Price per sqft vs appraised value

[silvertls]

Recently reviewed an appraisal where the overall value of the home was inline with 8 comps. However, the price per sqft was 10-15% lower than the other comps. Appraiser picked comps 1.5-2 miles from the subject property, though MLS research shows there are multiple comps within 0.5 miles. Photos show the house was recently remodeled inline with neighborhood aesthetics. Whether the home is 2000 sqft or 5000 sqft, every home in the neighborhood sold for over $500/sqft. The appraiser's price per sqft came out to ~$435/sqft. Is this just an appraiser being conservative?

 

[Joe Flacco]

One of the main reasons may be that the home being appraised is a larger home compared to all of comps in the report. All other differences equal, the price per SF of the larger home will be less than price per SF of smaller homes. The reason is the value of the land. If you have a 10 SF dog house on a $1 million lot, then the dog house would be $100,000 per SF.

 

[alebrewer]

The reason is the value of the land.

The other reason is the law of diminishing returns...

 

[silvertls]

Completely agree that the land is worth more than the house in many cases. What makes me scratch my head is there are comps both bigger and smaller in terms of sqft (exact same size lots) and they priced out within $25/sqft of each other. The larger home in terms of sqft also priced higher per sqft. They also left the cost approach empty.

What is really confusing is a home that is very similar in size / lot / remodel etc 1 mile away sold for higher than what the appraiser valued the subject property at. They even commented that the subject property view is superior. Essentially the comp came back at purchase price + exact cost of the remodel (they asked what the cost was). I understand Zillow and Redfin aren't worth much salt but they are higher estimates, and a realtor provided a CMA higher as well.

 

[TerryRohrer]

Were there any features where all the sales were adjusted downward? The problem with price per square foot is that it reflects all aspects of each sale, and if the subject doesn't have some features, or has less of them, then overall price per square foot could be lower. Also, please explain "ssentially the comp came back at purchase price + exact cost of the remodel."

 

[Alsie35]

SFR appraisals are NOT based on "price per square foot". Its a stat that realtors apparently have a fetish for but is one that is incidental at best to the appraising process.

Looking at price/sf alone is not going to tell you if your appraiser used the best comps or not.

 

[Trihard]

Value that hit what I wanted=Appraisal is good. Value did not hit what I wanted=Appraiser is bad.

 

[shrubberyvaluation]

Pools, Patios, Waterviews etc are all going to get lumped into the price per sq.ft. It is meaningless. Sometimes comps .5 miles away in one direction are in a different market area.

 

[Alsie35]

Pools, Patios, Waterviews etc are all going to get lumped into the price per sq.ft. It is meaningless. Sometimes comps .5 miles away in one direction are in a different market area.

 

[Terrel L. Shields]

$435/sqft. Is this just an appraiser being conservative?

A- with or without the land value included? Land is valued (or should be) as if vacant and available for its highest and best use. Outbuildings, pools, shops, etc. should be considered separately. Site improvements ditto. Garages ditto, so the SF value should reflect ONLY the GLA - gross living area.

B- I know that building costs are high in California. But the soft costs are a lot of the reason. 2"x4"'s don't cost much more there than in Kansas or Florida. Soft costs are the thousands spent on permits, inspections, etc. But the actual "building cost" is probably not much over $200, but even if $300, that means $200/SF relates to the land value...

Using distant comps in lieu of closer comps is an issue and there needs to be a justification for doing so.