Sometimes there really isn’t any value in a house. I’m working on an appraisal right now where the cost to demolish the house looks to be the only “value” the structure is bringing to the lot. When a house has very poor workmanship, a shoddy foundation, does not conform to current code in any sense and is all around sub-par in quality and construction, it’s not too likely to be a positive contributor for value.
Improved Site – Cost to Demo = Market Value
In a valuation like this I would not just consider the raw land, but also the contribution of value for any other improvements too – namely water and sewer on the site (hence the term “improved site”). But the cost to demolish the property also must be considered in a case like this because a buyer in his right mind wouldn’t pay money for an inhabitable house that is well beyond a reasonable cost-to-cure.
The moral of the story? Just because a house exists does not mean it has value. In so many cases a house can be salvaged, but in some cases a house just needs to meet a bulldozer instead.
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While appraising a triplex in Sacramento I came across an interesting property history of another nearby triplex in the “Gardenland” area of Sacramento in the 95833 zip code. As you can see below, this property has changed hands quite a bit in the past five years, and it has gone into foreclosure twice too. This is actually a fairly common phenomenon because investors and first-time buyers purchased properties several years ago when property values had already come down since 2005, but then the economy took a turn for the worse. Property values decreased even more and unemployment increased dramatically also.