is one of the many variables considered in the appraisal of a home, along with
condition, effective age, appeal, design, etc.
Not only the quality of the home being appraised, but also the quality
or lack of in the sales comps used in the appraisal.
When a lack
of quality or a need for improvements is observed, as an appraiser, I will make
a list of deficient issues and what it will cost to repair them. This cost to cure is then utilized as an
adjustment in arriving at an “as is” current market value for the home being
appraised. In my experience buyers do
this when making a purchase. A home might technically be remodeled, but if
the work is sub-standard or obviously “do it yourself”, it may not compete with
professionally remodeled homes. When
something looks off in a house, it’s a red flag to look at other details more
sometimes influenced by flashy ornamentation.
While we may not agree with it, if buyers are paying more for these
shiny features rather than something older and so-called better, it is our job
as appraisers to recognize the market reaction and take that into consideration
in our value.
and Historic homes are also a consideration.
Buyers may pay 15% more for a log style design compared to more
conventional construction. Historic
homes like those built by Gus Maltby, in Big Bear, during the 30s and 40s have
a mountain charm that many buyers pay a premium for and appreciate.
One last point
worth mentioning has to do with quality issues that are below the surface, like
2 x 6 framing, extra insulation, plumbing and electrical updates, extended life
roofing, energy, fire and seismic upgrades beyond current building codes,
etc. In order to determine if buyers are
paying more for these upgrades, it is necessary to extensively research the
market data rather than make our own assumptions about what the market should
and shouldn’t do.
While it is
difficult to put a dollar figure on differences in quality, there typically is
a range of value of the adjusted market data.
The recognition of a high quality home being appraised is a good
justification for favoring the higher end of the value range.
In the final analysis, whether it’s
logical or not, it’s the market that gives value and the appraiser is there to
reflect the market reaction and take that into consideration in the appraisal.
your home can be a problem. Let’s review
some of the most common mistakes made in arriving at a list price, and my
There is a listing down the street that you view as inferior to your
home and therefore your property should be listed for a higher price.
Comment: Closed and pending sales
are the best indicators of value, properties can be listed at any price.
The price per square foot of sales
from your neighborhood, when applied to your square footage indicates the
Comment: Resort areas like Big
Bear, are characterized by individually constructed homes over a long period of
time. You will typically have large and
small, old and new, custom and basic quality homes all in the same block. These wide variations make price per sq ft
Property owners often remember the
highest value a Realtor or Appraiser has ever quoted them. Sensational news stories about “increasing
values” often influence sellers beyond reason.
Comment: List prices should be set
after careful review of recent sales in the neighborhood with similar, age,
living area, bedroom/bath count, etc.
Seller has X amount of dollars tied up in the
property, or needs a certain amount to move.
Comment: The market doesn’t care
about your personal finances, it only cares about paying a reasonable price for
the property. List your property for
real buyers rather than the mythical buyer with a “bag of cash”.
My house is worth X dollars because Zillow
says so, even though they state that their Zestimate is only a starting place.
Comment: Zillow uses a computer
program to estimate value based on public record information. In Big Bear, public records are often
incorrect, and Zillow does not consider remodeling, updates, quality or appeal. Pricing a home properly is an art and science
and is not accomplished with an online valuation tool.
If you want an accurate value of your
home, always consult with a local real estate professional or competent appraiser.
Zillow is one of the most
popular websites for real estate information. You can enter an address
and get an estimate of the home's value called a "Zestimate".
These computer generated value opinions are often taken as gospel and are
regularly quoted to real estate agents by buyers to challenge high asking
prices and sellers to question low listing prices.
The problem is, the Zestimates
are not always accurate, and in resort areas like Big Bear, where every street
and house is different, the margin of error can be large. Zillow uses a
computer program to determine the value of a home based on information from
public records, which are notorious for being inaccurate, and information
entered by users, which may be biased.
It doesn't know the idiosyncrasies of a real estate market , not to mention recent remodeling and updates, interior
condition, level of quality and charm, view or proximity to recreational
attractions and shopping. It doesn't know about road noise and traffic,
or structural problems and deferred maintenance. As stated in the fine
print on the Zillow website "it is a starting point in determining a
home's value and is not an official appraisal". The Zillow
help center goes on to state: "We encourage buyers, sellers, and
homeowners to supplement Zillow's information by doing other research such
as: getting a comparative market analysis (CMA) from a real estate agent,
and getting an appraisal from a professional appraiser..."
I reviewed the recent sale prices of
3 randomly selected 3 bedroom, 2 bath homes,
and compared them to the Zestimate and range of value offered by Zillow:
Sale #1 from Big Bear City sold for $360,000 while the Zestimate was $337,267 and the Zillow range of value $310,354 to $354,000
Sale #2 from Big Bear Lake sold for $193,000 with a Zestimate of $239,709 and the range of value $194,000 to $283,000
Sale #3 from Big Bear Lake sold for 693,000 with a Zestimate of $786,638 and value range of $747,000 to $826,000.
In these examples, the sale
price fell outside of the Zillow range with a large difference in the Zestimate
and final sale price.
There are studies that
demonstrate that Zillow can be reasonably accurate on the value of a home in
conforming tract developments.
However, in a resort area
like Big Bear, where you have old and new, large and small homes mixed
together, the accuracy can go way
down. Pricing a home properly is an art and science. It is not
accomplished by trusting a computer generated value whether it is Zillow or
some other online valuation tool.
If you want an
accurate value of your home, always consult with a local real estate
professional or competent appraiser.
Why Doesn't a Big Bear
Appraiser Use Price Per Square Foot to Determine Value?
"What is the price per
sq ft?" I get this question often from realtors and
homeowners. Because this is a common method of comparison, I thought I
would explain how appraisers view this approach to value.
The price per sq ft is the
most familiar method of comparison that many people are aware of.
Remember that everything about the property is summed up in the price per sf,
including the lot size, view, age, quality, condition, and other features, all
lumped together into a price per sf. Because of this, it is important to
select sales that are very similar to the home you are appraising and from the
If you have a home with a 2
car garage, or a larger lot size, or superior view and are comparing it to a
home with none of these features, the accuracy of your estimate will be
reduced. This is also true if you look at a home that is significantly
larger than yours, even though all other features are equal, because a larger
home will typically sell for less per sf. This is the principle of
diminishing returns that states the more square footage you add the less value
you get for the extra area.
Homes in Big Bear were
individually built on vacant lots from back in the 1920's to the present.
You have large and small, old and new, custom and basic construction mixed
together within the same tract or neighborhood. As a result, the price
per sq ft method of valuation is unreliable. The exception to this is the
Maple Ridge tract across from the Big Bear High School, because these are
similar in age, lot size, only a limited number of models exist and the design
and features are very similar. There are variables, primarily limited to
upgrades of exterior siding and interior finish work. This area is one of
the few in Big Bear, that is similar to tract housing, found down the
Price per sq ft may be a good
indicator of value for tract housing. Appraisers however, are required by
lenders to select recent sales "comps", in close proximity to the
house being appraised, with as many similarities as possible. Instead of
calculating price per sq ft for these comps, lenders require that each sale be
adjusted for differences, including, lot size, view, quality of construction,
condition of improvements, bedroom/bath count, living area, garages, etc.
The appraiser is required to be geographically competent and to have researched
the area regarding market reaction (how buyers react) to these differences and
make adjustments accordingly.
Pre-Listing Appraisals A
Good Idea in Big Bear
If you’re working with a realtor to list your property, most
likely they will provide you with a CMA (comparative market analysis) that
identifies recent comparable closed sales, properties in escrow, current listings
and expired listings. This is an
important step in getting the most for your property at sale and minimizing the
home’s time on the market. A pre-listing
appraisal can provide an “objective” third party opinion of value giving you
confidence that you are listing your home at an appropriate price.
A pre-listing report will provide a full sketch showing the
accurate square footage and may reveal inconsistencies with public records that
can be explained or corrected before the sale.
In addition to providing you with a realistic list price, a pre-listing
appraisal can be a valuable tool in negotiating with a potential buyer, and
decrease the chances of unknown problems that cause sales to be delayed or fall
Some people are surprised to find out their home is worth
more than they thought, others have an unrealistic opinion of the value. A well priced listing attracts buyers and
helps to sell in a timely manner.
When arriving at a list price, it’s important to compare
your home to what has recently sold and is currently listed in your
neighborhood, because potential buyers will be making these comparisons. Remember, why would someone buy your home if
they could buy something similar for a lower price?
Get a Pre-Listing Appraisal in Big
Bear if you have:
the largest or smallest home in the
neighborhood, because if you take the average price per sq ft and multiply your
living area, you will most likely over price a large home and under price a
comparable sales nearby, because an appraiser with local knowledge will know
where to go, even if it is 1 or 2 miles away, for properties similar to yours;
made extensive renovations, because most sellers will want to recoup the
$50,000 in home improvements that they have made, and a professional appraisal
will indicate what a buyer will pay for those improvements;
your home on the market for a long time with no showings or offers, because
there are many factors that go into a home being properly priced, a pre-listing
appraisal will take into consideration, location, condition, and appeal as well
as current market conditions.
When You Don’t Need a Pre-Listing
If your home is located in a neighborhood with homes of
similar age, style and size, with lots of recent sales and current listings,
then it is easier to estimate the value without an appraisal.
Don’t let the fact that you are using a realtor prevent you
from getting a pre-listing appraisal if the situation calls for it. The cost of the report will be well worth the
time saved in selling your home at the right price. When making financial decisions as important
as selling a home, it’s always a good idea to get as much information as
possible, and from as many sources as possible. (except Zillow, see my next
post coming soon).
There are hundreds of changes coming as a result of HUD Handbook 4000-1 which becomes effective September 14, 2015. FHA's new operative words are OBSERVE (the property condition), ANALYZE (effect on marketability and value) and REPORT (observed condition and analysis).
The link below is for the full HUD Handbook:
The following brief discussion covers the changes and a couple of existing requirements that will have the greatest impact on an appraisal inspection.
**HUD 4000.1 contains several changes to the inspection protocol previously established for appraisers including, but not limited to, the following:
**The appraiser must state which of the utilities are on and in working order.
**The appraiser must operated and observe all built in cabinets and appliances to ensure they are in working order, this includes making sure all cabinets/drawers operate effectively, and includes, but is not limited to, observing the operation of the dishwasher, stove, oven, disposal, refrigerator, washer and dryer, when included in the sale.
**The appraiser must operate and observe the plumbing system to ensure no foul odors are emitted and the water pressure is sufficient, this includes, running faucets while the toilet is flushed.
**The appraiser must observe the crawl space and attic areas in their entirety to look for and report structural issues, roof leaks, vermin infestation, crawl space venting and minimum clearance on 18 inches, trash and debris.
**If the property has a shared well, the appraiser must obtain a shared well agreement and include it in the appraisal report.
**Defective lead based paint must be corrected for all properties built prior to January 1, 1979. this is a change from the previous "prior to 1978" rule.
**Operate a representative number of windows, lighting fixtures, switches and receptacles inside the house, garage and on the exterior walls and note any deficiencies.
As you can see, the role of the appraiser in an FHA property inspection will now have more emphasis on identifying repair items, much like a home inspector does (although the HUD Handbook clearly states that the appraisal is not a substitute for a Home Inspection). This is only a summary and in no way intended to be all inclusive of changes affecting property inspections for appraisal purposes. Be aware that time will tell how impactful these changes will be on FHA appraising and lending.
COMPARABLE SELECTION & ADJUSTMENTS IN BIG BEAR
Comparable sales are selected utilizing the principle of substitution, which means that a knowledgeable buyer would not pay more for a property than he could purchase a substitute or equal property for. Sales comparables for appraisal purposes have as many similarities in time of sale, proximity of location, views, lot size, age, condition, gross living area, bedroom and bathroom count, garage size and updated and upgraded features. The question to ask yourself is: Would a knowledgeable buyer substitute these comparables for the subject property he is interested in, if it were no longer available?
BRACKET AS MANY OF THE VARIABLES AS POSSIBLE
Site adjustments are based on the differences of lot size between the subject and the sales. Adjustments applied are based on the contributory value of the added land, not the actual cost. A 2500 sf lot compared to a 5000 sf lot in Sugarloaf may require a $5000 to $15,000 adjustment where a 10.000 sf lot compared to a 15,000 sf lot in in Fox Farm may not require any adjustment.
Adjustments for view may reflect various situations. Mountain views of Snow Summit or Bear Mountain are generally less valuable than lake views because the appeal for ski slope views is part of the year compared to year round for lake views. Being across the street from commercial property or locations on busy streets reflect negatively on a property due to increased traffic noise and decreased privacy.
AGE AND CONDITION
Combine adjustments for age and condition into a single condition adjustment. If the properties are unequal, how much discount would a buyer demand to purchase the lesser property. This sometimes would equal the cost to bring the lesser property up to the better property condition? The condition adjustment considers observable differences in actual and effective age and condition of the comparables and the subject with regard to routine and deferred maintenance. Are there updates to the kitchen, baths and living areas to meet current standards. Adjustments for replacement: carpeting, exterior and interior paint, roof, water heater and furnace are maintenance items, and not typically adjusted for as they are expected to be properly maintained by a typical buyer.
DESIGN AND QUALITY
Design and appeal adjustments reflect differences between home designs such as log style, Victorian, typical mountain design, gambrel, chalet, A frame, etc. An adjustment in this category may also be based on the market reaction to various front elevations, exterior siding and curb appeal. The construction quality adjustments recognize differences in architectural design, building construction materials and workmanship, and the amount and quality of exterior and interior finish.
BEDROOM AND BATH ROOM COUNT
Adjustments for bedroom and bathroom count reflect the market reaction of importance of these features. There may be little or no adjustment for a 2 bedroom home with a loft or den space compared to a 3 bedroom home, because these bonus areas could be used as additional sleeping areas.
GROSS LIVING AREA ( NO MORE THAN 25% LARGER OR SMALLER)
Gross living area adjustments are based on the differences in livable square footage. These adjustments may range from $30 to $100 per sf or more, depending on the design, quality and location of the dwelling. Generally, the typical buyer does not differentiate between homes that are within fifty square feet of each other and no adjustments are applied in this situation.
Whether there are stairs to climb from the parking area or the house is below the grade of the street are also considerations. Is the floor plan chopped up or are there 4 bedrooms on the 2nd floor with only 1 bathroom.
UNPERMITTED AND GRANDFATHERED IMPROVEMENTS
A separate adjustment may be applied for rooms that have been converted from garages, finished without permit or are detached from the main house. The adjustments applied are based on the contributory value of the improvements, not the cost to construct. More and more lenders are requiring permits for living area to be included in an appraisal. When the living area of your subject property differs significantly from the public record living space, you need to research it further.
MAXIMUM ADJUSTMENT GUIDELINES ARE:
INDIVIDUAL 10% OF SALE PRICE
NET 15% OF SALE PRICE
GROSS (TOTAL) 25% OF SALE PRICE
EXPANDING THE MARKET RADIUS BEYOND 1 MILE CAN BE JUSTIFIED DUE TO THE CHARACTER OF BIG BEAR AS A RESORT AREA WITH IMPROVEMENTS OLD AND NEW, LARGE AND SMALL, AVERAGE AND CUSTOM QUALITY ALL MIXED TOGETHER.
EXPANDING MARKETING TIME BEYOND 6 MONTHS IS ALSO POSSIBLE IN RARE OCCASIONS WHEN THERE ARE AN INADEQUATE NUMBER OF RECENT SALES COMPARABLE TO THE SUBJECT (A $3 MILLION DOLLAR LAKEFRONT SALE WOULD BE AN EXAMPLE)
IF YOU HAVE UNIQUE CHARACTERISTICS LIKE VIEW, BUSY STREET FRONTAGE, CUSTOM QUALITY OR ANYTHING YOU WANT TO ADD OR SUBTRACT SUBSTANTIAL VALUE FOR, YOU NEED AT LEAST ONE COMPARABLE WITH A SIMILAR FEATURE.
KEEP ASKING YOURSELF - WOULD A BUYER PAY MORE FOR THE DIFFERENCES IN THESE FEATURES, AND IF SO, HOW MUCH?
FHA PROPERTY INSPECTION CHECKLIST
FHA IS CONCERNED ABOUT 3 PRIMARY ISSUES REGARDING REAL PROPERTY:
SAFETY - PROTECT THE HEALTH & SAFETY OF THE OCCUPANTS
SECURITY - PROTECT THE SECURITY OF THE PROPERTY
SOUNDNESS - CORRECT PHYSICAL DEFICIENCIES OR CONDITIONS AFFECTING STRUCTURAL INTEGRITY
THE FOLLOWING ARE THE MOST COMMON FHA RELATED CALL BACKS AND REPAIRS I ENCOUNTER IN THE BIG BEAR AREA.
LEAD BASE PAINT - HOUSES BUILT BEFORE 1978 - PEELING AND CHIPPING PAINT ON THE DWELLING EXTERIOR, INTERIOR, FENCES, AND OUTBUILDINGS MUST BE REMOVED AND THEN RE-PAINTED TO DEAL WITH POSSIBLE LEAD PAINT ISSUES. BARE WOOD MUST BE PROTECTED FROM THE ELEMENTS NO MATTER WHEN THE HOUSE WAS BUILT.
ACCESS TO PHOTOGRAPH ATTIC AND CRAWL SPACES FOR "HEAD & SHOULDERS" INSPECTION IS REQUIRED. WATER HEATER DOUBLE STRAPPING, CARBON MONOXIDE & SMOKE DETECTORS ARE REQUIRED AND WILL BE PHOTOGRAPHED.
ALL UTILITIES ARE TO BE ON AND APPRAISER INSPECTS OPERATION OF THE HOT WATER HEATER, PLUMBING FIXTURES, THE HEATING SYSTEM AND A REPRESENTATIVE NUMBER OF WINDOWS, LIGHTS AND ELECTRICAL OUTLETS.
A VISUAL INSPECTION OF THE ROOF FROM THE GROUND IS MADE TO DETERMINE IF A MINIMUM OF 2 YEARS LIFE EXPECTANCY REMAINS, AND IF IN DOUBT, A ROOF CERTIFICATION MAY BE REQUIRED.
HEALTH & SAFETY CONCERNS AND STRUCTURAL INADEQUACIES INCLUDING: SIGNIFICANT FOUNDATION STEM WALL OR SLAB CRACKS, BROKEN DECK POST & PIERS, LOOSE DECK BOARDS OR STAIR TREADS WILL NEED TO BE REPAIRED.
ELECTRICAL SERVICE - NO FUSE BOXES OR EXPOSED WIRING ALLOWED
GRADING - NO STANDING WATER PROXIMATE TO DWELLING, GRADING SHOULD BE AWAY FROM STRUCTURE.
WELLS: MUST BE LOCATED AT LEAST 10 FT FROM THE PROPERTY LINE, 50 FT FROM A SEPTIC SYSTEM AND 100 FT FROM THE SEPTIC DRAIN FIELD.
MANUFACTURED HOMES REQUIRE AN ENGINEER'S CERTIFICATE ON THE FOUNDATION
NO LONGER REQUIRED
INSTALLATION OF A STOVE (THIS IS SOMETIMES REQUIRED BY INDIVIDUAL LENDER/INVESTORS)
BEDROOMS ARE NOT REQUIRED TO HAVE CLOSETS, BUT MUST HAVE PROPER EMERGENCY EGRESS
COSMETIC ISSUES NOT REQUIRING REPAIR INCLUDE - CRACKED WINDOWS, SOILED CARPET, WORN FLOORING OR COUNTER TOPS, MINOR DRYWALL DAMAGE, CRACKS IN DRYWALL, LEAKY FAUCETS
THIS CHECKLIST IS PROVIDED TO REALTORS AND HOME OWNERS IN BIG BEAR, TO ASSIST IN PREPARING PROPERTY FOR AN FHA APPRAISAL INSPECTION AND TO HELP AVOID RE-INSPECTION EXPENSE AND DELAYS. THIS IS NOT INTENDED TO BE AN ALL-INCLUSIVE LIST AS INSPECTION REQUIREMENTS AND GUIDELINES ARE SUBJECT TO CHANGE FROM TIME TO TIME BY ACTION OF FHA/HUD.
IS PUBLIC RECORD SQUARE FOOTAGE ACCURATE?
Lenders and Appraisal Management Companies (AMCs) assume that building square footage reported in tax records is permitted living space. The Public record information comes from Assessor records which indicate all of the improvements, known to the Assessor, whether permitted or non-permitted. Just because the public records reported by the title company indicate a certain square footage for your subject property, that does not guarantee that all or any of these improvements are permitted as living space.
In a recent national poll of appraisers conducted by Appraisalport, 5346 responded to the following question:
How accurate is the reported square footage from the tax records in your area?
- Very accurate for most homes - 16%
- Mostly accurate (about 3/4 of the time) - 46%
- Hit and miss (about 1/2 of the time) - 27%
- Not reliable (accurate less than 1/4 of the time) - 9%
- The tax records do not usually show the square footage in my area - 2%
The results indicate that in almost 40% of the geographic areas surveyed, public record data is inaccurate at least half of the time. In my opinion, the Big Bear Valley, which is comprised of: Big Bear Lake, Big Bear City, Fawnskin and Sugarloaf, falls into the hit and miss category with some discrepancies in actual vs reported square footage noted in about 50% of the public records.
These discrepancies occur for a variety of reasons.
Individual appraisers measure improvements differently. In particular, upper floors with sloping ceilings and stairway spaces on multi floor dwellings are included by some and omitted by others.
Prior to the 1950's building records in the Big Bear area were not well maintained.
Some permitted additions have not been accurately added to the public record data, and occasional math errors contribute to inaccuracies.
In some cases, permits were issued but either expired or were never signed off on a final inspection. Some areas might have been permitted as storage space, and later finished by the owner as living area, but without the appropriate permits or inspections for livable space.
Getting finished areas approved by either the City of Big Bear Lake or the County of San Bernardino, after the fact, can be a difficult task often involving opening up walls to inspect plumbing and electrical systems.
it's a good idea to look at public record square footage with a skeptical eye. You may want to look deeper. Perhaps get a copy of a previous appraisal from the homeowner, but be careful, some appraisers "fudge" the dimensions to match public records in order to avoid Lender/AMC hassles. If you are concerned or have doubts, there is no substitute for due diligence. This would include measuring the home and checking on permits with either the City of Bear Lake or County building departments.