Valuing Funtional Obsolescence

[christo4]

Do they want an "as is" value?

They do want "as-is".

 

[christo4]

Do they want an "as is" value?

They do want "as-is".

If I have to explain to you how to use the data sources available to you then your problem is much bigger than determining if a feature represents functional obsolescence and how to calculate the proper adjustment.


You have absolutely no way of knowing based on the information that you have provided. Why does the property have to be reconfigured to conform to your preconceived notion of what is appropriate? You need to support your conclusions with market data.

EXACTLY MY PROBLEM!!

 

[hastalavista]

A finished basement that is being rented out for $700 per month has much more value than a storage area.

Situation:
*Ranch style home
*Basement
*No interior access to basement (only exterior)
*Built more like a duplex (zoning will allow but permits and inspections are as high as $25k depending on the city's findings + getting the property up to code so probably making it incurable).
*No stove or cooking device in the basement
*County considers it a duplex solely based on the word of the owner (no inspection done)
*City considers it a SFR as it has not been inspected to code requirements and proper permits have not been obtained.
*Basement is only 500 sq ft
*Ripping up the flooring to insert a stairwell is probably not possible because the stairwell would be so steep it may not meet code. Not only that, the placement in the main level may cause functional obsolescence as well. The only way I see this happening is a spiral staircase.

The only way I can see appraising this is with functional obsolescence and adjusting based on the cost of a spiral staircase or possibly enclosing the exterior stairwell with exterior walls and an door from the interior.

(my bold)

Who is renting the space at $700 with no ability for food preparation? This space does not meet the recognized definition of an independent living unit.
While the zoning allows for 2-unit use, does the zoning allow for such a unit (without a kitchen) to be rented for occupancy? I highly doubt it (but I'll take your word for it).

From your description, you are stating that the feasibility of making this legal (either as living area or as a duplex) is questionable; and I can say with some experience that a spiral stairway typically adds a functional issue of its own. From your description, it doesn't sound like this space meets the market expectations of a rentable unit or (possibly) the legal requirements of even short-term (a few days) occupancy.

The fact that the current owner is collecting rent isn't sufficient to determine that this space can continue to collect that rent.
I appreciate your frustration at some of the answers, but from everything you've described, this sounds like a ranch house with a basement (not GLA and not a second unit, and not an accessory dwelling unit). Its existed this way since inception (presumably) with no motivation of the current owner to connect the space. It is not a legal duplex.

I'm the first one to argue H&BU analysis to determine what should be done with a property in its as-vacant and as-is condition.
What is the H&BU of this property as-vacant? What would be built there if the site was ready for development? Would someone build the ranch house with a connected basement? If not, the as-is improvement has functional obsolescence even if you do make a determination that it is feasible to connect the space. Would someone build the ranch house with a non-connected basement? If not, then there is FO as-is (which would have to be addressed in the cost approach but not necessarily line-itemzed in the sales comparison approach).

A ranch style home with an atypical basement. What is the contributory value of the basement? I wouldn't consider the $700/month rent to base my value if the space is being rented as a unit which is likely in non-compliance with the zoning ordinance.
A house with a basement amenity. That's what it is from what you've described.

Good luck!

 

[christo4]

(my bold)

Who is renting the space at $700 with no ability for food preparation? This space does not meet the recognized definition of an independent living unit.
While the zoning allows for 2-unit use, does the zoning allow for such a unit (without a kitchen) to be rented for occupancy? I highly doubt it (but I'll take your word for it).

From your description, you are stating that the feasibility of making this legal (either as living area or as a duplex) is questionable; and I can say with some experience that a spiral stairway typically adds a functional issue of its own. From your description, it doesn't sound like this space meets the market expectations of a rentable unit or (possibly) the legal requirements of even short-term (a few days) occupancy.

The fact that the current owner is collecting rent isn't sufficient to determine that this space can continue to collect that rent.
I appreciate your frustration at some of the answers, but from everything you've described, this sounds like a ranch house with a basement (not GLA and not a second unit, and not an accessory dwelling unit). Its existed this way since inception (presumably) with no motivation of the current owner to connect the space. It is not a legal duplex.

I'm the first one to argue H&BU analysis to determine what should be done with a property in its as-vacant and as-is condition.
What is the H&BU of this property as-vacant? What would be built there if the site was ready for development? Would someone build the ranch house with a connected basement? If not, the as-is improvement has functional obsolescence even if you do make a determination that it is feasible to connect the space. Would someone build the ranch house with a non-connected basement? If not, then there is FO as-is (which would have to be addressed in the cost approach but not necessarily line-itemzed in the sales comparison approach).

A ranch style home with an atypical basement. What is the contributory value of the basement? I wouldn't consider the $700/month rent to base my value if the space is being rented as a unit which is likely in non-compliance with the zoning ordinance.
A house with a basement amenity. That's what it is from what you've described.

Good luck!

No builder would build a house with non-connected basement. I don't even think it would be allowed unless it was properly permitted and up to code to be considered a multi-family (duplex) but I have never seen that either. Thanks for the post, analysis makes sense.

 

[J Grant]

They do want "as-is".

EXACTLY MY PROBLEM!!

So if they want it as is, where is all the stuff about duplexes and spiral stairs coming from?

It's a ranch with a basement with ext access only. Call some RE agents, get feedback on the basement, they may have sold or listed a house like it at one time. Ask them if in their opinion any buyers would consider it-, would they pay substantially less , or not much less- have a conversation.

Just because someone is renting the basement, or owner claims they are, does not make the subject into an income property. Take off a bit for funct obs of no interior access to basement, explain why, comment that no comps with ext only access basements found, done.

 

[Mr Rex]

No builder would build a house with non-connected basement. I don't even think it would be allowed unless it was properly permitted and up to code to be considered a multi-family (duplex) but I have never seen that either. Thanks for the post, analysis makes sense.

So why is there that option on basement exit on the 1004 form?

 

[J Grant]

I am an artist (or want to be, dabble in spare time). As long as I could use a basement as an art studio, it would not bother me a lot to access it from outside. Would I prefer access from inside? Yes. Would I consider an ext access, perhaps for a discount, or if I liked other things about the house? Yes.

Man cave, teenager lair or ping pong/ rec room, art studio or hobby room, workshop etc- the basement can function as any of those uses with exterior only access.

 

[christo4]

So if they want it as is, where is all the stuff about duplexes and spiral stairs coming from?

It's a ranch with a basement with ext access only. Call some RE agents, get feedback on the basement, they may have sold or listed a house like it at one time. Ask them if in their opinion any buyers would consider it-, would they pay substantially less , or not much less- have a conversation.

Just because someone is renting the basement, or owner claims they are, does not make the subject into an income property. Take off a bit for funct obs of no interior access to basement, explain why, comment that no comps with ext only access basements found, done.

What do you mean "take a bit off"? I can't just pull numbers out of thin air with out market data, it has to be justified.

 

[J Grant]

What do you mean "take a bit off"? I can't just pull numbers out of thin air with out market data, it has to be justified.

That's why I said, get feedback from RE agents. That is a recognized source ( survey), interview them, how much less would a borrower pay? If 8 out of 10 say $5000, that's support for $5000.

I also in these situations try to get a comp with an awkward layout of some kind- a converted porch or garage with ext access only , used as a workshop etc. Not always possible but can help support/bracket. An attic space above garage ext access or access from garage only is an example.

 

[Mr Rex]

Compare the area to similar sized detached improvements with similar utility if you don't have similar basements.