Big Bear Appraisal Blog

It’s rare to get a dollar back in value for every dollar spent remodeling and updating your home.  Some expenditures return more than others.  Published reports indicate an average return on bathroom remodels at 68% and kitchen remodeling typically only returns 46% of the cost.  Of course, these are National averages and local research is recommended. Remember, real estate value is about what buyers are willing to pay for something – not the cost.  An owner may have spent $50,000 on updating their weekend cabin, but what are buyers paying for similar remodeled homes in the neighborhood?  That’s what appraisers will focus on when coming up with a value.  It always comes back to the comps. 

Example of possible loss of value:  Walk-in bathtubs are promoted for ease of access for older and/or disabled people and the total purchase and installation costs may range from $5000 to $15,000 or more.  When it’s time to sell, many buyers may view it as a negative, and discount the purchase price, because it is something they will replace.  Perhaps a curbless or roll-in shower would be a better choice.

When upgrading a home for value, make sure it’s something that will meet market expectations and not just for your own satisfaction.  Of course, some remodeling is for the homeowner’s needs and not expected to give a dollar for dollar return.    A pool will certainly be worth less than the cost to build, but a family will likely get years of enjoyment from it.

People should realize that they rarely get 100% of the cost of remodeling and upgrades back when it comes time to sell.  There are exceptions, house flippers are professionals, have a team of craftsmen to do the work, have researched the market and know where their money is best spent to will yield the highest return. 

My suggestion to most people who are planning to sell soon and are considering significant remodeling, is to perform inexpensive cosmetic and deferred maintenance work, and leave the expensive updating to the next owner.

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.

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..." 

Case Studies:

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.

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 through.

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:

1. 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 small home;

2. no 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;

3. recently 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;

4. had 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 Appraisal:

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.      

Conclusion

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).