Imagine a house that used to be three bedrooms until the owner converted one room into a den. Is there a big hit to value now? Will the appraiser only give credit for two bedrooms? Let’s consider some thoughts below. Anything to add?
1) Big deal for value: First off, there can be a huge difference in value between a property that has three full bedrooms and one that only has two bedrooms with no other space that could possibly be used as a bedroom (such as a den). A three-bedroom unit simply has more utility and marketability, so when appraising a classic two-bedroom property I definitely want to take an “apples to apples” approach in my comp selection by finding other two-bedroom homes since those ones are most similar in appeal.
2) Buyers see the bigger picture: Sometimes we see homes that technically only have two bedrooms because a buyer selected a builder’s “den option” or maybe a seller removed a closet in the third bedroom. We’d be right to classify these homes as 2-bedroom properties, but at the same time my sense is if there’s an extra den or office that can be easily converted to a bedroom, buyers see the bigger picture of the house without getting too stuck on one less closet. Thus we can probably compare a house like this with other three-bedroom homes more than classic two-bedroom homes. Though we have to consider any impact to value for the lack of a closet.
EXAMPLE 1: A seller closed up a bedroom closet to use the space as an office and is now concerned an appraiser is not going to give him credit for the extra “bedroom.” Since there isn’t a closet, an appraiser will likely label the home as two bedrooms, BUT the appraiser will also recognize the house can very easily have an extra bedroom with the addition of a closet. Since the house is so much closer to being a three-bedroom home, it would be very limiting to only use classic 2-bedroom comps (see #3 below too). In other words, buyers see the big picture of a house and they probably aren’t going to expect a massive price reduction over one simple closet being removed.
EXAMPLE 2: I was asked how to value a 2-bedroom house that was close to 3000 sq ft and there were no other “comps” that size with only two bedrooms. But the thing is this house had extra space that could easily be converted to a third and fourth bedroom with the addition of closets. In situations like this it’s so easy to get locked into a rigid comp search and only look at two-bedroom homes. I’m a big fan of “apples to apples” where possible, but sometimes we have to step back and look at properties like buyers do. In this case there were multiple offers on the home because buyers were seeing the bigger picture of value rather than getting wrapped up in two closets missing. It’s possible this home could still sell at a discount, but let’s not start comparing it with significantly smaller two-bedroom “comps” either because that’s not what buyers are doing.
3) Logic and adjustments: Whenever we see a difference in bedroom count it’s easy to give a canned value adjustment. So without any research we hear, “The value difference between a 2-bedroom and 3-bedroom home is $20,000.” Okay, maybe that number works sometimes, but let’s step back and think like logical buyers. If looking at a home that has a den option that is otherwise similar to a traditional bedroom, it might cost around $2,000 to add a closet. In a situation like this does it really make logical sense to give a $20,000 negative adjustment? In other words, would buyers truly penalize a property at $20,000 because there is technically no closet? I would venture to say most buyers are probably not going to expect a huge price discount for such a minor cost-to-cure.
4) The market might not care: Sometimes the market doesn’t show much of a price impact for only having two bedrooms. We see this in 55+ communities, but we might also see it with architecturally interesting properties where prospective buyers might not need extra bedrooms. This is a good reminder to step back from being trigger-happy about giving the same value adjustment since the market doesn’t always make an adjustment.
5) Pro tip on downsizing: I recommend not turning a 3-bedroom to a 2-bedroom house. I see this happen when an owner wants a larger master bedroom, but it’s a quick way to lose marketability (and maybe value).
I hope this was helpful or interesting.
Think Like an Appraiser Class (I’m teaching): By the way, I’m doing my favorite class on Dec 7 from 9am-12pm called How to Think Like an Appraiser. We’ll talk through comp selection, making adjustments, tips for talking about value, and what to do in various scenarios. Details here.
Questions: What is #6? Do you have any stories or examples to share about the value difference (or lack thereof) between bedrooms? Anything else to add?
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Bedroom count is a significant factor for acreage properties with septic systems. System size is dictated by bedroom count so the den that works as an additional bedroom in town doesn’t work in this case.
Also, bedroom count is a buyer filter. Many families need at least 3 bedrooms, limiting the market for true two bedroom homes.
Good post. I usually handle dens as functionally equivalent to additional bedrooms. Adding a closet is a rounding error.
Fantastic point about acreage properties. I’m glad you mentioned that. So true. I agree about a market filter too. This is why many agents will list a property as “2-3” or maybe “3” with as asterisk or explanation. I’ve had this bedroom conversation about 4-5 times over the past month, so I knew a blog post was fitting. I look forward to seeing how the conversation unfolds. Thanks for your take Joe. I always appreciate it.
being the seller in contract can I cancel and collect deposit if the appraisal was done wrong my house is a 3 bedroom all 3 bedrooms have closets and windows. but the appraiser appraised my home as a 2 bedroom with a den.
Hi Darryl. Thanks for reaching out. That’s more of a legal or real estate broker question, so I’d defer to them. Sorry. I wish I could be more help. This is where the fine print in the contract matters, so I think your agent / broker is going to be your best resource.
All great thoughts. As I was reading it, I’m thinking about the 55 and over community and two bedrooms being common, then you said it. It just goes to show, appraisers have to look at properties through the eyes of the typical buyer in that market. How do appraisers know how the typical buyer would see something? Appraisers need to get out there and interview parties to similar transactions to see what they were thinking.
Yes. Well said. “Appraisers have to look at properties through the eyes of the typical buyer in that market.” Thank you Gary. Even in my two examples above it would be easy to make a big deal about a lack of closets, but if buyers are not making a big deal about it, there is no sense in giving too much power or big adjustments for having technically two bedrooms.
Great questions, Ryan. I think as appraisers we can sometimes not put ourselves in the place of the buyer but in reality that is exactly what we should be doing because we as appraisers must measure buyer perceptions and actions. I think the “extracted” adjustments we sometimes come up with needs to be compared to the “cost to cure” like you pointed out. The $2,000 cost of adding a closet is much more logical to consider as opposed to the $20,000 bedroom adjustment.
Thank you Tom. Very well stated. I agree with your thoughts. Thank you.
Ryan, excellent post as usual. I can tell you, having appraised in California for 15 years and now in Utah for the past 2 years, this gets much more complicated when you add in basements. It’s not uncommon to have 1 bedroom in the “room count” (above grade), and then the finished basement to include another 2-4 bedrooms (I’ve seen 3000+ Sq Ft GLA have only 1 bedroom). Basements are tricky because different buyers want different things. Some want additional bedrooms, some would rather use the space as a movie theater or rec room. My biggest takeaway from this was that it is important to interpret what the market expectations are. You can have a 2 bedroom home with a den/office that the market sees as an optional 3rd bedroom, and there is virtually no value difference when compared to a 3 bedroom home.
Jacob, thanks for the kind words. I can only imagine the change from moving your practice. We just don’t have too many basements in California, so we aren’t used to all the issues like some other markets. Do you find appraisers in your area tend to include the basement as GLA or do they break it out separately? I know Fannie Mae’s stance (https://sacramentoappraisalblog.com/2014/05/27/can-a-basement-be-consdered-square-footage/) and I am also aware that it’s important to deter from their rule at times too. This is definitely another cog in the system to consider, and I’m glad you brought it up. You nailed it with, “it is important to interpret what the market expectations are.”
I would also advise that sellers not downsize the house from a 3 bedroom to a 2 bedroom.
First, I think it hurts the property on the MLS and other sites. If I’m a buyer only searching for 3+ bedrooms, I’m not even going to see this property in the search results. So you’ll lower the demand from the start.
Second, while some buyers have the “vision”… many others don’t. Millennials are the next generation of home buyers, and most seem to be completely lost on the concept of a “starter home” that needs a little work to make it shine. They mostly want something turn-key that doesn’t need any hammers or screwdrivers to make perfect.
In general, I think homeowners should only stick to modifications that will improve the home’s value or have a neutral impact, and shouldn’t do anything that may possibly risk hurting the home’s value should they decide to sell later on in the future.
Good stuff Wes. I really appreciate your take. I think your perspective is right on. The housing stock has definitely improved in my mind in terms of expectations over the past decade. So many properties were flipped in recent years that solid surface counters, for instance, are common now. Buyers really do expect more out of a home. Though you certainly have to pay more too, and not all buyers are in tune with that.
I actually sat on a panel on affordability a few months back. It was interesting to hear people’s comments and questions. People definitely wanted modern upgraded energy-efficient homes in close proximity to Midtown that were affordable. Unfortunately those types of homes around $200,000 don’t exist in Sacramento in that location (or probably anywhere in Sacramento). One of the panelists did an excellent job talking about the concept of a starter home. The first home you buy isn’t where you will live forever, so you have to just get in rather than check off everything on your ideal list. Sage advice.
Hi! I appreciate your insight into the 2-3 bedroom dilemma. I was wondering where in the spectrum you fall in considering “walk-thru” bedrooms in old turn of the century farm houses as a third bedroom. They were traditionally used as 3rd bedrooms, and back in the day closets were rare in any of the rooms. However, in modern times it seems more like a loft or family room space. How do you see these properties being viewed in current market trends?
Hi Kellie. Thanks so much for the comment. It’s hard to give an opinion on something without really seeing it, but I’ll pitch in some thoughts. I do have a blog post I wrote about a situation where I appraised a property where one had to walk through the second bedroom to get to the third “bedroom.” This might not be the exact same thing as what you are describing, but it does sound close. https://sacramentoappraisalblog.com/2016/03/07/why-did-the-appraiser-say-it-was-only-two-bedrooms-it-should-be-three/
In a case like this with walking through a bedroom to get to another I would say one of these rooms is NOT a bedroom. Yet if an appraiser colleague called it a bedroom with functional obsolescence, I wouldn’t argue that. I don’t know that we could say the market would always respond one certain way with a situation like this because in some situations the market might pay the same as a traditional 3-bedroom house. Though we have to recognize this is much different than a den that lacks a closet because this type of layout won’t work functionally with some buyers. Thus my inclination is to say the value impact would more likely be felt in the market much more readily than the scenario I described in this post. I would think a home like this would more readily compare with a 2-bedroom more than a 3-bedroom, though it’s not really a traditional 2-bedroom only though because of the extra space. If I remember correctly about the house I appraised the value was reconciled toward the lower end of the 3-bedroom market (which was also the higher end of the 2-bedroom market). Ah, value can be tricky…. Thoughts?
I find it interesting that the closet issue is such a strong influence when defining a bedroom. I am usually more concerned with doors. In most cases (at least in my market area). “dens” tend to have large entry openings with no doors. The space may serve a family well as a bedroom if it were able to be private. I am also told that in many parts of the world, closets are often mobile like furniture and can be placed in a room to facilitate storage of clothes and such. In any case, good information and opinions from everyone!
Thanks Jack. I appreciate your take. Your comment underscores the importance of being in tune with the local market and what that market expects and/or mandates.
Maybe this article doesn’t apply very well to us in the Midwest where most homes have basements. I’ve rarely made a room count adjustment for two large bedrooms compared to three small bedrooms if GLA is similar. Especially when they have finished basements. Some of the most expensive homes in our area have only one bedroom above grade, and one or more in the daylight basement. I adjust for GLA but I’ve not seen a real correlation between value and above grade bedroom count in single family homes.
Thanks KR. Yeah, I wasn’t really thinking of basements when writing this post. We certainly don’t have basements in California like you either. I love your comment though. Every market is different and we have to continue to treat real estate that way. There are thousands of sub-markets throughout the United States and value does not work the same way in each of those markets. I’m curious, do you tend to lump the area in the basement with the above-grade space? Do agents tend to list GLA as including both above and below-grade? It sounds like your market treats them about the same. Thanks again.
i have a room that is on the second floor and is open to the floor below. Does this satisfy being a bedroom…no privacy?
Hi Robert. Thanks for the comment. It’s hard to say without really seeing the room. If you wish you can email me some photos that might give me a better perspective to pitch in my two cents. All things considered, if there is no privacy, this sounds more like a loft area than a bedroom. One of the hallmarks of a bedroom is privacy (unless we are looking at a studio where the sleeping area and everything else is integrated).
If my egress window goes to an interior courtyard (courtyard is outside) would that qualify as a bedroom?
Hi Mbpstar. Hmm, that is a really interesting situation. I don’t know that I’ve ever encountered something like that before while in the field as an appraiser. I know some Mid-Century Modern homes have bedrooms that open up to an interior courtyard, but if my memory serves me correctly the bedrooms like this I’ve seen also have an additional window to the exterior of the property. I would welcome peers to pitch in on this issue, but here’s my take. I’m hesitant to consider this a bedroom. However, if this is a unique design and buyers very clearly label a space like this as a bedroom, it’s hard to argue against that. But this sounds like a situation that is not safe, so I’d be more prone to call it a Den or something else unless there was compelling market support to say otherwise. Am I correct in thinking that most bedrooms in the house don’t have this set-up? In other words, does just one room have this layout? If that’s the case, it may be the tell that this other area was clearly built as something else. Thoughts?
Yes the old owner added a bathroom and a bed/closet to the room. Building the bathroom blocked in the courtyard so its at the center of the house. The new bathroom does have a sliding window in the shower but I don’t think it meets egress requirements. I was thinking maybe adding a fire ladder to the courtyard may work.. Ill have to talk to the city I guess but long process and costly either way.
Interesting. It seems there’s always a story why a room or property is the way it is. I wonder what the city considered this room after the addition was done (assuming the previous owner used permits of course). If you hear anything definitive, I’d be curious to hear more.
Background: I have one of those “optional bedrooms, but chose the den” situations from my builder [12-year-old home].
I since converted it to a bedroom by constructing 12 in. deep floor to ceiling bookshelves facing out to the foyer, with a hardboard wall panel backing. In the room, there are two windows, large closet, HVAC vent, centered lighting, and dedicated light switch, etc.
I did not see any information in the local, state (TX), FHA regulations about walls and bedrooms.
Question: Can I list this as a bedroom during the sale? or does the wall have to be traditional framing and drywall?
A potential large-scale homebuying company said that it did not count due to the nature of the wall…
Hi Justin. Thanks so much. It’s hard to visualize exactly what your situation is, so it’s not so easy to give feedback or advice. It sounds like this room is still open to the rest of the house without a door though? If that’s the case, it still seems like a Den because a bedroom is usually enclosed. This might not be a huge cost-to-cure, but if it’s open to the rest of the house, I can see an appraiser not calling it a bedroom because it feels like a Den. However, an appraiser can still recognize it could become a full-fledged bedroom without too much effort.
There is no formal definition of a bedroom from FHA or Fannie Mae that I’ve ever seen. There are some general requirements to consider though when it comes to building and such. Here is a post where I discuss some of the necessary items. https://sacramentoappraisalblog.com/2014/09/09/the-4-requirements-for-a-room-to-be-considered-a-bedroom/
Please feel free to pitch in thoughts back.
Hi, I have a small house of around 512 sq ft that I’m trying to refinance soon. The house has one bedroom and a 7.7×7.3 Den with door and big window. On the county records it appear as Den or bonus room as well as on the purchase appraisal.
Do you think that by putting a movable IKEA closet, the refinance appraiser will recognize the room as a bedroom even though is not 70 sq ft totally? If not, what to do in order to have that Den to be considered a 2nd bedroom.
Thanks
Hi Marlon. Thanks for reaching out. A closet from IKEA isn’t going to cut it for an appraiser in my opinion. Realistically I don’t know that there is anything you can do here. It sounds like Tax Records, MLS sales history, and basic logic (it’s less than 70 sq ft) all point toward this home being a one-bedroom unit. It is what it is. But the good news is this one-bedroom unit has an extra space, and that can sometimes be helpful when an appraiser chooses comps. After all, a one-bedroom with more functional utility is potentially more marketable and/or valuable than a one-bedroom without an extra space (that someone might use as a sleeping area even though it’s technically not one). Regarding your refinance, here is an information sheet you might consider using to help highlight the features of your property when the appraiser comes over. Best wishes. Thanks for asking. https://sacramentoappraisalblog.com/2014/11/18/a-cheat-sheet-of-information-to-provide-to-the-appraiser-during-a-refinance/
Thank you very much for your information. I did check the form and it’s very helpful, I sure will use it to bring the appraiser the most information possible.
One last thing, I was curious about when you say that the IKEA Closet is not going to cut it for the Appraiser…you mean because of the fact of the sq footage or because there’s evidence that appraisers devalue the idea of a armoire rather than a permanent build closet. I just ask because the extra room/Den I was talking about is smaller because the closet of the one bredroom was built flush to the bedroom wall but it pops out inside the Den reducing the Den space. So, I was thinking the idea of removing that closet to add 2 extra feet to the den and I will have more room to fit a family member or visitor. Still the den will not meet the 70 sq ft as to be legal bedroom but I’ll get more space inside anyways. Then, on the only existing bedroom I will put an armoire(IKEA closet) to still have all the bedroom features. Doing that I’ll reduce some space in the bedroom but I’ll still have around 76 sq feet(plus the 2 feet where the new armoire will go in).
My question here now is, do you consider that any appraiser will see as abad thing what I might do. Do you think it will take out value to the house by removing the existing permanent closet and putting an armoire. It will take more space of the bedroom but still on the acceptable room footage and at the time the Den will have more space available.
I really appreciate your advice. Don’t wanna find myself hurting the house value.
Hi Marlon. My comment on IKEA actually has nothing to do with value. What I’m trying to communicate is that the addition of personal property (an IKEA closet) in the Den doesn’t all of the sudden make the room a bedroom. That’s all I’m talking about, so obviously one piece of personal property doesn’t make the home worth more now (or less). As far as removing an existing permanent closet it’s hard to say with certainty here. As a general rule of thumb I’m not a fan of removing closets because the market tends to expect them. I would very rarely ever recommend someone to do something like that, though maybe in the right situation it could make sense.
Would it affect value? This is a pretty minor issue and a simple cost-to-cure, so I’m not overly concerned in that regard. Yet if your market expects closets, it would be a mistake to remove them. I personally would not do that, but it’s your house. If your primary concern is value and marketability I would email a few local Realtors and/or appraisers and ask them if they think that’s a good idea. My guess is they’re going to say, “NO, don’t do it.” But I could be wrong. Also, put yourself in buyers’ shoes. Would it be acceptable to walk through a house and not see a closet? Think in terms of 100 buyers walking through the house. Would most of them be cool with that? That’s thinking like the market and if you want a market-based answer, try to see if you can answer that question by collecting some opinions of your local real estate community (and maybe even others you talk to).
Excellent articles. We bought a 1960s home with 2 large bedrooms and another room used as an office/library/guest bedroom. This room has 2 doors: one door enters the master bedroom, one door enters the living room. One wall is all windows including sliding glass doors to the patio/pool backyard, and one wall is mahogany-colored built-in bookshelves and cupboards. We currently have a desk setup in the free corner between the 2 doors. There actually is a closet between one door and the sliding glass where we have installed a Murphy bed for guests. This “closet” also has old fixtures as if a laundry area or sink was there in past. On the other side of the “closet” wall is the wet bar. Could such a room be classified as a bedroom or den/guest room for listings? Thanks for great info shared.
Hi Jan. Thanks for the comment. It is so hard to visualize exactly the set-up. I wish I could offer a definitive opinion, but it’s not so easy to fully picture things. From what you are describing I wonder if this one some sort of conversion at some point.