Yes, quality 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 closely.
Buyers are 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.
Log style 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.
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 same neighborhood.
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 hill.
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.