How much is the largest home in the neighborhood worth?

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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Which house is out of place in the neighborhood?

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

10 signs your pool is too big for the neighborhood

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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5 real estate words that make you sound smart

In case you want to win in the real estate category on Jeopardy or boost your real estate IQ, this post is for you. Here are five real estate words that will definitely might make you sound smart. Enjoy and find a way to use them soon.

This yard has a huge staircase to the front door (it's very odd for the neighborhood)1.  Superadequacy 
Superadequacy is basically a synonym for “overimprovement”. It’s when a property is overimproved and the cost exceeds the value it adds to the property. Examples of superadequacy would be an 8-bedroom house in a 3-bedroom neighborhood, an air conditioning unit in Antarctica or a $50,000 kitchen remodel in a $100,000 neighborhood.

Example: It’s nice that Lola’s McMansion gives shade to all the neighbors, but it’s still a superadequacy.

price reduced sign2.  Functional Obsolescence:
Functional obsolescence is “a reduction in the usefulness or desirability of an object because of an outdated design feature, usually one that cannot be easily changed” (from Investopedia). In real estate, we see functional obsolescence when there is a feature of a house that is not useful to buyers for one reason or another. It may have been acceptable at some point in the past, but is now outdated, or it may simply be odd and less appealing. Examples include having to walk through a bedroom to get to another bedroom, having no dishwasher or laundry hook-ups, having a giant indoor spa that takes up half the master bedroom, having no bathrooms on the first floor or only having one bathroom in a 4-bedroom house.

Example: The property on Main Street sold for less because of functional obsolescence. Buyers just didn’t like only having a sink in the master bedroom instead of a full bathroom like all the other houses.

3.  Fenestration
space ship house on Garden HighwayFenestration is the design and placement of windows (and other openings) in a building. Most of us probably observe fenestration all the time by saying things like, “ooh, I love that big bay window off the front dining area” or “I like the house for the most part, but the windows make it look like a space ship.”

Example: Ginger loved the house, but wasn’t so sure about the fenestration. Would future buyers really buy a house with parallelogram-shaped windows next to a circular entry door?  

4.  Bifurcation
yodaBifurcation is a word to indicate something is split into parts. When it comes to the housing market, we’d say the market is bifurcated because there are different segments of the market. We see this clearly when there is a price difference between traditional sales, short sales and foreclosures. In this case the market would be bifurcated because the market is split into distressed sales vs. non-distressed sales.

Example: Johnny knew the market was bifurcated, so he hoped to buy a bank-owned fixer for less so he could “move up” into a more expensive neighborhood. 

5.  Easement Appurtenant
An easement appartenant is an easement which is annexed to the ownership of one parcel of land that allows one party the use of his or her neighbor’s land and which runs with the land when the title is transferred to another party (from RealEstateWords). The best example is one neighbor driving over another neighbor’s land to get to his lot.

Example: Everyone says I’m a nice guy for letting my neighbor use my driveway to get to his house, but it’s really just the easement appurtenant.

Picture from Wikipedia 200px-Kyle_Plante_mullet_5th_grade6.  Parcel Mullet (Bonus Word)
This word probably won’t make you sound smart, but since we’re talking about real estate words, it’s worthy of mention. My friend Heather Ostrom and I invented this one. A parcel mullet refers to the phenomenon of having a well manicured short lawn in the front yard, but a wild long yard in the back. Or in laymen’s terms, business lawn in front, party lawn in the back. If you didn’t know, the mullet is a hairstyle that is short at the front and sides, and long in the back (Wikipedia). Read more on the parcel mullet here.

Example: Bobby felt strangely proud of his parcel mullet being three feet high. 

I hope you enjoyed the post. If you want some practice using these words, I’d love to see you slip one of them in a comment below.

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