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overbuilt for neighborhood

How much is the largest home in the neighborhood worth?

November 6, 2014 By Ryan Lundquist 12 Comments

How do you value a house when it’s significantly larger than anything else in the neighborhood? I’m talking 30-50% bigger than even the largest homes. Four years ago I came across an enormous property in a tract neighborhood, and I ended up shooting a quick 30-second video called, “Which house is overbuilt for the neighborhood?“. Being that this home sold recently, I thought it would be interesting to do a follow-up by asking two questions. Did this beastly house command a price premium because it was so much larger than anything else? Or did it suffer loss because it was simply too big for the neighborhood?

largest home in neighborhood - sacramento appraisal blog

This is what the  house looks like. You can check out the 30-second video below (or here) to see what surrounding homes look like.

square footage of sales in neighborhood 3

As you can see, when looking at all sales in the neighborhood over the past six years, the subject property is significantly larger than anything else. It is basically 1000 sq ft larger than even the largest homes, and it looks like a mansion in the middle of a ranch house development.

overbuilt house for neighborhood - sacramento appraisal blog

Despite its large size, the subject property ended up selling at a level consistent with much smaller-sized homes in the neighborhood. The subject property was listed on MLS for 119 days at $325,000 as an arms-length sale, so we know it was adequately exposed. In cases like this it may not be possible to find other “comps” that have a similar size. We simply have to use smaller sales. The assumption of course would be to start making significant upward adjustments for square footage, but if we did that in this case the property would be overvalued (unless of course we made huge upward adjustments for square footage, but then also made huge downward adjustments for functional obsolescence (being overbuilt)). In cases like this it’s important to find similar overbuilt homes in either the subject neighborhood (older sales) or even a competitive neighborhood. This will create a better context and reinforce how the market has dealt with overbuilt homes over time. It would be golden too if the subject property sold at any point in the past so you could go back to see how the market perceived the property at the time.

The Reality of a Neighborhood Price Ceiling: Every neighborhood has a price ceiling, and it’s important to be aware of where the top of the market is at. In other words, buyers tend to only be willing to pay so much in a particular neighborhood before moving on to a different community they think of as superior. In this tract neighborhood it looks like the price ceiling is around $325,000, and this mammoth home sold fairly close to that level. This is why when dealing with a huge property in a tract neighborhood, one of the first things we can do is to find out where the price ceiling is at. Is it feasible for buyers to pay above this level? That’s the big question. Ultimately in this case, despite the subject property having a much larger size, it ended up suffering economic loss because buyers didn’t expect such a large home in this neighborhood, and they weren’t willing to pay a massive premium for the extra space. This example also underscores how important it is for home owners to be aware of the expectations of buyers in a neighborhood (ask an agent or appraiser for advice on upgrades before doing an extensive remodel). My advice? Don’t overdo it.

REAA classAppraisal Class I’m teaching for 2 hrs of CE: On November 11 in the evening I’ll be teaching a class called “How to tell the story of value in appraisal reports”. The class will talk in depth about how the local real estate market is moving and how appraisers can more effectively tell the story of market trends in appraisal reports. The class is for the Real Estate Appraiser’s Association of Sacramento, and it will be good for two hours of CE (for appraisers). Dinner is included, and anyone is welcome. Registration closes tomorrow-ish I believe. See the image and click here for details.

Question: Any thoughts, stories, or points to share? I’d love to hear your take.

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Filed Under: Resources Tagged With: appraisal methodology, appraising large house, buyers expectations, example, house is too big, how appraisers think, overbuilt for neighborhood, overbuilt home, REAA, Real Estate Appraisals, superadequacy

10 ways to make your home worth less

August 27, 2012 By Ryan Lundquist 9 Comments

I get questions all the time about how to increase property value, but why not consider the issue from the other side? Here are 10 ways to help your property be worth less. Anything you’d like to add? Please comment below.

  1. Go with a “midnight” theme by painting all ceilings and walls black.
  2. Start a trend of bringing back popcorn-textured ceilings.
  3. Give your home a scintillating animal aroma.
  4. Let your sprinklers hit the exterior walls (which will damage siding).
  5. Replace your front lawn with nothing but dirt.
  6. Let your kids play “Bob the Builder” inside with a real sledge-hammer.
  7. Install a chain link fence and thick security bars.
  8. Get all of your neighbors to chop down their front yard trees.
  9. Make your house stand out by painting it a super bright color.
  10. Instead of a roof, make a helipad for Airwolf (do you remember that show?)

Honey-do List from Sacramento Appraisal Blog

What would you add to the list? If you’re in real estate, what things do you recommend a home owner do before listing a house on the market? I’d love to hear from you in the comments below.

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twitter, subscribe to posts by email or “like” my page on Facebook

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Filed Under: Market Trends, Random Stuff Tagged With: chain link fence and property value, Home Appriaser, House Appraiser, how to decrease market value, lower your property value, overbuilt for neighborhood, real estate blog, Sacramento appraiser blog, Stuff you shouldn't do to your house, things you shouldn't do to your home, tips for lowering property value, tips for making your home worth less, trees and property value, ways to decrease property value, what were they thinking

10 signs you’re overbuilding for the neighborhood

March 5, 2012 By Ryan Lundquist 6 Comments

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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Filed Under: Resources, Videos Tagged With: 10 ways to know you're overbuilding, appraiser in Sacramento, example of overbuilding, Home Appraiser, how to know if you're overbuilding, McMansion, overbuilt for neighborhood, Overimprovement, superadequacy

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