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Why is this house being bulldozed?

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While it might seem wasteful to some to buy a house only to tear it down, it’s not an uncommon reality in classic neighborhoods with higher property values. Since vacant land is scarce in well established areas like East Sacramento and Land Park, some buyers will purchase a smaller outdated house, demolish it (sometimes the foundation or fireplace is kept intact) and then rebuild a much larger home.

Win a $5 Starbucks Card:  It’s obvious what’s happening in this photo, but put on your creative thinking cap and come up with an alternate reason why this house is being torn down. I’ll send a $5 Starbucks gift card to my favorite comment below.

House being torn down in East Sacramento - photo by Realtor Chris Little

Thank you to Chris Little, 2013 President of the Sacramento Association of Realtors, for letting me share this photo. He posted it on Facebook recently, and I thought it was perfect to share. Some pictures really help illustrate the market.

If you have any questions or Sacramento home appraisal or property tax appeal needs, let’s connect by phone 916-595-3735, email, Twitter, subscribe to posts by email (or RSS) or “like” my page on Facebook

10 signs you’re overbuilding for the neighborhood

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top-10How do you know if you’re overbuilding? Here are ten signs for your mental checklist if you’re considering a significant addition to the size of your home.

You are overbuilding…

  1. If your house is going to be twice as large as all others in the neighborhood.
  2. If you no longer need Neighborhood Watch because your house towers over all others and is a watchtower in and of itself.
  3. If you have double the bedrooms of other homes in the neighborhood.
  4. If your house is mistaken for a motel or residential care facility.
  5. If you can see in every backyard on the street.
  6. If what you are building will yield little value in the resale market.
  7. If the larger size removes the rear yard and thus creates a negative for buyers.
  8. If prospective buyers think “Yikes, what were they thinking?” or “I would not want to live next to THAT house.”
  9. If shade from your house lowers energy bills for neighbors on every side.
  10. If buyers don’t have the expectation for such a large house in the neighborhood.

Obviously some of the points are only for fun, but you get the gist. If what you are doing is not consistent with the look and feel of the neighborhood as well as the expectations of the marketplace, then you’re probably overimproving your property. Watch a fun 30-second clip below of an overbuilt house I saw in Sacramento (and here is another in Woodland).

Anything you’d add to the list?

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Why do appraisers give such little value for square footage?

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Why do appraisers sometimes give such little value to something as important as square footage? It’s crazy that an appraiser gave $10,000 in value for 300 square feet, right? Maybe you’ve felt this way about an appraisal on your home or for one of your listings. Give me a minute to help clear up some of the confusion by explaining how appraisers are supposed to come up with value adjustments for house size.

Example 1: A Typical Size Scenario

Real estate appraisers should be giving value to square footage according to how the market sees the square footage. What does that mean? While it may cost $40,000 for a 400 square foot addition, based on an analysis of comps in a neighborhood, the appraiser might determine properties with an extra 400 square feet sell for $20,000 more than houses without that space. This means the market in this particular neighborhood really only rewards $20,000 in value for the size difference. This example of course assumes there are no other factors to consider such as lot size, location, upgrades, room count, financing etc….

Example 2:  The McMansion Mega House

Imagine your house is 6,000 square feet in a neighborhood where the largest model is 4,000 square feet. Do you think the market is willing to pay 50% more for you house because it is 50% larger than the 4,000 square foot model? Probably not. There are situations where the market is actually willing to pay very little or nothing for the extra square footage because it’s considered an overimprovement (or “superadequacy” for the fancy term). This can be very upsetting for home owners and agents, but the appraiser is not being mean or ruthless, but only interpreting the market properly (hopefully).

This is important to understand for the following reasons:

  1. Cost vs. Value:  Appraisers do not give value to square footage based on construction costs, but rather the reaction in the marketplace to extra size. Think of it in terms of a kitchen remodel or pool. Just because a kitchen costs $75,000 to remodel does not automatically mean you’ll see $75,000 in value in the resale market. Or while a pool may cost $35,000, resale value will very unlikely include the total cost of the pool. Cost does not always equal value.
  2. Additions & Conversions:  An addition or garage conversion may not always put your house on par with other larger houses. There are many factors to consider when it comes to valuing an addition. It’s important also to know the neighborhood before planning a huge addition because you don’t want to overbuild for the neighborhood.
  3. The Largest House:  Larger houses tend to have an overall lower price per square foot than medium-sized houses, so applying a straight cost-per-sqare-foot for the neighborhood may not yield credible results for the largest house.
  4. Big New Construction Premiums:  If you buy a newly constructed mega-house like in Example 2, you will likely pay a big premium for the extra square footage during the sale, but you may not see this premium again when reselling.
  5. Real Estate Agents:  Agents who know the local market and how appraisers should look at square footage will be able to coach and resource home owners about the process and what to generally expect.
  6. Unique Neighborhoods:  Each market is different. There is no standard price adjustment for appraisers to make because buyers in one area may be willing to pay more or less for size compared to another neighborhood.

All things considered, it’s not always easy to swallow that a big difference in square footage does not always translate into big value. Let me make it clear too that just because I explained how an appraiser is supposed to give value for square footage does not mean that the appraiser actually did that.

Any insight, questions or commentary? In appraisal reports you’ve read, how much value do you see appraisers give for square footage? I’d love to hear your comments.

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 or subscribe to posts by email.

A South Sacramento McMansion: Seeing 2 Houses

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I took a photo of a “McMansion” today in South Sacramento. This house is currently for sale and is a whopping 3,293 square feet in the middle of a neighborhood of mostly single-story 1100-1400 square foot homes (with 3 or 4 bedrooms). It looks like this one may have actually been 1607 square feet originally, so it was already on the upper end of gross living area for the neighborhood, but now it has grown to over twice its original size. This house weighs in now as a 6 bedroom / 3 bathroom property (with a 3-car garage). What do you think?