Homes over 7,000 square feet are being appraised at a lesser amount per square foot than homes that are equally as nice with similar features and finishes. Meaning that there is a devaluation in these extremely large homes per square foot due to their size. The simple fact is that BIGGER is not apprising as more valuable on a per square foot bases. At first I was a bit surprised by this, so I went to my mom Joanna Roskowick, the appraisal expert for some clerification about this. Here is her explaination of diminishing returns in real estate appraisal.
“Now, putting on my appraiser hat.... any excess or huge number square footage above the average for the neighborhood or area has what we call diminishing returns. A good example of this is when had four acres in Watsonville with most properties around us were two acres and some one acre parcel selling at $100 k. We wouldn't have been given $400k for land but $100k for one and less for the other three acres. The total may have been $200k for four acres. If acres could be split, subdivided, or CPR'd (another kind of split) maybe a little more value could have been achieved. Appraisers have to go on what's actually there now unless the appraiser is asked to appraise based on a proposed building, land division, teardown, change of zoning etc.
This would be true of any value associated with a home 7,000 sf. When most homes are 5,000 sf or if most homes 2,000 sf then the appraiser might look at at as being 'over-built' for the area. An example of this is if the home has seven bedrooms in an area where the average home has three bedrooms. It's a diminishing return on bedroom adjustment. Another example might be if there were three kitchens in home. This might not give more value to the third kitchen.
Diminishing returns also happens with homes with swimming pools and tennis courts. Hilo is a good example, it's an area with more rain and less sun fewer buyers are looking for a house with a pool in most areas. So a pool is not given full value for replacement. It's even even more so withe tennis courts. Fewer buyers are looking for a home with a tennis court because they are not given full replacement value. Views that can or will be blocked or are from the upstairs bedrooms only are also not given same view value as from a living areas.
Energy efficient features also have diminishing returns. When considering 'green living' there is a lot of variety . Consider that homes in an area with different 'green' features. Some subdivisions have solar hot water, most have dual pane windows with some double wall construction and some with AC and heat. Does the market pay more for certain features? What is the actual cost of each feature? How many buyers are looking for that particular feature. In Hawaii, some companies contract for solar so that they own the rights. The owner pays so much a month and new buyer may be asked to take over the contract or pay off the terms at close of escrow. So it gets complicated." - Joanna Roskowick
So you see some home features offer diminishing returns and extremely large square footage is one of them. BIGGER isn't always that much BETTA!!!!
Comments
Post a Comment