Sqaure Feet vs Comps and adjustment calculation logic

[visionlinx12]

OK, so I am the home owner, and we are looking for a HELOC to finish the basement.

Disclaimers up front: I understand the Comps are not the sole deciding factor, and that there is a lot of experience and "art form" that goes into an appraisal. I also know that Square Feet is not the ONLY way to compare homes. Condition, Quality, land size, location, etc. But I do know that most of these things can reasonably be adjusted for with relatively simple math logic.

Here is my scenario (and you guessed it, I am not happy with my appraisal value!).

Specific to the Square Feet adjustments, our home is 3,739SF and 18 months old. The 6 comps that were used range from 3,000 to 4,600SF and ages from 4-11 years. So logically, there is a positive(+) adjustment for small homes and a negative(-) for larger homes. But on the comp sheet that was used, there is a section for SF adjustments, then a separate line below for basement finished and SF in the basement. Most of the homes are either C2 or C3 (we were a C2), and all are a Q4 (ours was a Q4 too).

Side Note: our basement is unfinished, and all of the 6 comps they pulled had finished basements, either 50% or 100% finished.

So, what I see is that the main SF listed for the comps INCLUDES the finished basement space. But on the sheet there is another negative (-) adjustment next to the finished SF. Here is an example:

My House = 3,739SF
Comp House = 4,600 SF
Adjustment to Comp Sales Price is -$19,992

Then, in the next line
My House = unfinished basement
Comp House is 50% finished basement with 840 SF finished
Adjustment to Comp Sales Price is -$16,000

In my view, the adjustment is doubled up for the livable SF comparison here. Am I interpreting this wrong? It is worth noting, the adjustment for the finished basement is -$16,000 for all of the Comps, no matter what the total SF is.

Another note, I also found a bunch of Comps in the new neighborhood next to ours that were not included. They are all New Construction and settlement for these 5 homes was between Oct-Dec 2014. They are all in the 3,800-4,200 SF range. When I told the lender about them, they got a reply from the builder that they are not comps because "they are in a different life cycle then the subject house" I thought new construction homes were allowed to be comps? especially in the current market environment of low supply of existing homes.

Thanks for any insight you all may have. I am trying to figure out what the next steps with my lender are.

 

[NachoPerito]

The double adjustment seems fine.
The first is adjusting for size. The 2nd is adjusting for the difference in level of finish (as in yours has none in the basement).

New construction comps can be used, but a new home will sell at a slight premium.

The adjustment is the same across the board when all comps have 100% finished basements. If some comps are 50% finished then maybe it needs a correction.

These aren't major problems with an appraisal in my opinion. When we get complaints on here the issues are usually much worse.

I doubt you have much recourse here unless you pay for another appraisal.

 

[Meandering]

New homes, depends on if they were already built and sold as a finished package, or,
if the sale was the land and a contract to build.
We can not use the second type as comps.

The adjustment you have provided does not say if it is the adjustment for the basement finish alone, or if it is the overall net adjustment for the entire property.

 

[nstanbru]

Are you sure that the main sq. ft.(above grade living area) shown for the comps includes the basement area? Was there a comment in the report indicating the living area for the comps included the finished basement area?

 

[Michigan CG]

.........So, what I see is that the main SF listed for the comps INCLUDES the finished basement space.............

No, the main SF should not include the finished basement area.

 

[Meandering]

Unless the basement is totally above grade. We have some of them here.

 

[NachoPerito]

Or if it is a two-unit property and it compares on GBA. Does it specifically state 'above grade' on the line time?

The appraiser may have messed up the classification, but it doesn't seem likely that it will change your numbers much.

 

[Pam Wyant]

Unless the basement is totally above grade. We have some of them here.

In which case it still shouldn't be counted both above grade and below grade.

 

[Pam Wyant]

So, what I see is that the main SF listed for the comps INCLUDES the finished basement space. But on the sheet there is another negative (-) adjustment next to the finished SF. Here is an example:

Do you have a source you are using to determine that the appraiser included the finished basement area in the main (above grade) square footage? That would definitely skew the report, but you need a source to show that the appraiser did in fact do that.

Using a new home sale to compare to an 18 month old home can be done, but if the appraiser has adequate sales of homes that are similar in age, it shouldn't be done. However, it appears the next nearest aged home to yours that was used as a comp was 4 years old? In that case, using a new home would 'bracket' the age factor, but an appraiser shouldn't use only new homes in comparison, and appropriate adjustments would still be necessary. I am a little curious though as to why the lender got information from the builder, as you stated, that the homes weren't comparable because of being in a different life cycle. The appraiser should be the one determining if they are comparable. I also noted that you said the new homes were from a new neighborhood adjacent to yours, rather than in your neighborhood, which could be the reason they weren't included.

Unless you can prove an actual error in the report, the lender has the responsibility of determining if the appraisal is reasonable or not, and from what you post it sounds as if they believe it reasonable. If you can prove an error point it out to the lender and ask for it to be corrected, otherwise, I don't believe you have much of a course of action to take with the lender, other than maybe renegotiating the terms of your HELOC based on the lower than anticipated value.

 

[visionlinx12]

Do you have a source you are using to determine that the appraiser included the finished basement area in the main (above grade) square footage? That would definitely skew the report, but you need a source to show that the appraiser did in fact do that.

Hi,
I will upload the 2 page Comp report they gave me with the six homes. I have all of the MLS numbers, and was able to drive by each of the 6 homes this week. Comp #4 (on page 2) is an acquaintance of mine, and I have been in that house. His above grade SF is almost the same as mine, and I know his "5th" bedroom is in the finished basement. But from the listing and County site you would not know that.

As for a source, I do not have anything except me just being in the house before. I do feel this is the most likely direct Comp for our house, having been in it.