Terrel L. Shields
Elite Member
- Joined
- May 2, 2002
- Professional Status
- Certified General Appraiser
- State
- Arkansas
Seems to be mentioned every once in a while about someone saying they are "conservative" when valuing a property. Been accused of it myself. I think the better operative word might be cautious. I see it a lot in rural and unique property.
I recently did a dwelling of basic low quality but made livable by the efforts of the owners. It was cool (in hot weather) and water tight from all appearances. The community it lay in was a mix of similar to much better homes. Having said that, it was still a small market, few sales, especially within 90 days or so, and some of the purchases had been bought to rehab. So, while in my mind, if I owned it personally, I would want to raze the thing and build anew, I have to get my brain into the way this poor rural community operates.
For such a property, it is hard to get away from the notion that a bank who "inherits" such a property is going to find marketability difficult. And the comps. What to use and how dissimilar are they? In so many similar instances, I have attempted to run sensitivity for differences in square footage. I find it often does not work. You can force the issue by carefully selecting a paired sale, but is that a good bet either? Utility. Size doesn't matter here. But the price still varied from say $25 to $45 per SF. This meant "comps" were not in a tight range per SF, only a tight range in price. And you end up relying upon averages or selecting a single "most similar" comp to key on.
The problem with single comparables is that there still may be significant differences, including just the market noise of price variability. So the cautious soul in me tends to weight sales in the lowest part of the comparables price range. That is not being "conservative", it is being cautious because the big unanswered is "market appeal" and that appeal is going to be to those who exist in that lower economic rung of the ladder who are satisfied with an affordable place to live. And as a limited market appeal property, I suspect the buyer of such is going to have limited market resources, and valuing high in the value range serves no one well, neither the borrower nor the bank.
I recently did a dwelling of basic low quality but made livable by the efforts of the owners. It was cool (in hot weather) and water tight from all appearances. The community it lay in was a mix of similar to much better homes. Having said that, it was still a small market, few sales, especially within 90 days or so, and some of the purchases had been bought to rehab. So, while in my mind, if I owned it personally, I would want to raze the thing and build anew, I have to get my brain into the way this poor rural community operates.
For such a property, it is hard to get away from the notion that a bank who "inherits" such a property is going to find marketability difficult. And the comps. What to use and how dissimilar are they? In so many similar instances, I have attempted to run sensitivity for differences in square footage. I find it often does not work. You can force the issue by carefully selecting a paired sale, but is that a good bet either? Utility. Size doesn't matter here. But the price still varied from say $25 to $45 per SF. This meant "comps" were not in a tight range per SF, only a tight range in price. And you end up relying upon averages or selecting a single "most similar" comp to key on.
The problem with single comparables is that there still may be significant differences, including just the market noise of price variability. So the cautious soul in me tends to weight sales in the lowest part of the comparables price range. That is not being "conservative", it is being cautious because the big unanswered is "market appeal" and that appeal is going to be to those who exist in that lower economic rung of the ladder who are satisfied with an affordable place to live. And as a limited market appeal property, I suspect the buyer of such is going to have limited market resources, and valuing high in the value range serves no one well, neither the borrower nor the bank.
