Again, just another Bay Area ADU Appraisal cost

Member since 2019 · 7k+ posts · 4k+ votes

Here we go, another bay area ADU appraisal topic, some folks here know that I planned to build ADU way back in 2018 but canceled and instead, I use the money to purchase another duplex still in the bay area, but that duplex I already sold in 2021 with very nice three digits IRR lol :)

So last month I was able to secure 1900k sqft SF that comes with a "free 400sqft detached ADU", I purchased it below the price, but the appraisal is funny, they are trying to be very conservative so they put the living square as 1500 sqft as they value the first floor for only 1/4 of the price although it's livable living space. For ADU in the back, they assign it a zero value. I guess it's a seller and appraisal mistake but it comes as a buyer advantage.

I know folks suggesting using Figure's fixed-rate HEL loan that uses automatic valuation software for HELOC, do you know when I could that after rehabbing the house? Is there any approach that I could use so that for any appraisal in the future, they would price the ADU accordingly? how about if I hire an ADU appraisal expert before I sell to challenge the future appraisal? any other hacks/tips ?

( One thing that I do notice, selling the house in very good condition and good rehab especially flooring is extremely important )

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Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

An accepted offer at a price that has value on the ADU will help with the appraisal. Yes I am implying that I believe the same appraiser can set values on the same property within a range and the offer will help dictate where in the range the value is set.

However, I have seen buyers value the ADU at a far lower price than other footage. This is because there are many more owner occupied buyers that do not want to house hack then their are investor buyers. Investor buyers also should be pursuing deals and not desire to pay similar to what the OO buyer is willing to pay.

To summarize, you want to maximize the value added for the ADU but do not expect it to be similar value to the primary structure. Fortunately you got the ADU for free and it has far greater value than $0.

Good luck

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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
3y
@Carlos Ptriawan initial thoughts are to have the ADU performing as a rental with a lease in place and ensure the county knows of it so it's reflected with the assessor.
Souns like a great property!
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John M.
Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 801 votes
3y
Can you get a list of appraisers that your bank uses ahead of time? Usually my bank will give me a list of 3 that I choose from and of course I always choose the cheaper one. I would call them to get their opinion on how they evaluate these ADU units before proceeding forth.
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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
An accepted offer at a price that has value on the ADU will help with the appraisal. Yes I am implying that I believe the same appraiser can set values on the same property within a range and the offer will help dictate where in the range the value is set.
However, I have seen buyers value the ADU at a far lower price than other footage. This is because there are many more owner occupied buyers that do not want to house hack then their are investor buyers. Investor buyers also should be pursuing deals and not desire to pay similar to what the OO buyer is willing to pay.
To summarize, you want to maximize the value added for the ADU but do not expect it to be similar value to the primary structure. Fortunately you got the ADU for free and it has far greater value than $0.
Good luck

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Carlos Ptriawan
OP
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @John M.:

Can you get a list of appraisers that your bank uses ahead of time? Usually my bank will give me a list of 3 that I choose from and of course I always choose the cheaper one. I would call them to get their opinion on how they evaluate these ADU units before proceeding forth.

wow this is a great suggestion.
1 Reply
Carlos Ptriawan
OP
Member since 2019 · 7k+ posts · 4k+ votes
3y
the way the "appraisal" works in CA (in all "practical" manner) is they always try to match with the listing price so they don't cause trouble to the transaction. It's way different than appraisers in other states like in HI,IN,OH,etc where I guess it's more accurate. It really depends on how much the buyer is willing to buy, the same property can be purchased for $1.1 mil, and the same property can be sold for $900k. And the appraiser is just trying to "match" it by making adjustments to the comps, which I think is very strange. If the mortgage co hires 10 appraisers they would come with 10 different opinions. This is where and why, even in the same zip code, the comps for the lowest psf and comp for the highest psf in the same block withn the same house configuration, can have a wild price swing of as much as $350 for a typical average $800 PSF neighborhood.
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John M.
Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 801 votes
3y
I wonder how many tax assessors even count the ADU in their appraised value? Seems like the county would be leaving money on the table if they didn't. If the county assessor counts it then the appraiser should count it.
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Brad S.
Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
3y
Quote from @Steve Vaughan:

@Carlos Ptriawan initial thoughts are to have the ADU performing as a rental with a lease in place and ensure the county knows of it so it's reflected with the assessor.
Souns like a great property!
Good idea, but unfortunately, that will typically won't make a difference. The Assessor records do not necessarily reflect the legal city records. I worked as a deputy assessor for LA county and just because we put it on the records, did not mean it was legally permitted, etc. And if it isn't legally permitted, it typically would not add value.
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Brad S.
Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
3y
Quote from @John M.:

Can you get a list of appraisers that your bank uses ahead of time? Usually my bank will give me a list of 3 that I choose from and of course I always choose the cheaper one. I would call them to get their opinion on how they evaluate these ADU units before proceeding forth.
Please provide me the name of the bank that allows you to choose your appraiser. It is illegal for the Borrower to directly have an influence on who the appraiser is, for a federally related transaction.
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Brad S.
Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
3y
Quote from @John M.:

Can you get a list of appraisers that your bank uses ahead of time? Usually my bank will give me a list of 3 that I choose from and of course I always choose the cheaper one. I would call them to get their opinion on how they evaluate these ADU units before proceeding forth.
Oh, and by the way, if you are choosing the cheaper one, you probably aren't getting the "better" one. Good appraisers, like me, don't typically accept the cheaper fees, because we understand the actual work involved in properly analyzing and valuing a property. And if you are trying to get a true valuation of the ADU, I'm thinking you don't want someone who just wants to quickly get the job done, without considering it may have some actual value. Many times I have seen the ADU value similar to the main house gla value, but I can see how someone who is accepting a substandard fee, isn't motivated to their proper job.
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Brad S.
Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
3y
Quote from @Carlos Ptriawan:

the way the "appraisal" works in CA (in all "practical" manner) is they always try to match with the listing price so they don't cause trouble to the transaction. It's way different than appraisers in other states like in HI,IN,OH,etc where I guess it's more accurate. It really depends on how much the buyer is willing to buy, the same property can be purchased for $1.1 mil, and the same property can be sold for $900k. And the appraiser is just trying to "match" it by making adjustments to the comps, which I think is very strange. If the mortgage co hires 10 appraisers they would come with 10 different opinions. This is where and why, even in the same zip code, the comps for the lowest psf and comp for the highest psf in the same block withn the same house configuration, can have a wild price swing of as much as $350 for a typical average $800 PSF neighborhood.
******************************
Sorry @Carlos Ptriawan, I need to correct some of your assumptions. We (appraisers) are taking the contract price into account, because that is a very good, direct indication of the price that a buyer is willing to pay and that a seller is willing to sell the Subject prpoerty for. Which is a large part of the definition of market value used for financial transactions. That is why the appraised value is more often than not the same as the contract price. Of course, we want the contract price to be the same as market value, but if you ask most appraisers, they would probably tell you that there were multiple times in the past few years, where that did not happen, since the market data did not support that price.

There are no differences in other states (other than CA) causing any more or less accuracy. I have and read discussions with appraisers all over the country and there is no differences in appraisal principles or practically speaking, based on other states. We all practice under the same standards.

But, you are correct in that 10 different appraisers may have 10 different value opinions. That is just them having different opinions based on the data for a specific assignment. Most of us understand that value should be more of a range, not a point. And in general, price per sf (psf) is not a good measure of comparison for residential real estate, since it doesn't take into account any of the other main characteristic differences between properties, like lot size, location, quality, year built, style, etc. So, the psf can vary by a lot due to those differences, not due to the different valuation opinions.
1 Reply
Brad S.
Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
3y
Quote from @Carlos Ptriawan:

Here we go, another bay area ADU appraisal topic, some folks here know that I planned to build ADU way back in 2018 but canceled and instead, I use the money to purchase another duplex still in the bay area, but that duplex I already sold in 2021 with very nice three digits IRR lol :)

So last month I was able to secure 1900k sqft SF that comes with a "free 400sqft detached ADU", I purchased it below the price, but the appraisal is funny, they are trying to be very conservative so they put the living square as 1500 sqft as they value the first floor for only 1/4 of the price although it's livable living space. For ADU in the back, they assign it a zero value. I guess it's a seller and appraisal mistake but it comes as a buyer advantage.

I know folks suggesting using Figure's fixed-rate HEL loan that uses automatic valuation software for HELOC, do you know when I could that after rehabbing the house? Is there any approach that I could use so that for any appraisal in the future, they would price the ADU accordingly? how about if I hire an ADU appraisal expert before I sell to challenge the future appraisal? any other hacks/tips ?

( One thing that I do notice, selling the house in very good condition and good rehab especially flooring is extremely important )
********************************************
The best way to help with your ADU valuation is to "educate" the appraiser as to "why" the ADU adds value with verifiable data that they can use in their report to justify their opinion. Basically, give us data of similar properties with ADU's that recently sold and show us the data reflecting the market valuing the ADU. And if you can't find any recent sales of ADU properties, there are other techniques you and they should be using. But, I'm not going to go into those in this response.

The first question really is, what do YOU think the value of the ADU is and what do you base your opinion on? You should have some concrete verifiable objective data helping you form your opinion, that you can share with the appraiser. Basically, "Why do you think the ADU adds value?" Are you just assuming since it is additional structure, that's pretty and adds to the property's utility (use) that buyers will value it or did you see other similar sales with ADU's and you saw them sell for more. If it is only based on your speculation, than how to do you expect an appraiser to agree based on little or no evidence. Now, if you have 5+ willing buyers (multiple SIGNED offers) around the same offer price, then you have some evidence from "the market" about how much they value the property. But, I wouldn't waste my time or money on asking an appraiser now. Because you are basically at the mercy of a flip of a coin at the time you sell, based on who the appraiser is assigned to do the appraisal. Some things you could do are ask a few top local agents their opinions and also see if they know of any sales with ADUs in the area or sales with similar guest houses or other 2nd units, etc Also ask about their experiences with the appraisals on those properties they sold or bought with ADUs and how they dealt with any issues, etc.

Unfortunately, there are many questionable appraisers out there, especially with the lenders and AMC's (Appraisal Management Companies) hiring the cheapest and fastest and not the best qualified. It is difficult and often futile to challenge an appraisal opinion, unless you have good alternative data to present to them and a good appraiser willing to take that data into account. But, even me, as an appraiser, have had terrible appraisals on my own properties and have provided very good data, only for nothing to be changed. I'm happy to offer any direction I can, if you like. Good luck
0 Reply
Carlos Ptriawan
OP
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Brad S.:

Quote from @Carlos Ptriawan:

Here we go, another bay area ADU appraisal topic, some folks here know that I planned to build ADU way back in 2018 but canceled and instead, I use the money to purchase another duplex still in the bay area, but that duplex I already sold in 2021 with very nice three digits IRR lol :)

So last month I was able to secure 1900k sqft SF that comes with a "free 400sqft detached ADU", I purchased it below the price, but the appraisal is funny, they are trying to be very conservative so they put the living square as 1500 sqft as they value the first floor for only 1/4 of the price although it's livable living space. For ADU in the back, they assign it a zero value. I guess it's a seller and appraisal mistake but it comes as a buyer advantage.

I know folks suggesting using Figure's fixed-rate HEL loan that uses automatic valuation software for HELOC, do you know when I could that after rehabbing the house? Is there any approach that I could use so that for any appraisal in the future, they would price the ADU accordingly? how about if I hire an ADU appraisal expert before I sell to challenge the future appraisal? any other hacks/tips ?

( One thing that I do notice, selling the house in very good condition and good rehab especially flooring is extremely important )
********************************************
The best way to help with your ADU valuation is to "educate" the appraiser as to "why" the ADU adds value with verifiable data that they can use in their report to justify their opinion. Basically, give us data of similar properties with ADU's that recently sold and show us the data reflecting the market valuing the ADU. And if you can't find any recent sales of ADU properties, there are other techniques you and they should be using. But, I'm not going to go into those in this response.

The first question really is, what do YOU think the value of the ADU is and what do you base your opinion on? You should have some concrete verifiable objective data helping you form your opinion, that you can share with the appraiser. Basically, "Why do you think the ADU adds value?" Are you just assuming since it is additional structure, that's pretty and adds to the property's utility (use) that buyers will value it or did you see other similar sales with ADU's and you saw them sell for more. If it is only based on your speculation, than how to do you expect an appraiser to agree based on little or no evidence. Now, if you have 5+ willing buyers (multiple SIGNED offers) around the same offer price, then you have some evidence from "the market" about how much they value the property. But, I wouldn't waste my time or money on asking an appraiser now. Because you are basically at the mercy of a flip of a coin at the time you sell, based on who the appraiser is assigned to do the appraisal. Some things you could do are ask a few top local agents their opinions and also see if they know of any sales with ADUs in the area or sales with similar guest houses or other 2nd units, etc Also ask about their experiences with the appraisals on those properties they sold or bought with ADUs and how they dealt with any issues, etc.

Unfortunately, there are many questionable appraisers out there, especially with the lenders and AMC's (Appraisal Management Companies) hiring the cheapest and fastest and not the best qualified. It is difficult and often futile to challenge an appraisal opinion, unless you have good alternative data to present to them and a good appraiser willing to take that data into account. But, even me, as an appraiser, have had terrible appraisals on my own properties and have provided very good data, only for nothing to be changed. I'm happy to offer any direction I can, if you like. Good luck

There you go ! all valid points.

Yes I see few comps that has ADU and it seems the seller in that property is marketing the property correctly, it's clearly stated in their open house and marketing that they are selling 1600 sqft (1200 sqft from primary and 400 sqft from ADU) .
A half mile away is mine, it is way bigger, it's 1900s sqft from primary and 440 sqft from ADU, but the appraisar is counting 1500 sqft only (for the appraisal to match it with 1500 sqft houses).
So from your suggestion, it seems the best idea would be to have guerilla tactics by finding out who is the best ADU appraiser in my local market and ask them to give opinions and run professional appraisal reports, and challenge/influence the next buyer/lender in our future selling/refinance strategy.
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
Quote from @Brad S.:

Quote from @Carlos Ptriawan:

the way the "appraisal" works in CA (in all "practical" manner) is they always try to match with the listing price so they don't cause trouble to the transaction. It's way different than appraisers in other states like in HI,IN,OH,etc where I guess it's more accurate. It really depends on how much the buyer is willing to buy, the same property can be purchased for $1.1 mil, and the same property can be sold for $900k. And the appraiser is just trying to "match" it by making adjustments to the comps, which I think is very strange. If the mortgage co hires 10 appraisers they would come with 10 different opinions. This is where and why, even in the same zip code, the comps for the lowest psf and comp for the highest psf in the same block withn the same house configuration, can have a wild price swing of as much as $350 for a typical average $800 PSF neighborhood.
******************************
Sorry @Carlos Ptriawan, I need to correct some of your assumptions. We (appraisers) are taking the contract price into account, because that is a very good, direct indication of the price that a buyer is willing to pay and that a seller is willing to sell the Subject prpoerty for. Which is a large part of the definition of market value used for financial transactions. That is why the appraised value is more often than not the same as the contract price. Of course, we want the contract price to be the same as market value, but if you ask most appraisers, they would probably tell you that there were multiple times in the past few years, where that did not happen, since the market data did not support that price.

There are no differences in other states (other than CA) causing any more or less accuracy. I have and read discussions with appraisers all over the country and there is no differences in appraisal principles or practically speaking, based on other states. We all practice under the same standards.

But, you are correct in that 10 different appraisers may have 10 different value opinions. That is just them having different opinions based on the data for a specific assignment. Most of us understand that value should be more of a range, not a point. And in general, price per sf (psf) is not a good measure of comparison for residential real estate, since it doesn't take into account any of the other main characteristic differences between properties, like lot size, location, quality, year built, style, etc. So, the psf can vary by a lot due to those differences, not due to the different valuation opinions.

My only experience is Ca and my experience matches your explanation. I believe there is a range of value that an appraiser can value a property. With an accepted offer, the appraiser is going to look for comps that justify the price and if those comps exist then the appraisal will come in close to the negotiated price. If the comps do not justify the negotiated price, the appraisal will reflect this in their appraisal (I.e.value negotiated was outside the range supportable by comps)
What this means in practice is 1) refi appraisals are conservative 2) somewhat unique properties are often conservative including those with ADUs.

I very much dislike item #1. I believe a home should appraise same at refi as at a purchase. However, I have learned and my pro forma are very conservative on refinances due to the conservative appraisals associated with refinances. I make this warning often to investors who have not done many BRRRRs. It is part of the learning process.
1 Reply
Carlos Ptriawan
OP
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Brad S.:

Quote from @Carlos Ptriawan:

the way the "appraisal" works in CA (in all "practical" manner) is they always try to match with the listing price so they don't cause trouble to the transaction. It's way different than appraisers in other states like in HI,IN,OH,etc where I guess it's more accurate. It really depends on how much the buyer is willing to buy, the same property can be purchased for $1.1 mil, and the same property can be sold for $900k. And the appraiser is just trying to "match" it by making adjustments to the comps, which I think is very strange. If the mortgage co hires 10 appraisers they would come with 10 different opinions. This is where and why, even in the same zip code, the comps for the lowest psf and comp for the highest psf in the same block withn the same house configuration, can have a wild price swing of as much as $350 for a typical average $800 PSF neighborhood.
******************************
Sorry @Carlos Ptriawan, I need to correct some of your assumptions. We (appraisers) are taking the contract price into account, because that is a very good, direct indication of the price that a buyer is willing to pay and that a seller is willing to sell the Subject prpoerty for. Which is a large part of the definition of market value used for financial transactions. That is why the appraised value is more often than not the same as the contract price. Of course, we want the contract price to be the same as market value, but if you ask most appraisers, they would probably tell you that there were multiple times in the past few years, where that did not happen, since the market data did not support that price.

There are no differences in other states (other than CA) causing any more or less accuracy. I have and read discussions with appraisers all over the country and there is no differences in appraisal principles or practically speaking, based on other states. We all practice under the same standards.

But, you are correct in that 10 different appraisers may have 10 different value opinions. That is just them having different opinions based on the data for a specific assignment. Most of us understand that value should be more of a range, not a point. And in general, price per sf (psf) is not a good measure of comparison for residential real estate, since it doesn't take into account any of the other main characteristic differences between properties, like lot size, location, quality, year built, style, etc. So, the psf can vary by a lot due to those differences, not due to the different valuation opinions.

Good reply. One interesting thought is that more than 50% of my transaction outside CA is always having appraisal mismatches with transaction/asking price, the number is not a big difference though, still within 0.5 standard deviations. But in CA I can guarantee whatever it is, the appraiser is almost matching the transaction report, so it seems the CA appraiser seems more like a rubber stamp of "auction" product.
We know very well the "whole real estate" structure in CA is having more bias toward the seller, it's giving an advantage to the seller in big way (no contingency,etc,etc) ... it's almost like an Ebay auction system, if there's a buyer willing to buy 100k or even 500k more, the appraisal would just match it. Even the agent here would not work with a buyer that doesn't want to waive the contingency.
However In $100K-$300K market like in Midwest I don't see the same phenomenon, the appraiser is usually very keen on why they put the appraisal higher or lower. It causes problems for both seller and buyer eventually. I would say the Midwest appraisal is more detailed taking account into intrinsic value of the house, instead of an 'auction' system like in California.
0 Reply
Brad S.
Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
3y
Quote from @Carlos Ptriawan:

Yes I see few comps that has ADU and it seems the seller in that property is marketing the property correctly, it's clearly stated in their open house and marketing that they are selling 1600 sqft (1200 sqft from primary and 400 sqft from ADU) .
A half mile away is mine, it is way bigger, it's 1900s sqft from primary and 440 sqft from ADU, but the appraisar is counting 1500 sqft only (for the appraisal to match it with 1500 sqft houses).
So from your suggestion, it seems the best idea would be to have guerilla tactics by finding out who is the best ADU appraiser in my local market and ask them to give opinions and run professional appraisal reports, and challenge/influence the next buyer/lender in our future selling/refinance strategy.
*************************
Of course, you could do that. You can call the agents of recent sales with ADU's and see if they have the contact info for those appraisers. Basically, you want to make the appraiser's job easier by providing factual data they can use in their report to justify their opinion. And you want the ADU value to be justified, so you find data to provide them for that.

The situation you describe may be a mistake on the appraisers part. If the main house truly is 1,900sf all ABOVE GRADE, then it should've been listed like that and sketched like that in the appraisal report and the appraiser was wrong in excluding that. But, we have newer measuring standards (ANSI) as of last year, where all BELOW GRADE gla (gross living area), including living area off-hill or partially below grade, is now counted separately on the report and sketch. That doesn't mean it is valued differently, it is just accounted for differently. So, I am thinking that is how it was done on your property, and why you might think they accounted for the size wrong. They may have listed it on another line, as below grade area, which is what they should've done, if part of it is below grade. It is more confusing now, since the measuring changes.

1 Reply
Brad S.
Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
3y
Quote from @Dan H.:

What this means in practice is 1) refi appraisals are conservative 2) somewhat unique properties are often conservative including those with ADUs.

I very much dislike item #1. I believe a home should appraise same at refi as at a purchase. However, I have learned and my pro forma are very conservative on refinances due to the conservative appraisals associated with refinances. I make this warning often to investors who have not done many BRRRRs. It is part of the learning process.
************************************
Without going down the rabbit hole, I'd say that you have a relatively fair assessment of those situations. As I said previously, I also have been burned by bad appraisals, even when there is great direct evidence that would make their job easier! Anyway, one of the reasons I started in appraising, multiple decades ago, is so I understood the valuation of potential investments and a bonus is knowing how the process works from the inside. So, I have previously done deals "knowing" what the value is (or should be, based on my and buyer's opinions), but also "understanding" that the appraisal may not fully reflect that value. That definitely has helped me navigate the investment side of the business.
1 Reply
Carlos Ptriawan
OP
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Brad S.:

Quote from @Carlos Ptriawan:

Yes I see few comps that has ADU and it seems the seller in that property is marketing the property correctly, it's clearly stated in their open house and marketing that they are selling 1600 sqft (1200 sqft from primary and 400 sqft from ADU) .
A half mile away is mine, it is way bigger, it's 1900s sqft from primary and 440 sqft from ADU, but the appraisar is counting 1500 sqft only (for the appraisal to match it with 1500 sqft houses).
So from your suggestion, it seems the best idea would be to have guerilla tactics by finding out who is the best ADU appraiser in my local market and ask them to give opinions and run professional appraisal reports, and challenge/influence the next buyer/lender in our future selling/refinance strategy.
*************************
Of course, you could do that. You can call the agents of recent sales with ADU's and see if they have the contact info for those appraisers. Basically, you want to make the appraiser's job easier by providing factual data they can use in their report to justify their opinion. And you want the ADU value to be justified, so you find data to provide them for that.

The situation you describe may be a mistake on the appraisers part. If the main house truly is 1,900sf all ABOVE GRADE, then it should've been listed like that and sketched like that in the appraisal report and the appraiser was wrong in excluding that. But, we have newer measuring standards (ANSI) as of last year, where all BELOW GRADE gla (gross living area), including living area off-hill or partially below grade, is now counted separately on the report and sketch. That doesn't mean it is valued differently, it is just accounted for differently. So, I am thinking that is how it was done on your property, and why you might think they accounted for the size wrong. They may have listed it on another line, as below grade area, which is what they should've done, if part of it is below grade. It is more confusing now, since the measuring changes.

wow, I learned so much from your reply. This is, the actual reason, why they appraise differently, which I found to be very strange.
Where I can read a more detailed explanation about the above-grade area/below-grade area in terms of the appraisal?
0 Reply
Carlos Ptriawan
OP
Member since 2019 · 7k+ posts · 4k+ votes
3y
I got the explanation here:

https://authorityappraisals.com/2019/01/how-to-measure-a-home-gross-living-area/#:~:text=Per%20ANSI%3A,wholly%20or%20partly%20below%20grade.
Exceptions to Above Grade vs. Below Grade Standards

As you can see, both ANSI and Fannie Mae are consistent in their requirement that GLA is entirely above grade. Fannie Mae, however, does allow for some exceptions to this rule. Fannie Mae states:

The appraiser may deviate from this approach if the style of the subject property or any of the comparables does not lend itself to such comparisons. However, in such instances, he or she must explain the reason for the deviation and clearly describe the comparisons that were made. So long as the appraiser can define consistent comparables with below grade and above grade areas, and they give reasonable cause, below grade areas can be included.
.....Wow this is very tricky. As the house in the area is sitting in the hill this is very very sophisticated information, how does it affect the marketing of a property is pretty big. I guess I have to be an appraisal :)
0 Reply
Brad S.
Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
3y
Quote from @Dan H.:

Quote from @Brad S.:

Quote from @Carlos Ptriawan:

My only experience is Ca and my experience matches your explanation. I believe there is a range of value that an appraiser can value a property. With an accepted offer, the appraiser is going to look for comps that justify the price and if those comps exist then the appraisal will come in close to the negotiated price. If the comps do not justify the negotiated price, the appraisal will reflect this in their appraisal (I.e.value negotiated was outside the range supportable by comps)
What this means in practice is 1) refi appraisals are conservative 2) somewhat unique properties are often conservative including those with ADUs.

I very much dislike item #1. I believe a home should appraise same at refi as at a purchase. However, I have learned and my pro forma are very conservative on refinances due to the conservative appraisals associated with refinances. I make this warning often to investors who have not done many BRRRRs. It is part of the learning process.
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:) Well, I can't dispute your interpretation of your experiences, but I can offer my professional and experienced opinion as to why that may be. My guess is CA markets are generally more diverse and heterogeneous than those other markets you have experience in (i.e. making CA more of an imperfect market). Also, the type of market you describe is more of the recent exuberant market cycle (CA is generally a momentum state), which CA has the pleasure of enjoying once in a while, where other, more generally stable markets (many Midwest markets being in the stable category). So, those markets you refer to in the Midwest are probably more homogeneous and stable, which typically contribute to a tighter value range. Anyway, I don't want to go further down that path, at the moment. :)
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Carlos Ptriawan
OP
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Brad S.:

Quote from @Dan H.:

What this means in practice is 1) refi appraisals are conservative 2) somewhat unique properties are often conservative including those with ADUs.

I very much dislike item #1. I believe a home should appraise same at refi as at a purchase. However, I have learned and my pro forma are very conservative on refinances due to the conservative appraisals associated with refinances. I make this warning often to investors who have not done many BRRRRs. It is part of the learning process.
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Without going down the rabbit hole, I'd say that you have a relatively fair assessment of those situations. As I said previously, I also have been burned by bad appraisals, even when there is great direct evidence that would make their job easier! Anyway, one of the reasons I started in appraising, multiple decades ago, is so I understood the valuation of potential investments and a bonus is knowing how the process works from the inside. So, I have previously done deals "knowing" what the value is (or should be, based on my and buyer's opinions), but also "understanding" that the appraisal may not fully reflect that value. That definitely has helped me navigate the investment side of the business.

I am definitely going to follow in your foot step here.
Also there're few markets, like Hawaii, where being an appraisal is a job security as the number of of appraisers is very few. Need to learn a lot.
0 Reply
Brad S.
Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
3y
Quote from @Carlos Ptriawan:

I got the explanation here:

https://authorityappraisals.com/2019/01/how-to-measure-a-home-gross-living-area/#:~:text=Per%20ANSI%3A,wholly%20or%20partly%20below%20grade.

Exceptions to Above Grade vs. Below Grade Standards

As you can see, both ANSI and Fannie Mae are consistent in their requirement that GLA is entirely above grade. Fannie Mae, however, does allow for some exceptions to this rule. Fannie Mae states:

The appraiser may deviate from this approach if the style of the subject property or any of the comparables does not lend itself to such comparisons. However, in such instances, he or she must explain the reason for the deviation and clearly describe the comparisons that were made. So long as the appraiser can define consistent comparables with below grade and above grade areas, and they give reasonable cause, below grade areas can be included.
.....Wow this is very tricky. As the house in the area is sitting in the hill this is very very sophisticated information, how does it affect the marketing of a property is pretty big. I guess I have to be an appraisal :)
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Yes, it does get tricky and confusing, even for us. But, I'd say don't let it affect how you market the property. Market it as the entire gla of 1,900sf, just be prepared to explain to the Buyer and Selling Agent why the Appraisal states it differently. Typically, ALL of the gla should be valued the same, whether below grade or above grade. But, a true basement (even if finished) and detached ADU, etc, may have a different per sf value. many times I give ADU's the same value as the main house, if the market warrants it ...but, that's cause I'm good. lol
1 Reply
Brad S.
Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
3y
Quote from @Carlos Ptriawan:

Quote from @Brad S.:

Quote from @Dan H.:

What this means in practice is 1) refi appraisals are conservative 2) somewhat unique properties are often conservative including those with ADUs.

I very much dislike item #1. I believe a home should appraise same at refi as at a purchase. However, I have learned and my pro forma are very conservative on refinances due to the conservative appraisals associated with refinances. I make this warning often to investors who have not done many BRRRRs. It is part of the learning process.
************************************
Without going down the rabbit hole, I'd say that you have a relatively fair assessment of those situations. As I said previously, I also have been burned by bad appraisals, even when there is great direct evidence that would make their job easier! Anyway, one of the reasons I started in appraising, multiple decades ago, is so I understood the valuation of potential investments and a bonus is knowing how the process works from the inside. So, I have previously done deals "knowing" what the value is (or should be, based on my and buyer's opinions), but also "understanding" that the appraisal may not fully reflect that value. That definitely has helped me navigate the investment side of the business.

I am definitely going to follow in your foot step here.
Also there're few markets, like Hawaii, where being an appraisal is a job security as the number of of appraisers is very few. Need to learn a lot.
True, and I have also heard they are on "Hawaiian "time

......they'll get to it when they get to it! LOL
0 Reply
Carlos Ptriawan
OP
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Dan H.:

Quote from @Brad S.:

Quote from @Carlos Ptriawan:

I very much dislike item #1. I believe a home should appraise same at refi as at a purchase. However, I have learned and my pro forma are very conservative on refinances due to the conservative appraisals associated with refinances. I make this warning often to investors who have not done many BRRRRs. It is part of the learning process.

So you did notice the difference, I guess the reason is that home selling in CA is more similar to an auction system. While refi the appraiser has to follow strict bank guidelines, maybe ? I had this issue when comparing two valuations and also comparing it against Zillow/CoreLogic valuation.
In CA, for a million houses, the desktop valuation software could have wild price swing as much as 250k.
0 Reply
Carlos Ptriawan
OP
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Brad S.:

Quote from @Dan H.:

Quote from @Brad S.:

Quote from @Carlos Ptriawan:

My guess is CA markets are generally more diverse and heterogeneous than those other markets you have experience in (i.e. making CA more of an imperfect market). Also, the type of market you describe is more of the recent exuberant market cycle (CA is generally a momentum state), which CA has the pleasure of enjoying once in a while, where other, more generally stable markets (many Midwest markets being in the stable category). So, those markets you refer to in the Midwest are probably more homogeneous and stable, which typically contribute to a tighter value range. Anyway, I don't want to go further down that path, at the moment. :)

CA market especially bay area market is very volatile, it's the only market that is so price sensitive to interest rate as mortgage to income ratio is above 0.65 ; midwest mortgage/income is above 0.3 ; as supply is extremely limited we know the house is valued based on auction rather than intrinsic value hahaha the house is almost valued like a tech company in nasdaq lol.......the same 200k lousy 1960 box Single Family in Birmingham,AL could be valued $1.5m in Cupertino,CA lol .... :-)
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
Quote from @Carlos Ptriawan:

Quote from @Brad S.:

Quote from @Dan H.:

Quote from @Brad S.:

Quote from @Carlos Ptriawan:

My guess is CA markets are generally more diverse and heterogeneous than those other markets you have experience in (i.e. making CA more of an imperfect market). Also, the type of market you describe is more of the recent exuberant market cycle (CA is generally a momentum state), which CA has the pleasure of enjoying once in a while, where other, more generally stable markets (many Midwest markets being in the stable category). So, those markets you refer to in the Midwest are probably more homogeneous and stable, which typically contribute to a tighter value range. Anyway, I don't want to go further down that path, at the moment. :)

CA market especially bay area market is very volatile, it's the only market that is so price sensitive to interest rate as mortgage to income ratio is above 0.65 ; midwest mortgage/income is above 0.3 ; as supply is extremely limited we know the house is valued based on auction rather than intrinsic value hahaha the house is almost valued like a tech company in nasdaq lol.......the same 200k lousy 1960 box Single Family in Birmingham,AL could be valued $1.5m in Cupertino,CA lol .... :-)

The value in coastal ca is in the land/location.
I have a ~1100’ structure on a small lot that is valued at ~$1.7m. Being from Bay Area that is probably no surprise. Tear the structure off and the microscopic lot may still be worth close to $1.5m. the properties on both sides of mine and in front of mine have done complete rebuilds. on the block, I think there are only 3 properties that have not done complete rebuilds. This means people are finding the structure to be worth so little that they just remove the structures basically discarding them (hopefully recycling what makes sense).
House is not worth much. Land is worth a lot.
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