Appraisal Stuff

Speed bumps, neighbors, & real estate logic

October 18, 2017 By Ryan Lundquist 10 Comments

Are speed bumps a big deal for value? That’s what a friend asked me, and since she gave me permission to share her situation with a neighbor, I hoped we could chat. If someone asked you, how would you respond?

The situation: My friend said, “We live on a busy-ish street with lots of kids walking to and from school, and neighbors are talking about requesting speed bumps to slow cars down. One neighbor who is against this says, “adding speed bumps will decrease the value of a home by 20%.” What do you think of that?”

My response: I’ve got a few things on my mind.

1) Making value claims: Whenever someone makes a value claim, my market antennas go up. What is 20% based on? Is it just an arbitrary number? Or is it based on market research? A study? Does it even seem realistic? These are questions we have to ask to have an informed conversation.

2) It’s busy already: Speed bumps are usually installed because the street is busy and has traffic issues, so there might actually already be a negative impact on value because of the busy street. To be clear I’m not saying speed bumps cannot potentially negatively impact value, but let’s not forget the busy street in the first place, which could be the bigger issue for value.

3) Crunching numbers with logic: Thinking logically is actually one of the best things we can do when having value discussions with neighbors. Sometimes we just need to step back from our ideas and start talking numbers. For instance, if homes are selling for $400,000, and your neighbor is correct about a 20% reduction in value, would these homes really sell for $320,000 if speed bumps were installed? Does that sound reasonable? Does it seem logical for buyers to make a reduction that large based on what you know about the neighborhood market? Moreover, if your neighbor listed his house for sale, would the list price be anywhere close to 20% less if there were speed bumps?

4) The noise factor: To be fair your neighbor is smart to think critically about this issue because we have to consider what speed bumps will do for traffic, the feel of the street, and noise. I recall talking with a city planner once who said neighbors would complain about a busy street and request speed bumps, but after they were installed the same neighbors would complain about the noise of the bumps when cars were speeding over them. Could noise be an issue?

Anyway, that’s how I answered my friend. If you notice, I didn’t make a specific value claim on purpose because as an appraiser I can’t just make stuff up without really supporting the value I say exists. Sorry if that’s frustrating, but for me the big takeaway here is actually how important it is to sometimes step back from our ideas and think critically about value issues. At the same time I’m hoping to open up some conversation, so I would absolutely love to hear your take.

Questions: How do you think speed bumps might impact value? Big deal or no biggie? Do you think it’s possible to measure the impact of speed bumps? Why or why not? What is #5? Did I miss something?

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Is it okay to use comps from a different city?

October 5, 2017 By Ryan Lundquist 13 Comments

Can you use comps from a different city? Most of the time that’s a bad idea, but sometimes it’s the best option. Let talk about this a bit as I share an example of why I did this recently in an appraisal. The discussion below really has to do with school district boundaries too. Anything to add? I’d love to hear your take.

The situation: I appraised a duplex (two attached units) in the city of Citrus Heights in an area that was just a few streets away from Fair Oaks. As locals know, Fair Oaks tends to sell at higher levels compared to Citrus Heights, so pulling “comps” from Fair Oaks could quickly inflate value if I’m not careful. But this portion of Citrus Heights is located in Bella Vista High School territory, which is a top-rated school. The school boundaries include the eastern portion of Fair Oaks, Orangevale, and a small portion of Citrus Heights where the subject property is located. Does this matter for value? Is it going to be okay to use comps from a different zip code or city? Let’s take a look.

Here are all duplex sales in Citrus Heights over the past 10 years:

Now let’s compare duplex sales in Citrus Heights with duplex sales in Bella Vista High School territory to see if there might be a price difference. As you can see, Bella Vista has a much higher school rating on GreatSchools.org compared to surrounding schools.

How to find school boundaries: I found the boundaries for Bella Vista on GreatSchools.org. When you pull up a school profile on this website all you have to do is click “nearby schools” located on the right side of the page to bring up exact boundaries and a comparison of ratings. Otherwise the school district might have a map.

After finding school boundaries I drew them in MLS to look at specific data. Being that there are portions of three zip codes in this area, a zip code search would not have worked. A one-mile radius definitely wouldn’t have worked either.

It’s pretty clear duplex sales in Bella Vista territory are selling toward the higher end of the market. They don’t always sell for more compared to everything in Citrus Heights, but obviously they’re selling toward the top.

The big question: Do Citrus Heights duplexes within Bella Vista boundaries sell for more?

In short, it looks like Bella Vista High School boundaries matter for value for Citrus Heights duplexes. These sales tend to compete toward the top of the Citrus Heights duplex market. Not only that, they also compete toward the top of the Bella Vista market which includes portions of Fair Oaks and Orangevale.

Three Takeaways:

1) Using comps from different cities: It’s fine to use comps from different cities and zip codes, but we have to be sure we are really looking at the same market. If we’re just “cherry-picking” higher sales from around the corner in a different city, that’s no good. Appraisers get handed so-called “comps” all the time that are from areas that clearly command higher prices. I’m definitely not advocating for that here. What I am saying is if we study the market and it’s reasonable to use sales from a different city or zip code because they’re competitive, that’s fine. Remember, it’s never about how far an appraiser can go, but where an appraiser should go for comps. Sometimes we are bound tightly in our comp search by just one or two streets, but other times (like above) we might end up using sales from other zip codes and cities. In this case after my research I ended up using comps from Fair Oaks for a Citrus Heights duplex because they were similar in price and they fed into the same highly-rated high school.

2) School boundaries: Sometimes school boundaries can be a big deal for value, though other times not so much. In most areas there is really just one school that serves a neighborhood, but when different cities and zip codes collide it might be a good idea to consider if there is any value impact with the boundaries. Sometimes we might even have to step back and maybe search for comps by school district, which will mean we might end up with comps from different cities.

3) Different trends: Just because I used Fair Oaks sales for a Citrus Heights duplex does not mean I would do the same for single family homes or vacant land. The market might not be the same for every property type.

I hope this was helpful or interesting.

Questions: When have you used comps from a different city? When would you NOT use comps from a different city or zip code? Anything to add?

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Things that don’t add much value to your home

September 27, 2017 By Ryan Lundquist 24 Comments

We’re always talking about what adds the most value to homes, but what about things that DON’T add much value? In other words, what can you do to your home that will help you get you very little return? I asked colleagues in the 100% Appraisers Group on Facebook to pitch in some thoughts about items that don’t tend to add value, and here’s what they said. Anything to add to the list? I’d love to hear your take in the comments.

First, some general principles:

1) Just because it was expensive doesn’t mean it’s valuable.

2) Buyers don’t often pay the cost of what the owner spent (except on HGTV).

3) Some features are more valuable depending on the price range and location. There isn’t one list of upgrades that can apply everywhere equally.

4) Appraisers don’t actually give value. Instead they recognize it in the market.

5) Buyers tend to focus on the total package of a house, which means they aren’t looking to pay for each specific upgrade.

PLEASE READ: Just because something is on the list below doesn’t mean it adds nothing. The issue is the contributory value is often much less than the cost of the item. So from a cost perspective we can generally say owners are probably not getting the most bang for the buck with many of these features. The problem though with any value list is that in some situations and markets any of these items could be a big deal for value (like parking spaces in a big city or a pool in the luxury market). So just read this generally as it is intended, check out the comments, and pitch in your thoughts. Please also see principles 1-5 above. This paragraph was added later on 09/27/17 to help clarify.

Improvements that don’t get much value from appraisers:

Water softener.
Walk-in bath tubs (like this one).
Whole house vacuum system.
Built-in pool (buyers rarely pay the same as the cost).
Over-the-top expensive landscaping.
Expensive repairs for something that is working fine in other homes.
Highly-upgraded granite vs standard granite.
Really thick granite compared to standard granite.
Fruit trees.
Expensive blinds or window coverings.
Chicken coops.
Extra outlets.
Radiant barrier.
Reverse osmosis system.
Whole house humidifier.
Ceramic vs porcelain tile.
Solar panels (nobody pays the full cost of a system in one instance).
Leased solar panels (they’re considered personal property).
Upgrades that were in style in 2002 (might not be in style now).
A previously remodeled kitchen a couple of decades ago.
Specialized heat and air systems.
Foundation repairs (buyers expect a solid foundation already).
Having too many garages for the market.
Above ground hot tubs (considered personal property).
Above ground pools (considered personal property).
Anything that is too personalized.
4-Car vs 3-Car garage.
Tandem garage.
Cabinets in the garage.
Epoxy flooring in the garage.
Phone jacks in every room.
Guesthouse (adds value, but probably costs way more).
Christmas lighting package from the builder.
Lot elevation premium from the builder.
6 ceiling fans vs 5 ceiling fans (so minor).
4-inch vs 5-inch baseboards (so minor).
Over-the-top outdoor kitchens.
Blue bathroom paint (ask Zillow about that one).
Oversized parking pad.
Really expensive outbuildings or custom shops.
Brand new fencing (buyers won’t likely pay the full cost).
Retaining wall.
Designer paint.
What else?

Key questions for home owners when upgrading a home:

1) Do other homes have this feature?

2) Are other homes commanding higher prices because of the feature? If so, how much higher?

3) What are investors doing in their flips to get the most bang for their buck?

Thank you again to the group of appraisers who pitched in some thoughts. Appraisers, if I used something you said, please comment below, introduce yourself, share some thoughts, and let us know what you said.

I hope this was helpful or interesting.

Questions: What else would you add to the list? Does anything on the list surprise you?

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How do you get an appraiser to value vintage features?

September 6, 2017 By Ryan Lundquist 12 Comments

It can be nerve-wracking to have an appraiser come out. So I wasn’t surprised to receive an email from someone worried about his vintage home. Will the appraiser give value to the vintage features? How can an owner ensure the appraiser will give proper value? Let’s talk about that.

Question: How do I get an appraiser to value these vintage features?

Answer: That’s a great question. I’m not trying to be frustrating by not answering directly in the way you might wish, but the most important thing to remember here is that value is found in the market. What do buyers prefer? Are buyers paying more for homes with vintage features or are they paying more for homes that have a vintage vibe but with modern upgrades? I find sometimes in the vintage world an owner will restore a property to its original state. I get that, but just because so much time and money was spent on a restoration does not mean the market is going to pay the same amount as a house that has been remodeled with current upgrades. In some cases buyers definitely pay for older era elements, but at the same time they tend to pay more when the kitchen is modern (and not original). I don’t say this to be offensive, but only to highlight the reality that the proof of value is found in the comps. In other words, if there is more value for being totally vintage, then an appraiser ought to be able to find similar homes that show higher prices. At the same time I get your concern because it’s easy to see blue and pink tile from the 1950s and immediately ding value because it’s outdated. This is why it’s going to be important for the appraiser to be in tune with the local market and be objective by letting the market speak rather than being shaped by his/her personal preferences. To be honest I remember in my early days coming across a Mid-Century Modern home and making the mistake of assuming the original condition was worth less when in fact it was something desirable for the market. Doh!!

Restoring a house can be very expensive, so I recommend making a detailed list for the appraiser about what has been done. This can help the appraiser understand the quality and cost of the improvements. Keep in mind if restoration is a trend in the neighborhood, it might help to mention that or even share specific examples you have seen. I’m not saying to pressure the appraiser to “hit” a certain price point (please don’t), but only highlight what is happening in the neighborhood. Personally I love hearing about what’s happening in a neighborhood from someone who lives there because it’s data for me to consider. Just remember not all the money spent on a restoration or remodel will show up in the value (it always shows up on HGTV remodels though). On a practical note you can use my appraiser information sheet if you wish.

BIG POINT: Just because something is done to a house does not mean the market is willing to pay for it. When it comes to a full vintage restoration, we have to ask if that’s something the market is willing to pay for or if it’s just one owner’s passion for yesteryear. I think of restored cars as a good example of one owner dumping a ton of money into a vehicle only to have the market pay less. I’m not saying that’s the way it always works in real estate in every case, but restoring something to its original state can be very costly and the market might not absorb that cost. The proof is in the comps though.

I hope this was interesting or helpful. Thanks Luis Sumpter for the first photo.

Questions: Have you seen the market pay more for homes that are restored to their original condition? What examples can you think of where the market did NOT pay for certain upgrades? I’d love to hear your take.

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