is one of the many variables considered in the appraisal of a home, along with
condition, effective age, appeal, design, etc.
Not only the quality of the home being appraised, but also the quality
or lack of in the sales comps used in the appraisal.
When a lack
of quality or a need for improvements is observed, as an appraiser, I will make
a list of deficient issues and what it will cost to repair them. This cost to cure is then utilized as an
adjustment in arriving at an “as is” current market value for the home being
appraised. In my experience buyers do
this when making a purchase. A home might technically be remodeled, but if
the work is sub-standard or obviously “do it yourself”, it may not compete with
professionally remodeled homes. When
something looks off in a house, it’s a red flag to look at other details more
sometimes influenced by flashy ornamentation.
While we may not agree with it, if buyers are paying more for these
shiny features rather than something older and so-called better, it is our job
as appraisers to recognize the market reaction and take that into consideration
in our value.
and Historic homes are also a consideration.
Buyers may pay 15% more for a log style design compared to more
conventional construction. Historic
homes like those built by Gus Maltby, in Big Bear, during the 30s and 40s have
a mountain charm that many buyers pay a premium for and appreciate.
One last point
worth mentioning has to do with quality issues that are below the surface, like
2 x 6 framing, extra insulation, plumbing and electrical updates, extended life
roofing, energy, fire and seismic upgrades beyond current building codes,
etc. In order to determine if buyers are
paying more for these upgrades, it is necessary to extensively research the
market data rather than make our own assumptions about what the market should
and shouldn’t do.
While it is
difficult to put a dollar figure on differences in quality, there typically is
a range of value of the adjusted market data.
The recognition of a high quality home being appraised is a good
justification for favoring the higher end of the value range.
In the final analysis, whether it’s
logical or not, it’s the market that gives value and the appraiser is there to
reflect the market reaction and take that into consideration in the appraisal.
Why Doesn't a Big Bear
Appraiser Use Price Per Square Foot to Determine Value?
"What is the price per
sq ft?" I get this question often from realtors and
homeowners. Because this is a common method of comparison, I thought I
would explain how appraisers view this approach to value.
The price per sq ft is the
most familiar method of comparison that many people are aware of.
Remember that everything about the property is summed up in the price per sf,
including the lot size, view, age, quality, condition, and other features, all
lumped together into a price per sf. Because of this, it is important to
select sales that are very similar to the home you are appraising and from the
If you have a home with a 2
car garage, or a larger lot size, or superior view and are comparing it to a
home with none of these features, the accuracy of your estimate will be
reduced. This is also true if you look at a home that is significantly
larger than yours, even though all other features are equal, because a larger
home will typically sell for less per sf. This is the principle of
diminishing returns that states the more square footage you add the less value
you get for the extra area.
Homes in Big Bear were
individually built on vacant lots from back in the 1920's to the present.
You have large and small, old and new, custom and basic construction mixed
together within the same tract or neighborhood. As a result, the price
per sq ft method of valuation is unreliable. The exception to this is the
Maple Ridge tract across from the Big Bear High School, because these are
similar in age, lot size, only a limited number of models exist and the design
and features are very similar. There are variables, primarily limited to
upgrades of exterior siding and interior finish work. This area is one of
the few in Big Bear, that is similar to tract housing, found down the
Price per sq ft may be a good
indicator of value for tract housing. Appraisers however, are required by
lenders to select recent sales "comps", in close proximity to the
house being appraised, with as many similarities as possible. Instead of
calculating price per sq ft for these comps, lenders require that each sale be
adjusted for differences, including, lot size, view, quality of construction,
condition of improvements, bedroom/bath count, living area, garages, etc.
The appraiser is required to be geographically competent and to have researched
the area regarding market reaction (how buyers react) to these differences and
make adjustments accordingly.