Appraisal

7 Replies

For the past month I have been driving around the valley looking for houses that seem to not be in the market as of yet. Found a couple of houses and I made an offer on one of them.

The offer that I made looks like it is going to be accepted I actually went over the 70% rule ( 75% ARV ) but here is where I am troubled and I need guidance to ease my mind.

The house in question is a 2 bdrm with 1250 sq ft. Comps around that area have sold for 170-190K but these have been 3 bdrms with approx the same sq footage.

Do the appraisals take only the sq footage of the homes or do they account for the bedrooms?

Your input and guidance is greatly appreciated.

They will take into consideration both.  If the homes have similar SqFt but the others have a 3rd bedroom and yours dont you will be dinged for that. 

Yes, number of bedrooms is important.  You might want to check out This bigger pockets article.

You might want to look at other areas nearby that have both 2br and 3br sales to see how the extra bedroom affects price when most other factors are the same.

My own estimation is that the 2br will be values 10% to 20% lower than a 3br. 

Originally posted by @Larry Turowski:

Yes, number of bedrooms is important.  You might want to check out This bigger pockets article.

You might want to look at other areas nearby that have both 2br and 3br sales to see how the extra bedroom affects price when most other factors are the same.

My own estimation is that the 2br will be values 10% to 20% lower than a 3br. 

 That's a big % considering that I am already over the suggested 70% rule. Now I guess all I can do is hope for the low 10% since the offer has been submitted. 

Thanks for the article

Originally posted by @Curt Davis:

They will take into consideration both.  If the homes have similar SqFt but the others have a 3rd bedroom and yours dont you will be dinged for that. 

 Thanks Curt, hopefully it won't be a huge ding.  You live and learn, right?

@Rick Fonseca, this totally depends on your market and is all relative to the market segment. 1,200+ sq. ft. is pretty large for a two bedroom. If I'm working with a two bedroom of that size in my area (considering it is all above ground sq. ft. and one level, for perspective) I may only find 1 or 2 "comps" that have similar size and two bedrooms. However, I'll probably find many more "comps" that are similar in design, age and style, but have 3BR.

For example about "it's all relative"...consider a three bedroom home that is 900 sq. ft. or less. A three bedroom floor plan may actually be worth less than a two bedroom floor plan  in that scenario as that is not really enough sq. ft. for good room sizes and a functional floor plan. It may be more, but this is just an example (and not an appraisal) of showing relativity in the market place. 

My initial thought when seeing this post was do some more exploratory work. Was it originally a 3BR converted to 2BR? Can you add a wall or two and make it a 3BR? 

As for an appraiser "dinging" value on the three bedroom comps versus your two bedroom comps......you never really know. It depends on the appraiser. Appraisers are humans. We all look at a lot of different data, then we choose individual "comps" from that data pool. We all are going to have our perspective and analysis on the data. Since we're humans we may disagree on those data perspectives. 

As always though, it's all relative to your market segment. Work backwards from your end retail buyer's and try to figure it out for yourself how much demand exists for a two bedroom versus a three bedroom. 

Seeing a very high Price/BR as a unit of comparison is common for two bedrooms in my area. You can find very similar $/SF for two and three bedroom homes, but when considering $/BR those numbers can skew very very quickly. 

Hope this helps as it is more of a rant than a post. Let me know if you have any more questions and I'll pitch in. Just remember I'm in Portland, OR which is probably a very different market than Chandler, AZ. 

Originally posted by @Rick Fonseca:
Originally posted by @Larry Turowski:

Yes, number of bedrooms is important.  You might want to check out This bigger pockets article.

You might want to look at other areas nearby that have both 2br and 3br sales to see how the extra bedroom affects price when most other factors are the same.

My own estimation is that the 2br will be values 10% to 20% lower than a 3br. 

 That's a big % considering that I am already over the suggested 70% rule. Now I guess all I can do is hope for the low 10% since the offer has been submitted. 

Thanks for the article

 Not only with the value be considerably lower, but your buyer demographic will be greatly diminished as well.  You'll likely not get many buyers who are parents or who plan to be parents in the near future -- which is probably at least 50% of the buyer demographic in many places.  Instead, your buyer pool will consist of young couples, older couples and couples who plan to remain childless -- and even many of them will likely prefer at least 3 bedrooms if they have the option.

Originally posted by @J Scott:
Originally posted by @Rick Fonseca:
Originally posted by @Larry Turowski:

Yes, number of bedrooms is important.  You might want to check out This bigger pockets article.

You might want to look at other areas nearby that have both 2br and 3br sales to see how the extra bedroom affects price when most other factors are the same.

My own estimation is that the 2br will be values 10% to 20% lower than a 3br. 

 That's a big % considering that I am already over the suggested 70% rule. Now I guess all I can do is hope for the low 10% since the offer has been submitted. 

Thanks for the article

 Not only with the value be considerably lower, but your buyer demographic will be greatly diminished as well.  You'll likely not get many buyers who are parents or who plan to be parents in the near future -- which is probably at least 50% of the buyer demographic in many places.  Instead, your buyer pool will consist of young couples, older couples and couples who plan to remain childless -- and even many of them will likely prefer at least 3 bedrooms if they have the option.

 Thanks for the input J Scott, I have both of your books "the book on flipping houses", and "the book on estimating rehab costs". I started reading about fix and flipping and I have not gotten to rehabbing costs.

I'm finding that the competition over here is fierce and if you don"t act quick you won't be able to compete. If this offer is accepted I hope it won't be a lesson that I will regret.

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