Where on the grid to make this adjustment?

[Mike Ault]

The scope and nature of 'upgrades' cannot be ignored. But when we see buyers given a choice - Formica v granite counter tops, crown molding or not, Heat pump v conventional, then what is the difference that when you used to buy a car with a bigger motor, 4 speed, bucket seats and FM radio? You paid extra and you got extra when you sold. If you cut a hole in the hood and added a Roots blower on top of the engine...not so much.

And auto loans are secured by the "blue book value", not "what the borrower paid". There is good reason for that.

 

[Terrel L. Shields]

And auto loans are secured by the "blue book value", not what the borrower paid. There is good reason for that.

But the individual car sells upon its mileage, condition, and features.

 

[J Grant]

But the individual car sells upon its mileage, condition, and features.

And it competes against other cars with similar mileage, condition, and features.

New cars often sell off the lot for top dollar and will sell for less as a resale a month later -

 

[TerryRohrer]

I'm guessing the house in the article below cost about $20 million to build. Three pools, indoor shooting range, indoor bowling alley, 8 car basement garage, moat, etc. It sold for about $7.5 million, and only then because the buyer had just sold a slum trailer court for $12 million. Cost apparently doesn't equal value for some amenities.

A 31,000-Square-Foot Montana Castle With 10 Bedrooms and 19 Bathrooms

Amenities include three pools, a bowling alley, an indoor shooting range—and a moat

www.mansionglobal.com

 

[Terrel L. Shields]

New cars often sell off the lot for top dollar and will sell for less as a resale a month later -

they still sell new, right? ditto the house. It is new...only once. How many new homes have serious defects? Lots. Poorly spread insulation, cracked tubs, Plugged plugging, mis-wiring, cracked rafters. A one-year old house no longer has a one-year warranty, right?

 

[Mike Ault]

they still sell new, right? ditto the house. It is new...only once. How many new homes have serious defects? Lots. Poorly spread insulation, cracked tubs, Plugged plugging, mis-wiring, cracked rafters. A one-year old house no longer has a one-year warranty, right?

Okay. Generically speaking, how much more do you think a custom-built house with a gold-plated toilet ordered by a crazy person is worth versus a house with a typical ceramic toilet? Would it be the difference in cost? Or would the contributory value be no more than what the other 99.9% of buyers are willing to pay for toilets? Should the differential between what something cost, and what 99.9 % of buyers are willing to pay, be expressed as "functional obsolescence" in your cost approach? If so, then we can see why most appraisal courses start off by teaching the concept that "cost does not equal value".

 

[The Bob]

I'm not being obtuse - I was giving an example that more goes into the $ upgrade total on a new house than just VALUE-related features - and even with VALUE-related features, the line item cost charges from a builder to a particular model house buyer can be different than the $ amount that same VALUE related feature gets for contributory value on the resale ( open market )

While new home buyers are market participants, the MV definition references the open market, not just the new home-specific market where a builder controls costs and line item charges -

And I wasn't talking about adjusting $4$ for ALL of the upgrades. How hard is it to understand that when you see new home buyers consistently opting for the same types of upgrades (kitchens, bath, cabinetry, trim, built-ins, etc...)and willing to pay for those that that's the market?

 

[Mark K]

And a 1 year old house is "used". It is not "new". Again, are we prejudging functional obsolescence and how far in the future? One year, Five years? 20?

You seem to be saying that a one-year old comp shouldn't be used for a similar new construction home. To use your new car analogy, a nice Ford F150 today might cost abut $50K. The top of the line Ford F150 can cost in excess of $85K. Is the top of the line truck worth an extra $35K? Just because someone is willing to pay $85K (or borrow $85K) doesn't mean its worth that much to the overall market. As a matter of fact, IMO, new contract 'sales' do not meet the threshold of the definition of MV. Its nothing more than a cost comp.

Personally, I think that adjusting for age difference for a similar one-year comp will result in a more credible indicator of market value than using only new contracts. This isn't prejudging into a distant future. Its no different than adjusting for age any other appraisal. Using a 5 yr old comp and adjusting vs. a 3 yr old sale isn't an attempt to prejudge obsolescence into the future. Its simply acknowledging current obsolescence from various sources.

 

[Dublin ohio]

Okay. Generically speaking, how much more do you think a custom-built house with a gold-plated toilet ordered by a crazy person is worth versus a house with a typical ceramic toilet?

Gold plated toilet doesn't sound "generic" to me and why all of the hyperbolic comparisons. Gold plated toilets, underground shooting ranges, indoor basketball courts. Always the extreme comparisons that are typically "one offs".

 

[J Grant]

And I wasn't talking about adjusting $4$ for ALL of the upgrades. How hard is it to understand that when you see new home buyers consistently opting for the same types of upgrades (kitchens, bath, cabinetry, trim, built-ins, etc...)and willing to pay for those that that's the market?

Neither you nor I get to decide that ONLY the new home buyers comprise the market!!

The MV definition we sign off on defines the market, and it defines it as the OPEN market .