You are here:

Real Property Appraisals/Unique Home Construction Appraisals

Advertisement


Question
QUESTION: My Fiancee and I are trying to build a ROUND home (27-4ft x 8ft Equal Exterior walls constructed of 2x6's) with a conical metal roof of 2x10 construction with a vaulted ceiling throughout. This home will have a heated concrete slab as a floor throughout. 2 bedroom, 2 bath around 1000 Square feet.
There are no homes comparable to this in my area. I would like to know if there is any way to value this project other than Comparable properties?

ANSWER:
Mr. Webb,

The three traditional methods that appraisers use to value a single-family home are the:

1.) Direct Comparison Approach:

Utilizes comparables of similar style, size, quality and age to estimate the value for a subject property.

2.) Cost Approach:

Involves estimating the cost to build a reasonable replacement of a subject property

3.) Income Approach:

Involves estimating the amount for which a subject property would rent based upon locating rented/leased properties of reasonably comparable properties. The appraiser then locates other similar homes that were rented and sold, (or sold and then rented) and determines the Gross Rent Multiplier (GRM) for which the property sold. Example: Similar properties rented for $2000/month and sold for $200,000. The GRM is $200,000 divided by $2000/mo. rent = a GRM of 100x.

In other words, properties are selling for 100x the monthly rent. Therefore, if the subject property is rented for $1800/mo. the value of the property by the Income Approach is its rent: $1800/mo. x 100x GRM = $180,000. This is a very simplistic example of this approach, but you should get the basics.

I assume that you are building what is called a "Dome Home", Google this term to see if the examples mirror what you are building. The operative statement in your question above is: "There are no homes comparable to this in my area"

You are always going to have a huge problem getting this property valued, either immediately for your construction loan, for a future refi, or when you sell it and the buyer attempts to get financing.

I wish I could be more positive about this, but the residential appraiser today has become nothing more than a form-filler. Please search for my answers on this Forum in responses entitled: "bad appraisals" or "Bad Appraisers", or "HVCC" for some of the reasponses I have made to questions from people who have been damaged by an incompetent appraiser/appraisal.

Basically, when an appraisal is required, most lenders send out e-mail blasts to all appraisers on their panel. The appraiser who gets this assignment is the one who hits the "accept" button the fastest, not the most experienced appraiser. There are exceptions to this, lenders who really care about obtaining competent appraisals, but buy and large, most lenders only care about getting the "cheapest and fastest" appraisal.

I have appraised several dome homes in the past decade or so; they are very scarce in my area also. They are always much more time consuming to appraise, because you have to try to locate other dome homes, or other very unique properties and try to make a comparisons of these unique properties to the subject property. I usually start at 2x my typical residential appraisal fee due to the extra time it takes to value a dome home.

Lenders also do not like unique properties. Almost all lenders sell their loans on the secondary market to entities like FHA, Fannie Mae or Freddie Mac. These secondary market sources also do not like unique properties. The basic reason for this is the difficulty in selling them after taking them back thru foreclosure.

If you decide to go ahead with your dome home, immediately start being pro-active. I assume that you are using a contractor. Hopefully, the contractor has built other dome homes. Begin with your contractor and get a list of other dome homes they have built.

You know, I have just thought about all of the suggestions I have for you about how you can attack this issue, and its going to take me more than a hour to write them out. I can be much more time effective if you can call me and I'll be happy to go over suggestions you can use now and in the future for future refi's and when/if you sell this dome home. Please call me any time between about 8 AM to 8 PM Pacific Time and I'll be happy to speak with you.

John C. Carlson
CA Certified General Real Estate Appraiser
Victorville and Diamond Bar, CA
www.jccrea.com
Office: 909-861-6186 / Cell: 951-255-6466






---------- FOLLOW-UP ----------

QUESTION: Very Interesting. So to clarify, If I can find an exact same home being rented say at a trout fishing resort for $250 a night how would that work?
The home I am building can be found at this website: www.smilingwoodsyurts.com.

There is a trout fishing resort located within 2 hours of where I am building and can be viewed at this website: http://www.roseriverfarm.com/accommodations.html

With some miner changes floor plan wise, a full kitchen and adding a Hydronic heated slab they are very very close. Same square footage etc...

Answer

Mr. Webb,

You've gone from "sort of" unique, (a dome home) to VERY unique. The only reason I know what a Yurt is, is that I have watched movies about the Mongols.

What you have proposed above is a different version of the Income Approach, one used for apartments.

I am going to assume that this "Yurt" is going to be built on a lot owned by you. The issue you will have is to find sales of other Yurts on their own land parcels that can be used in the Direct Comparison Approach, or trying to find several rentals of Yurts and try to develop a GRM to apply to a sale price.

The valuation of unique properties requires an experienced appraiser who can "think-outside-of-the-box" and apply different techniques. Unfortunately, I would have to give you a semester course in beginning appraisal to bring you up to speed with valuation methodology, which would require me to write an entire text book in this response. Please call me at the phone numbers I noted in my previous answer & I will be happy to go over the basics of what you need to look for.

John C. Carlson
CA Certified General Real Estate Appraiser
Victorville and Diamond Bar, CA
www.jccrea.com
Office: 909-861-6186 / Cell: 951-255-6466  

Real Property Appraisals

All Answers


Answers by Expert:


Ask Experts

Volunteer


John C. Carlson

Expertise

Any questions regarding commercial and/or residential appraising, appraisals or real estate valuation such as: appraising as a profession, valuation techniques, comparable sales selection & analysis, the new HVCC and how it affects appraisers & Borrowers. Also, questions like: "Why did my appraisal come in low & what can I do about it?" I cannot answer questions about comparable data in areas in which I do not practice. I have expertise in most areas of So. California.

Experience

31-years both commercial and residential valuation experience. State of CA Certified General Real Estate Appraiser, licensed to appraise all property types. FHA Approved. Specialized expertise with historic, architectural & luxury residential property valuation. Experienced in industrial building and small commercial property valuation. Experienced Reviewer of appraisal reports and expertise with intensive forensic reviews to uncover fraudulent appraisal reports. Expert Litigation and Expert Witness experience.

Organizations
Associate Member of the Appraisal Institute. Associate Member of the Certified Fraud Examiners.

Publications
Numerous posts to Blogs. Please "Google" "John C. Carlson Real Estate Appraisals" where a list of responses I have made will show up.

Education/Credentials
Numerous classes by the Appraisal Institute since 1978 in the practice areas in which I specialize

Past/Present Clients
First Republic Bank Wells Fargo Bank California Bank & Trust Preferred Bank Numerous Attorneys.

©2016 About.com. All rights reserved.