Valuing A Detached Studio

[Geoff]

I’m a REALTOR. I have a client considering building a detached finished studio/office (no water or plumbing). The want to get an idea of what value the construction might add to their property.

In their area, the avg price/sq ft of existing SFRs is approximately $900. Cost of this new construction would be about $500/sq ft.

From an appraisal perspective, would it be reasonable to estimate the value added at $200-400/sq ft., assuming permitted construction?

Thanks in advance for comments.

 

[Surf Cat]

You are probably well aware that cost does not equal value. You being a realtor should have access to the MLS. Search your area for comparable SFR‘s with detached storage areas, bonus rooms, pool houses, and or ADUs. You’ll find your answers there.

You are most likely not going to find many/if any detached offices. Thus, your local appraisers are going to have just as hard of a time finding a like for like situation for your client just as you are. So, discounting is going to be in order.

Your client would garner a much better return on investment if they just went all the way and included a three-quarter bath and a separate sink in a kitchenette area.

Look at it this way, they wouldn’t have to walk back and forth to the main dwelling to go to the bathroom.

Good luck.

 

[George Hatch]

Gross rent multiplier for the project as a whole. Sales comp sold for $900k and the expected rents amounted to $4500/mo means the GRM was 200x ($900k/$4500mo = 200x GRM)

You can just look at the GRMs for existing SFR+ADU to see what those buyers are actually paying relative to the income and use those rates for your property as a whole. That will usually include getting a fix on the market rents for the main house in the same way you'd be doing for the 2nd unit. Getting those GRM directly out of the market will always be the preferred method. There are other ways to do but nothing is better than getting a read on what these market participants are actually doing.

 

[Tom4value]

I’m a REALTOR. I have a client considering building a detached finished studio/office (no water or plumbing). The want to get an idea of what value the construction might add to their property.

In their area, the avg price/sq ft of existing SFRs is approximately $900. Cost of this new construction would be about $500/sq ft.

From an appraisal perspective, would it be reasonable to estimate the value added at $200-400/sq ft., assuming permitted construction?

Thanks in advance for comments.

What is the existing property, a SFR or a commercial (and you just mentioned SFR for a cost/sqft example)? If it is the latter, it would be very tough, if not impossible to rent it out without plumbing so a cost approach is useless. If it is the former, what you will have is a glorified utility shed. For the owner, the value is $500/sqft. For a typical buyer, I.e., market value, it would be much less. You would have to find a sale that has something similar and compare it to another sale of a similar house without an office to extract a value. That is how an appraiser would do it.

 

[Geoff]

Thank you for your insights.

 

[Geoff]

Thank you for your insights.