HERE is the $839,000 listing I blogged about on Wednesday.
Per our client’s agent, there were 22 offers – and our client’s $1,150,000 offer was not even in the running.
So, we’re assuming the home sold for close to $1,200,000, but we won’t know for sure until it closes.
The home is a 1,600 SF, 3/2 with a 1-car garage, built in 1948.
AND – IT PROVIDES TWO EXCELLENT APPRAISAL LESSONS
I. Appraising Non-Permitted Space
A. The home’s permitted gross living area is around 1,600 SF, as mentioned above, but it also has another 1,400 SF of unpermitted, but fully finished space below/partially underground.
While the unpermitted space undoubtedly makes the home more desirable (and is partly why it sold for such a high price), it also creates significant challenges for appraisers.
Appraisers have to use comparable sales in the 1,600-square-foot range, correlating with the permitted space only.
Appraisers cannot use 3,000 SF comps (or correlate to both the permitted and non-permitted space).This is why I think the appraisal will come in a few hundred thousand below the contract price.
We are not seeing comps in the 1,600 SF range that support a higher value.
B. This is how appraisers try to support value – when there is finished unpermitted space that is pushing up the value.
Appraisers will look for other comparable sales within the 1,600 square foot range that also have sizeable unpermitted spaces similar to the subject property’s.
Even though old neighborhoods like the subject’s have a lot of homes with unpermitted, finished space, it is often difficult to find a similar home that sold recently enough to use as a comp.
It will also be very hard to find a similar comp with unfinished space that sold for as much as the subject did.
So, more often than not, appraisers will simply make $50,000 to $100,000 (best case) upward adjustments to comps without a “finished basement,” while including a comp or two with finished basements.
Agents and buyers often get frustrated when they see this outcome. They will insist that the home should be compared to 3,000 SF homes, but appraisal guidelines do not allow that.
II. Appraised Value Is Not Market Value
This listing is a perfect example of my frequent reminder that the appraised value is often not the market value.
There were 22 offers, and many of them were well over $1 million.
And given that multiple parties are willing to pay over $1 million in a free and open market, the market value is clearly over $1 million.
But – the appraisal will very likely come in well under the “market value” for the reasons I explain above (those pesky appraisal guidelines).
This is an important concept to explain to disappointed buyers when appraisals come in under contract price.
