I’ve been working on some statistics for valuing additional garages. It is tough. They are a specialized addition, not unlike equestrian facilities, pool or tennis courts are for other families…
Appraisers have been all over the map, but for the last couple of years they have consistently under-valued enthusiast garages. I have seen $50k-$70k garages valued under $10k during the appraisal process.
A large part of that is due to the fact that actual market value numbers are seldom worked up for specialty garages. The buyers see the additional value, and of course the sellers see the additional value. But too often, the appraisal gets in the way of completing the sale.
As a real estate agent, I can NOT do appraisals, but I can provide limited guidance to appraisers to help them see the additional value that should be added for an enthusiast garage.
For a recent property, I worked up an area wide study of similar garages. The results were a little surprising. Keep in mind, these were specific to the type of garage I was trying to find comps for… in this case, the house had an attached, over-sized 2 car garage and a detached VERY over-sized workshop garage (around 900square feet). I controlled price range to be similar to the subject home. Looking for direct comps was fruitless, but I was able to find other homes with detached garages, generally in the 500sf range. In each case, there was only one home with the bonus garage. So, I looked for comparable homes without the bonus garage to compare the difference in prices.
In the case of subdivision 2, there were only two houses, one with and one without the big garage. The house without the big garage had been fully updated with a new kitchen, granite counters, stainless steel appliances, upgraded bathrooms, etc. The house with the garage had laminate counters, old appliances and had not been updated for at least 15 or 20 years of its 33 year life. That would lead me to believe that the market values of the homes was actually considerably wider than it first looks. And, I believe the opposite to be true of Subdivision 3… the Garage Home was considerable nicer than the non-garage comparables.
However, this shows pretty solidly that the additional garage is more likely worth $20k-$30k, rather than the $5k-$10k that many appraisers will initially allow for the structure. That also puts it in line with Remodeling Magazine’s annual Cost vs Value study garage data. That puts the mid-range garage cost at around $46k while the value at sale is around $30k.
Appraisals are great when you are looking at a cookie cutter home. Those are easy… it’s when the mold is a little different that things get sticky. Of course… you need an agent that is willing to invest the time to fight a low appraisal. Even as a buyer, if the appraisal doesn’t come back at a price the seller can work with, you won’t be able to get financing… Give Lane a call.
Commonly heard, especially from sellers right now…
Let’s get a couple of things out of the way.
So, where we find ourselves in the current real estate climate is with price appreciation happening, most noticeably at the entry level end of the market. Homes are OFTEN drawing multiple offers and selling over listing price.
As a byproduct, values are outstripping appraisals. It isn’t always that the prices are out of line with other homes in the neighborhood… it is often because the appraisal process almost demands that appraisers work with information that is out of date.
On average, after a buyer and seller agree on a price, it may take from 30-60 days for the sale to close. After that, it may take another 30-60 days for the sale to be recorded with the county. The local MLSs are a bit faster, generally having the sale information within a week or so of closing.
So, the Appraiser is working with sale prices that reflect where the market was anywhere from 1½ to 4 months ago… at best. And in the market we are in, there has been about a 10% increase in pricing, dependent on location, price segment, etc. But much, if not most of that appreciate has been more recent than the 6 months an Appraiser is looking at.
The next issue that we run into relates to condition. Many of the properties that sold last year, or the year before that were in pretty rough shape. Much of the foreclosure and short sale inventory has been worked through, but a year, and even 6 months ago, it accounted for a large chunk of the sales. Now, with constrained inventories, that isn’t the case.
Appraisers DO adjust values based on condition… but the problem is that often the adjustments are based on a limited amount of information available in an MLS listing for a bank-owned property. Sorry, but many of the “REO Agents” left minimal information for the appraiser to work from. It wasn’t uncommon to see a bank-owned listing with 4 pictures, and NO details about condition of the property.
Subsequently, the Appraiser might not know that the house that sold a year ago in the subdivision for $75,000 less than the house you are dealing with also happened to need $50,000 in work to bring it up to where it is now. And his adjustment for that house might have only been $10,000…
The result is that we see neighborhoods with homes that sold for $100,000 last year, with homes that could (and do) sell for $175,000 this year. Seems like a HUGE increase in value, but the reality is that the $100,000 house needed a tremendous amount of work to get it up to where the current houses are. Coupled with the reduced inventory and increasing prices… the current price is NOT out of line with reality.
The appraisal hit. And it hits HARD.
The buyer either freaks out and thinks that he wants a MASSIVE price cut because of the low appraisal, or starts freaking out that there is no way they can buy the house.
The seller either freaks out because he has to take that much more of a loss, or becomes despondent because he doesn’t think he’ll ever be able to sell his house.
Nobody wants to return anybody’s call…
Actually, there are some things that can be done…
There is one other tidbit. If the appraisal is done for an FHA loan, it sticks with the house for 90 days… that mean ANY subsequent FHA loan from another buyer for the next 3 months will use the same appraisal. And if you think it is out of whack now, think how out of whack it will be in 3 months…
Don’t freak out. Work with the professionals that you hired and see if they can get everything worked out.
Last year I wrote one of those “wonderful” annual prognostication posts with my guesses on what we would be looking at during the same time next year… and that would be now.
Here is a link to the old post. I’ll have the quick version below, but if you want to see the context, knock yourself out…
One of my Mortgage Guys, Ken Cook (not the Weather man), write a LOT about mortgages and the best ways to get the best deal and best chances of closing your loan on time and without drama… a LOT! He knows his stuff. And he has NEVER delayed a closing with me because of issues with an approval (ok, there was a time when we had to go get lunch and we closed it after lunch…)
A couple of years ago I grabbed a few quotes from Ken and linked them back to posts he had about those subjects. Here is a link back to the original post…
The subjects I included were…
Ken knows his stuff. I trust his opinion…