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superadequacy

Things that don’t add much value to your home

September 27, 2017 By Ryan Lundquist 25 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:

  1. Water softener.
  2. Walk-in bath tubs (like this one).
  3. Whole house vacuum system.
  4. Built-in pool (buyers rarely pay the same as the cost).
  5. Over-the-top expensive landscaping.
  6. Expensive repairs for something that is working fine in other homes.
  7. Highly-upgraded granite vs standard granite.
  8. Really thick granite compared to standard granite.
  9. Fruit trees.
  10. Expensive blinds or window coverings.
  11. Chicken coops.
  12. Extra outlets.
  13. Radiant barrier.
  14. Reverse osmosis system.
  15. Whole house humidifier. 
  16. Ceramic vs porcelain tile.
  17. Solar panels (nobody pays the full cost of a system in one instance).
  18. Leased solar panels (they’re considered personal property).
  19. Upgrades that were in style in 2002 (might not be in style now).
  20. A previously remodeled kitchen a couple of decades ago.
  21. Specialized heat and air systems.
  22. Foundation repairs (buyers expect a solid foundation already).
  23. Having too many garages for the market.
  24. Above ground hot tubs (considered personal property).
  25. Above ground pools (considered personal property).
  26. Anything that is too personalized.
  27. 4-Car vs 3-Car garage.
  28. Tandem garage.
  29. Cabinets in the garage.
  30. Epoxy flooring in the garage.
  31. Phone jacks in every room.
  32. Guesthouse (adds value, but probably costs way more).
  33. Christmas lighting package from the builder.
  34. Lot elevation premium from the builder.
  35. 6 ceiling fans vs 5 ceiling fans (so minor).
  36. 4-inch vs 5-inch baseboards (so minor).
  37. Over-the-top outdoor kitchens.
  38. Blue bathroom paint (ask Zillow about that one).
  39. Oversized parking pad.
  40. Really expensive outbuildings or custom shops.
  41. Brand new fencing (buyers won’t likely pay the full cost).
  42. Retaining wall.
  43. Designer paint.
  44. 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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Filed Under: Appraisal Stuff, Resources Tagged With: 100% Appraisers Group on Facebook, appraiser functional obsolescence, appraiser survey, contributory value, Functional Obsolescence, less value for upgrades, list of improvements, Overimprovement, superadequacy, things not to do to a house, upgrades

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

Which house is out of place in the neighborhood?

December 19, 2012 By Ryan Lundquist 2 Comments

Put your real estate critical thinking cap on and squeeze out some thoughts for me. Which house looks like it might be just a bit bigger than others?

Overbuilt house in neighborhood - Photo by Sacramento Appraisal Blog

I know it’s obvious. If you guessed the 2-story house that’s about twice the size of most other houses in the neighborhood, you’re right. Isn’t it amazing to come across homes that far outweigh others in a neighborhood? I found this gem last week during an appraisal inspection. This house is just over 3,000 square feet in a community where most homes are half that size between 1300-1500 square feet. It has 7 bedrooms and 4 bathrooms, whereas other homes tend to have either 3 or 4 bedrooms with 2 bathrooms. Additionally, this super-sized McMansion has a 4-car garage while most houses have a 2-car garage.

Is it overbuilt? What do you think?

big house photo - by Sacramento Appraisal Blog

Blogging Tip: Use a “photo stitch” app on your cell phone to stitch together photos like I did above (just search “photo stitch” in your app store or market). This is a great way to post an original picture on your blog, and it’s especially good for “before & after” photos or any sort of comparison.

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

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Filed Under: Appraisal Stuff, Photos from the Field Tagged With: appraisal issues, appraisers in Sacramento, Home Appraiser, home appraisers, House Appraiser, Over-improvement, picture of big house, Sacramento home appraisers, superadequacy, The Appraisal Process, things appraisers deal with, too big for the neighborhood

10 signs your pool is too big for the neighborhood

October 29, 2012 By Ryan Lundquist 8 Comments

This is what I’d call a super-sized pool. This house was purchased by Folsom Asset Management as one of their flip projects. For some perspective on the enormity of this swimming hole, look at my Realtor friend Whitney Johnson in the top image. Also, compare the 4400 sq ft house (single story with a 700 sq ft garage) with the pool. Have you ever seen a residential pool this big? What would you do with it if you were going to flip this house?

Overbuilt Pool. Photos by Folsom Asset Management & Compilation by Sacramento Appraisal Blog

Even if the pool was finished, it would very likely be a market liability since most buyers are not looking for a pool this big. On top of that, imagine the cost to heat the pool. It’s no wonder the investment company filled it in before selling the house.

Top-10-Image-purchased-by-Sacramento-Appraisal-Blog-from-www.123rf.comphoto_9840969_golden-top-ten-in-rank-list-trophy-isolated-on-white-background.htmlsgame-123RF-St-sm10 signs your pool is too big for the neighborhood

  1. If your backyard is a potential site for the next Olympics.
  2. If Google Maps mistakes your pool as a lake.
  3. If your pool looks like it should be at a resort.
  4. If prospective buyers think “Yikes, what were they thinking?”
  5. If aerial fire fighters use your pool to scoop up water.
  6. If the Coast Guard uses your pool for rescue training.
  7. If your pool yields little value in the resale market.
  8. If “block party” means the entire neighborhood can literally go swimming.
  9. If your buddies constantly ask you to use their jet skis in your pool.
  10. If buyers don’t have the expectation for such a large pool in the neighborhood.

Questions: What do you think of this pool? What is the 11th sign a pool is too big? I’d love to hear from you in the comments below.

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Filed Under: Photos from the Field, Random Stuff Tagged With: before and after photo of pool, example of overimprovement, fill in pool or not, flip project, Folsom Asset Management, functional obsolesence, Funny real estate photos, House flippers, overbuilt for the neighborhood, Overimprovement, photo of residential pool, photos from flip project, pool is too big, superadequacy, Whitney Johnson

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