Aprraisails in a small town.

[Savon L Davis]

Hi,

I am currently house hacking a duplex in a small town that I have been in for 2 months with plans to refinance out of an FHA in a year depending on rates after I finish renovations however when I bought it the closest comps was in a town 30 minutes away and as I'm tracking sold properties to see what it will comp at there has been 0 sold properties since i bought this. How do I estimate appraisal value in this situation?

[Brad S.]

Ok, we have multiple techniques to utilize when comps are scarce. Some of this gets technical - but you asked!  :P

Unfortunately, It would take to much time to go through the specific details, and also, this is why we (appraisers) exist, but here is a taste of valuation techniques we can use and maybe you also.

* Go back in time - find comps in the market area no matter how long ago they sold and analyze and assess an estimate of market condition adjustments. So, if you find a similar sale 3 years ago, determine an appreciation amount and apply that to the sale. Example - comp sold 3 years ago for $100k, you determine the local appreciation rate was 10% since that time, therefore comp gets adjusted to $110k

* Go outside the neighborhood - find comps in other neighborhoods and determine any location appeal differences and adjust accordingly. Example - you find a similar property 10 miles away, which sold recently for $100k. Your analysis shows that neighborhood has an approximate 10% greater appeal (i.e. buyers pay 10% more for houses in that neighborhood), therefore that comp would indicate a value of $90k for the Subject property.

* Depreciated cost - You estimate the cost to build the Subject and estimate the depreciation of the improvements and add those to an estimate of land value. Example - You use costing tables to estimate the Subject has a $100k replacement cost, then you estimate it has depreciated 50% (half it's useful lifespan), and therefore, has a current value of $50k for the improvements. Then you determine the lot is worth $25k and add that to the depreciated cost of the improvements ($75k) and you get $75k estimated value.

* Adjust for differences in recent sales (different type) in the neighborhood - You find recent sales (of a different type of property) in the neighborhood and adjust for their differences. Example - you find a duplex which recently sold in the neighborhood, but your Subject is an sfr. You do an analysis to estimate the value of the second unit, and subtract that from the duplex sale price. Example - Neighborhood duplex recently sells for $125k, and you determine the 2nd unit adds a $25k premium to the property. Therefore, the Subject's estimate is $125k-$25k = $100k

And the easiest ways are:
* Hire an appraiser
* Ask a Realtor familiar with the local market
* List it for sale and see what the offers are

Question: How did you estimate the value when you purchased the property?

I just realized you have a duplex and my examples were for sfr's, but the same theories apply.