over Improvement

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Ariba

Senior Member
Joined
Feb 8, 2004
Professional Status
Certified Residential Appraiser
State
Colorado
I am appraising an attached single family dwelling in a gated community enclave of 29 units. I have sufficient recent data to arrive at an opinion of value. So no problem there. However, the median value of the 29 houses in the enclave is $525,000. The median price of house surrounding this enclave is $275,000. I am anticipating that the lender would want an explanation of why this property is $250,000 above the predominant value in the subject market and if this is a over-improvement and/or overbuilt. Is it?

Any ideas on how to approach this?.
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
Sounds like you've provided the data in your post above.
I'm presuming the homes in the enclave sell for more because (a) they are superior in condition/quality, or (b) their gated enclave provides a market-based premium due to their location and perhaps enclave amenities, or (c) a combination of the two.

I'd simply summarize what you've said. If it were me, I'd trend the sale prices of outside-the-enclave homes against the sale prices of inside-the-enclave homes, over some period of time; if they consistently sell at a higher price, that's strong evidence of the market-based premium. This visual, based on data, would support what you are summarizing.

I would not consider this an over-built/over-improved property based on what you've described. Obviously, the best comparables are within the enclave and/or from competing enclaves. If you have other gated enclaves in the market (or competing markets) that demonstrate market premiums over non-enclave homes, I wouldn't call it an overimprovement (and I'd provide that summary in the report as well). It is simply a submarket of homes within the larger geographic area that sells at the top of the price-range.
 

Artemis Fowl

Senior Member
Joined
Mar 16, 2004
Professional Status
Certified Residential Appraiser
State
Michigan
You appear to be describing different markets such that the price difference is adequately explained IMO.
 

leelansford

Elite Member
Joined
Mar 29, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
How might the subject be an over-improvement if it conforms within the project.

In similar situations when I receive what I consider to be a mindless request, I point to the comparable sales and say "there is your answer".
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
I am appraising an attached single family dwelling in a gated community enclave of 29 units. I have sufficient recent data to arrive at an opinion of value. So no problem there. However, the median value of the 29 houses in the enclave is $525,000. The median price of house surrounding this enclave is $275,000. I am anticipating that the lender would want an explanation of why this property is $250,000 above the predominant value in the subject market and if this is a over-improvement and/or overbuilt. Is it?

Any ideas on how to approach this?.

The lower price houses outside the enclave are not comps for your subject. What you describe is a very common scenario. Simply say something like : " Subject is above the Median ( or predominant price ) because the predominant price represents smaller, older houses and the subject is a newer/larger/luxury /etc home in a gated community. "

The subject may not conform to the neighborhood, if it is surrounded by a neighborhood of mainly smaller/older homes, however that is not the same as being an over improvement.

It is an over improvement if there is not marketability and demand for its size or luxury construction/ costs more to build than market returns. However, sounds like this is not the case, for your subject . If there is marketability and demand, the subject is not an over improvement.
 

Ariba

Senior Member
Joined
Feb 8, 2004
Professional Status
Certified Residential Appraiser
State
Colorado
Sounds like you've provided the data in your post above.
I'm presuming the homes in the enclave sell for more because (a) they are superior in condition/quality, or (b) their gated enclave provides a market-based premium due to their location and perhaps enclave amenities, or (c) a combination of the two.

I'd simply summarize what you've said. If it were me, I'd trend the sale prices of outside-the-enclave homes against the sale prices of inside-the-enclave homes, over some period of time; if they consistently sell at a higher price, that's strong evidence of the market-based premium. This visual, based on data, would support what you are summarizing.

I would not consider this an over-built/over-improved property based on what you've described. Obviously, the best comparables are within the enclave and/or from competing enclaves. If you have other gated enclaves in the market (or competing markets) that demonstrate market premiums over non-enclave homes, I wouldn't call it an overimprovement (and I'd provide that summary in the report as well). It is simply a submarket of homes within the larger geographic area that sells at the top of the price-range.

Your verbiage is better than mine and I will use some if you don't mind. Thank you Denis..
 
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