How much is a pool worth? What about a shop building? How about fill in the blank?
I get these types of questions frequently. So, lets dive in and understand how appraisers make adjustments for these types of amenities in an appraisal. First, an adjustment in an appraisal is a change made to the sale price of a comparable property to account for differences between it and the subject property. Since no two properties are exactly alike, adjustments are necessary to account for differences in factors such as size, condition, location, amenities, or market conditions. The purpose of adjustments is to estimate what a buyer would likely pay for those differences, aligning the comparable property more closely with the subject property and leading to a more accurate estimate of the subject property's value. So how do we make an adjustment for that pool or shop building? Analyze paired sales: Appraisers compare two very similar properties where only one feature is different (e.g., one has a garage, the other doesn’t). The price difference between these two properties provides insight into how much the market values that feature. Review historical sales data: This involves looking at multiple sales in the area and identifying how the market reacts to different property characteristics. Consult cost data: For certain adjustments, such as condition or improvements, appraisers may refer to cost guides or local contractor estimates to determine how much it would cost to add or replace that feature. However, adjustments based on cost should still align with how the market values those improvements. Cost less depreciation: This method of determining the value of a specific property feature starts by calculating its replacement cost and then subtracting depreciation. This approach is commonly used for items that lose value over time, such as building components (e.g., roofs, HVAC systems), or for older properties in general. Market participant interviews: Appraisers engage in interviews with various market participants, including real estate agents, brokers, buyers, sellers, and fellow appraisers. These individuals can provide a wealth of knowledge about local market conditions and trends. By drawing on their direct experience with recent transactions, appraisers can gain a deeper understanding of how specific amenities, such as pools, updated kitchens, or energy-efficient systems, affected the sale prices of comparable properties. This firsthand information helps appraisers make more informed adjustments and ensures their valuations are aligned with current market preferences. So what is the conclusion? My favorite answer as an appraiser is "it depends". The contributory value of a pool would vary greatly depending on factors such as market segment, size, quality of materials (e.g. fiberglass, gunite, vinyl, etc), and overall condition. Say that market interviews and historical observations in the market segment indicate anywhere from $10,000 to $50,000 for the contributory value of a pool. If the pool in question is new, high quality, etc, one might conclude its contributory value would be at the top end of the range. If the pool in question is old and in poor condition, one might conclude its contributory value is at the low end of the range or that it has no value. It would be similar for a shop building. Its contributory value would vary greatly depending on factors such as market segment, size, quality of materials and finish out (framing, insulation, side wall heights, plumbing and electrical fixtures, foundation, etc), and overall condition. Say that market interviews and historical observations in the market segment indicate anywhere from $10 to $60 per square foot for the contributory value of a shop. If the shop in question is new, high quality, etc, one might conclude its contributory value would be at the top end of the range. If the shop in question is old and in poor condition, one might conclude its contributory value is at the low end of the range or that it has no value. Conclusion: Adjustments should reflect market-based differences between the subject and comparables, supported by data rather than arbitrary numbers. Properly applied adjustments lead to a well-supported, credible opinion of value. As always, I’m here to help clarify any questions you may have. Feel free to reach out for further discussion. -Brady
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The Importance of Real Estate Appraisals
Real estate appraisals play a crucial role in the property market, providing an objective assessment of a property's value based on various factors such as location, size, condition, and recent comparable sales. This valuation is essential for a number of reasons. First, appraisals are a key element in real estate transactions, ensuring that buyers pay a fair market price and lenders are confident in the collateral backing a mortgage. Without an accurate appraisal, there is a risk of overpaying for a property or securing a loan that exceeds the property’s actual worth, which could lead to financial loss or foreclosure. Additionally, appraisals are vital for refinancing, home equity loans, and tax assessments. Homeowners may need an updated appraisal to tap into their equity or challenge property tax assessments if they believe they are being overcharged. Similarly, real estate investors rely on appraisals to make informed decisions on property acquisitions or development projects. Appraisals also contribute to the stability of the broader housing market with accurate valuations helping maintain realistic pricing trends. In essence, real estate appraisals provide transparency and confidence for buyers, sellers, lenders, and investors, making them a cornerstone of the property market. -Brady So, you are selling your house or perhaps refinancing your mortgage. The bank hires an appraiser to estimate the market value of your property. What should you expect for the upcoming appraisal site visit? Let's discuss.
Questions we typically receive:Does the appraiser have to come inside? It depends on the type of loan and client requirements; however, the vast majority of the time the answer is yes. Does the homeowner have to be present for the appraisal site visit? If we have access to your property through a realtor or their lockbox, then no. Otherwise, you or a stand-in must arrange access (children are not allowed to be a stand-in). Do you take pictures of closets or other personal property? We do not take pictures of closets. We do not consider personal property in our appraisal reports, thus we do not specifically take photos of any personal property. However, furniture and other items may be included in our photos as we photograph each room. Any photos that include sensitive items, family portraits, etc will be blurred in our report. Who will see the photos or appraisal? Only the lender/client (whoever ordered the appraisal) will receive the appraisal that includes photos. Will the county appraisal district get a copy of the appraisal or be notified of the opinion of value? No. Only the lender/client will receive the appraisal. Is it okay to provide a list of recent updates or upgrades? Yes, absolutely. We always welcome additional data. Hopefully this basic information will help you know what to expect on an upcoming appraisal site visit. If you have any questions regarding an appraisal site visit, please do not hesitate to contact us! -Brady |
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