• Welcome to AppraisersForum.com, the premier online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

Very small house

Status
Not open for further replies.

OSU Beavers

Thread Starter
Elite Member
Joined
Jan 10, 2007
Professional Status
Licensed Appraiser
State
Oregon
I am completing a purchase appraisal on a 625 sqft 2 bed 1 bath house. I do not have any sales of smaller houses, however other homes within 100 sqft that are in better and worse condition adjust to support the subject’s sales price.

Now the cost approach is indicating a total value 20% higher than the market approach. I know this is because the fixed construction costs are high and economies of scale don't make it economical to build anything new that is less than 1000 sqft, but I am stuck on writing up an explanation that a third world underwriter will understand.

Any help from the more eloquent wordsmiths out there?
 

iguana

Freshman Member
Joined
Oct 24, 2007
Professional Status
Certified Residential Appraiser
State
Virgin Islands
Is the home new construction? Is the cost approach absolutely necessary in your assignment? It may not be possible to bracket sales for this assignment and stay within FNMA guidelines. Can you find an older sale for a fourth comparable and adjust for time? Can you find a similar sale in a comparable market to show the actions of similar buyers ina similar market to similar properties? If you can't bracket the sales then explain the efforts you made and go with what you've got. FNMA guidelines are not a straight-jacket. Fannie asks that you explain why you must exceed or go outside the guidelines. You're right the underwriter probably ain't goin' to like it. Real estate markets by their very nature are imperfect.
 

Marcia Langley

Senior Member
Joined
Aug 26, 2005
Professional Status
Certified Residential Appraiser
State
Missouri
I don't know about good verbiage but just explaining that the market value of the re-built subject would be less than the cost to re-build should be enough.

I would also think this would be an size-related economic obsolescence that should be a negative in the cost approach.
 

David Wimpelberg

Moderator
Staff member
Moderator
Joined
Mar 30, 2005
Professional Status
Certified General Appraiser
State
New York
You have sales, which represent the price market participants are willing to pay for a certain properties in an open market. Why does it matter what it costs to rebuild?
 

KenRossman

Senior Member
Joined
Oct 20, 2004
Professional Status
Certified General Appraiser
State
Florida
I agree that the cost approach would not be indicative of MV. If you go far enough back in time and/or far enough away, you should be able to find at least one lower bracket GLA comparable that could be adjusted...
 

OSU Beavers

Thread Starter
Elite Member
Joined
Jan 10, 2007
Professional Status
Licensed Appraiser
State
Oregon
I would also think this would be an size-related economic obsolescence that should be a negative in the cost approach.

That is what I came up with too, but with the underwriters I have been getting lately the stip would be something like "Appraiser to explain the obsolescence in the economy of the subject's town".

Fannie Mae percentages are out the window on this one, however the adjusted maket value range of the four sales and two listings is very tight. I would leave out the cost approach, but it is required for this lender. I think a simple "The cost approach is not a strong indicator of value for older homes." will work.

Thanks all.
 

VolcanoLvr

Senior Member
Joined
Oct 30, 2003
Professional Status
Certified Residential Appraiser
State
Washington
"The CA is provided at the client request, however it is not relied upon for this assignment in determining the OMV as the fixed construction costs are high and economies of scale don't make it economical to build anything new that is less than 1000 sqft."

Just report it, but don't get hung up on it!
 

NC Old Guy

Junior Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
North Carolina
I don't think I'd make any statement that you put any relevance on the cost approach. I think Dave T's comment goes along way. I have been known to even add something about the cost approach for the property could very possibly be considered misleading (like a 100 year old house) but has been required by the client.

You may have to give it to them but that doesn't mean you have to rely on it. After all, most likely the only reason they want it is so the lazy insurance agent doesn't have to do their job.
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
If you've got sales of properties with residences that are only different by 100 sf I don't think you have to have a smaller one to make a credible appraisal. "Here's about what small houses sell for, here's a couple of inferior ones and a couple of superior ones. The subject is somewhere in between and is most like comp X in terms of (fill in the blank). The quantity and quality of the data is not sufficient to allow for development of adjustments for small differences in the size of the structure."

20% on the cost approach is close enough due to the margin for error in the land cost component and given the ratio of land to improvement value.
 
Status
Not open for further replies.
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at
AppraiserSites.com
Top

AdBlock Detected

We get it, advertisements are annoying!

Sure, ad-blocking software does a great job at blocking ads, but it also blocks useful features of our website. For the best site experience please disable your AdBlocker.

I've Disabled AdBlock
No Thanks