How much value does a huge backyard shop add?

A friend asked me a great question this week. How much value does that huge shop in the backyard add? He wasn’t sure how to pull comps, so I scratched out a few thoughts. Anything to add?

large workshop or garage value - sacramento appraisal blog

1) The market: Can buyers use whatever the structure is? Will they pay for it? These are good questions to ask. At times home owners build things that are so specific to their own needs that the market really might not even want it (or maybe buyers will simply use it for something else). I think of Michael Jackson’s Ferris Wheel at Neverland Ranch or a $125,000 recording studio in the backyard of an area of Sacramento where values are about $225,000. There might be one buyer out there willing to pay a premium, but does that one buyer really represent the market? Remember, lenders are going to lend based on the market.

2) Find something similar: The best way to uncover value for a large workshop is to find a few examples that have sold. Keep in mind we might not find something exactly the same, but we have to do our best to find something we might think of as competitive. In a rural market there are likely many examples, but in a residential market we might have to pour through years worth of sales to find a large workshop, detached garage, or some other competitive structure. We can then compare these sales to others in the neighborhood at the time. How much of a price premium was there if any? For example, I did a search in the Tahoe Park neighborhood and found some large detached structures by looking in MLS under Garage (I selected 3 and 4 detached), # of Garage Spaces (I selected more than 3 spaces to see what structures I could find), and Other Structures (you can select things like “Workshop Building” or “Outbuilding” under this category). It can be tedious to search in MLS, but sometimes it’s surprising how quickly something will come up.

Tahoe Park search

3) Cost: Let’s consider the cost of the structure so we are in tune with quality. This doesn’t mean the market is going to pay more just because it was expensive, but the market will likely recognize quality and pay more for something that is nice (and usable). Home owners often want the market to pay the full cost of whatever was built, but there’s a fat chance of that happening because when people buy something used they tend to expect a discount.

4) Make Something Up: I’m kidding on this one, but I will say at times in real estate we have to use professional judgement when data is extremely limited. This sounds so wishy washy, but there is something to knowing a market and coming up with a range for what we think a group of buyers might realistically pay. In this case we might not give a specific value adjustment for the structure, but we can always consider the value of it in our final number. What I mean is we might see a range of value in a neighborhood for similar properties and end up reconciling the final appraised value for the subject property toward the higher end of the range because the subject has more assets. Be careful on this point though (and don’t spend two minutes on research and simply go straight to #4).

Questions: What is #5? Did I miss anything? How would you figure out the value? I’d love to hear your take.

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An appraiser’s view of cottage cheese ceiling texture

They say everything comes back in style, but I’m pretty sure cottage cheese ceiling texture isn’t one of those things. Well, I hope not. This style of texture is also known as popcorn, or more formally as acoustic or stucco ceiling. The house I grew up in had this texture, and a couple of rooms in the first house I bought did too. The other day on Twitter someone asked me how ceiling texture impacts value, and since we had a great conversation, I figured we could deepen the topic here. I’d love to hear your insight in the comments below.

cottage cheese ceiling texture - sacramento appraisal blog - image purchased and used with permission from 123rf dot com

3 things to consider about cottage cheese ceilings and value:

  1. The General Truth: Cottage cheese ceilings are from yesteryear, so they tend to make a home feel more outdated. Ultimately when a home has tired elements, it tends to sell for less or need to spend more time on the market to sell to the right buyer. Okay, that makes sense. But how much does this type of texture impact value? Well, that really depends on the following.
  2. The Whole Enchilada: I’ve found when a home has popcorn ceiling texture, it often has other outdated features. We might also see older wallpaper, an original kitchen and bathrooms, wood wall paneling, steel casement crank windows, etc… Thus the popcorn texture is only one symptom of an antiquated home. My sense is buyers tend to see the entire package of a home as outdated, so they become willing to pay a certain price for “the whole enchilada” so to speak. In other words, buyers don’t often segment one feature like popcorn texture to ask how much it might detract from value, but instead see the property as a whole and thus make one big value adjustment downward. Of course if a home is updated throughout besides popcorn ceiling texture, a buyer might realistically ask how much it is going to cost to remove the texture. The cost of the texture might be a reasonable value deduction, but not always as seen below.
  3. Different Expectations in Neighborhoods: I told a home owner the other day NOT to remove his cottage cheese ceilings for a planned renovation. Yes, install straight-edge granite counters in the kitchen and paint the cabinets. Yes, spruce up the bathrooms. Yes, paint the interior. Yes, lay new carpet. But leave the cottage cheese because all the remodeled comps still have texture on the ceilings. Since buyers were paying the highest prices in the neighborhood despite popcorn ceiling texture, it didn’t make financial sense for the owner to fork out a few thousand dollars to scrape his ceilings (this was in the Sunriver neighborhood in Rancho Cordova). This is a good reminder that it’s easy to bring in our own judgements and perceptions when valuing a home, but ultimately we have to look closely at the market to glean insight. We might be prone to think a home would sell for less because of the dated texture, but in this case it was best to look at other competitive sales in the neighborhood and let those sales set the standard for what we think. At the same time, if all the sales in the neighborhood do not have texture, it’s probably time to start scraping because owners need to eliminate obstacles and excuses for buyers making offers. In a neighborhood where ceiling texture is not common, scraping is a good move because it is a fairly minimal cost, and in my experience owners are often likely to recoup scraping expenses in the resale market because of the increased marketability. But remember, if all the comps already have no popcorn texture, scraping texture simply brings the home up to par with others in the neighborhood.

I hope this interesting and helpful. By the way, if you want to pave the way forward to help bring back popcorn texture, here is a DIY tutorial for you.  🙂

Questions: What else would you add? What is point #4?

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Does a $20,000 solar system really add $20,000 in value?

Would you pay $20,000 for a solar system if you knew it added $20,000 of instant home value? That’s exactly what a solar salesman told the client of a real estate friend. Is that legit though? What advice would you give someone talking to this salesman? This is a timely scenario, so I wanted to share my friend’s question and my response. I’d love to hear your take in the comments below.

solar panels in real estate - sacramento appraisal blog - image purchased and used with permission from 123rf - 2

Real Estate Friend: I have a client that wants to add solar to his 1989 house and was quoted a price of $20,000. The solar guy told my client that it would add value dollar for dollar…doubt that. Let me know your thoughts.

My Thoughts: Where is this SALESMAN getting “dollar for dollar” from? Is he a real estate value expert? Could he prove the value actually? Would the system add $20,000 in value regardless of the neighborhood, state, or price range? What if the system cost $40,000 or $80,000? Would that add $40,000 and $80,000 respectively? It’s a great sales claim, but achieving dollar for dollar is not something that happens in real estate in every case. For example, a kitchen remodel might cost $50K, but that doesn’t automatically mean buyers are going to line up to pay $50,000 more for the house. Or a built-in pool could run $35,000, but we all know buyers don’t expect to pay full price in the resale market (sometimes they’ll go for $10-15K or so, right). Thus the cost of something doesn’t necessarily translate dollar for dollar to the value. When it comes to solar, it’s more of a marathon of value so to speak because there will be value recognized over time as savings happen (as opposed to an instant rush of full value at the present time). I am not saying the house could not be worth $20,000 more, but my BS alarm is beeping I am skeptical. Appraisers and the real estate community have to consider what buyers are actually presently willing to pay for the system. Granted, we have limited data, and solar is still an emerging field, but we have to study homes with and without solar. What sort of price difference is there? Also, how much money will the system actually save the owner each month? Moreover, when considering monthly energy savings, how much more home could a buyer effectively afford because of the savings? If I were your contact, I would read this solar Q&A I did, but I would also do the math. Will the savings from solar far outweigh the cost of the system? If not, what energy conservation steps might your client’s household make instead? Lastly, if the solar system is leased, it won’t actually add anything to the value because it’s more or less considered personal property.

Questions: What do you think of the solar salesman’s claim? How would you respond? Any thoughts, stories, or further insight? I’d love to hear your take as an agent, appraiser, or home owner.

Home Office Update: By the way, I’ve been building a new home office these past few weeks, and it’s been fun to make progress. Shoutout to Keith Klassen for helping me with the framing. If all goes well, crown moulding will be up this weekend.

home office

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Design ideas for a two-story backyard clubhouse?

I shared before about the clubhouse I built four months ago. Well, it’s now time to take this piece of kid “real estate” in the backyard to the next level. I originally designed this fort with an upstairs balcony, which has been really fun for the kids, but ultimately this design is not going to promote what the experts call P.E.L. (playhouse economic longevity). My new plan now is to build out an enclosed second story with shutters on all windows. This will help weather proof the clubhouse a bit more.

I have earmarked September 24-25 as my building days, and I would love to get your suggestions and tips for anything I might add to make this structure an amazing place for my two boys and neighborhood kids. I am open ears and I would appreciate any feedback. See the image below to get a general idea of what I envision and watch a video of the clubhouse as it is now here. Thank you.

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.