Sacramento Appraisal Blog | Real Estate Appraiser

Real estate appraisals for divorce, estate settlement, loans, property tax appeal, pre-listing and more. We cover Sacramento, Placer and Yolo County. We're professional, courteous and timely.

appraisal adjustments

It’s not all about square footage in real estate

By 14 Comments

A bigger house is always worth more, right? It’s really easy to fall into the trap of believing that, but it’s not always true. Let’s talk about it.

Myth: Extra square footage is always worth more.

1) Single story vs two story: Sometimes a large single story will sell for more than a larger two-story. This isn’t always the case, but in some neighborhoods we see this dynamic. So just because a 2-story is larger doesn’t mean it’s more valuable (or a good comp).

2) 55+ Community: In a 55+ community we sometimes see more emphasis on floorplan instead of square footage. Larger models still likely command higher prices, but at the same time the market doesn’t seem as sensitive to square footage differences like we see in other neighborhoods. For example, here are two models in Sun City Lincoln Hills with a 107 sq ft difference. Normally that might not mean much in a typical neighborhood, but it looks like there’s a pretty decent value difference here. On paper it seems like these two models could be perfect comps since they are so close in size, but that might not be the case. 

3) Layout: At times a house with a better layout will sell on par with a larger house with a less desirable layout (even outside a 55+ community). What I mean is buyers might pay the same for a 1,400 sq ft house with an open layout compared to a 1,700 sq ft house with a less open floorplan. This dynamic isn’t always easy to spot in MLS photos, and that’s why it’s so important for agents and appraisers to communicate. I recommend agents to open up conversation with appraisers about the listing (without pressuring to “hit the number”). What feedback did you get from potential buyers? What were buyers attracted to? Is there anything special about the house or neighborhood? When it comes to layout, this is often an “insider detail” that’s frankly easy to miss, so I can’t emphasize how important it is to communicate about this if it’s a relevant factor.

4) Dangerous to always adjust: It’s easy to get trigger-happy about making value adjustments whenever we see a square footage difference. Can you relate? But sometimes a square footage adjustment might not be needed. My advice? Be careful about always giving an adjustment and be cautious to not routinely give the same exact adjustment too. Try to look to the market to see if there should be an adjustment or not, and then proceed.

I hope this was interesting or helpful.

Questions: What point stands out to you the most? Anything else to add? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

How much value does an extra bedroom add?

By 20 Comments

How much value does an extra bedroom add? The bad news is there isn’t a one-size fits all answer that makes sense for every neighborhood. But the good news is we can think through some of the key issues to respond intelligently. On that note, let’s kick around some ideas below. I’d love to hear your take in the comments.

value of a bedroom - sacramento appraisal blog

Things to consider about the value of an extra bedroom:

  1. More is often better: Let’s be realistic. More bedrooms is usually a better thing for value because a home with more bedrooms is more marketable to buyers. That’s obvious, though there comes a point when there are too many bedrooms, right? (like Evander Holyfield’s old house with 12 bedrooms and 21 bathrooms).
  2. Diminishing value with each bedroom: Generally speaking the added value of extra bedrooms tends to diminish with each additional bedroom. It’s sort of like how you pay less for each ounce of Starbucks coffee the more you buy. In other words, the value difference between a 1-bedroom home compared to a 2-bedroom home could be far more substantial than the value difference between a 2-bedroom home and a 3-bedroom home (or 3-bedrooms vs. 4-bedrooms).
  3. Canned adjustments: It’s tempting to give a token value adjustment for bedroom count differences. Maybe we heard it somewhere or learned from a “mentor” the value adjustment should be $10,000 for each bedroom. So we give this adjustment any time we see a bedroom difference. But does this amount really make sense if we are talking about 2 vs 3 bedrooms and 5 vs 6 bedrooms? Don’t you think the value variance could be huge for 2 vs 3 bedrooms but maybe minimal at best for 5 vs 6 bedrooms?
  4. Layout:  At times a 3-bedroom home may sell on par with a 4-bedroom home because of a stellar layout. Imagine a 1400 sq ft 3-bedroom house compared to a 1400 sq ft 4-bedroom house. One house obviously has more bedrooms, which on paper makes it sound more valuable, but the 3-bedroom house very likely has a larger Living Room, which could help it compete well with the 4-bedroom home. This is a good reminder to be careful about blindly letting bedroom count have the final say.
  5. It’s easy to adjust twice: If we adjust a comp for both square footage and bedroom count, we might actually double-dip on our adjustments. I’m not saying both adjustments are not needed, but at times it may suffice to adjust one or the other instead of both.
  6. The story of the comps: At the end of the day we need to find similar sales and let those sales tell the story of value. This means if we are valuing a 4-bedroom house, let’s use some 4-bedroom comps. Or if we are valuing a 3-bedroom house, let’s be sure we are using at least some 3-bedroom comps. Of course it’s okay to use sales with a different bedroom count and make value adjustments if needed. As a closing example, it’s easy to claim there is a huge price premium for that 5th bedroom, so it’s tempting to give an automatic canned adjustment. But have other 5-bedroom homes really sold at a premium? Let’s look closely at sales and try to find the answer.

I hope this was helpful.

Questions: What is point #7? Did I leave anything out? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

How much value do higher ceilings add to a home?

By 18 Comments

Would you pay more for a house with higher ceilings? I probably would, but I guess it depends. The ceilings in my home are a standard 8 ft. Would I have paid more if they were 9 ft? Probably. But what about 23 ft? No, that would be too high.

high ceilings in real estate - sacramento appraisal blog

Someone asked me a question recently about the value difference of ceiling height, and I thought kicking around some ideas here could open up a great discussion. Anything else you’d like to add? I’d love to hear your take.

Question: What is the difference in value for ceiling height? For instance, 8ft to 9 ft, 9ft to 10ft, etc?

Answer: That’s a great question. On one hand higher ceilings are a more custom feature, so buyers are likely to pay more for them. This is particularly true for single story homes. However, there isn’t some sort of ceiling height market formula we can apply to every property because real estate adjustments are frankly going to be different depending on the neighborhood, price range, and market. We often hope to extract the value of one particular feature, but let’s remember many times buyers are actually looking at the entire package of a home instead of parsing individual features. In reality ceiling height is only one part of the package when it comes to buying a home. For instance, 10 ft ceilings sound like an asset, but if they’re found in a home with a terrible layout, they might not command a premium at all. So just because they are there does not make them inherently valuable. This underscores the importance of using an “apples to apples” approach when selecting comps, meaning the goal is to compare the subject property with homes that are overall similar so we get a sense what the market has been willing to pay for such homes. We might not find homes that are exactly the same, but that’s okay because we can use homes that are deemed overall competitive. Thus as an appraiser, rather than isolating my search for comps to just ceiling height, I would simply try to find other homes that represent a realistic comparison. If an Excel Jedi wanted to geek out and crunch numbers to try to prove a value difference, maybe that could be done with extensive research (sort of like Jonathan Miller measuring value by floor location in New York). But keep in mind how difficult that would be since ceiling height levels are not recorded in MLS or Tax Records (in Sacramento at least). Most of all though, buyers don’t bring measuring tapes to properties, which reminds us to think in terms of the total package.

Questions: How would you answer the question if someone asked you? Anything else you would add? What did I miss?

If you liked this post, subscribe by email (or RSS). Thanks for being here.