All Forum Posts by: Brad S.

As an Appraiser, I used to give some separate value to a photovoltaic (PV-solar panel) system on a house. I used to rely on a now older study by Lawrence Berkeley National Laboratory, which suggested a PV system may add up to a $5,911 per Kilowatt premium to value, but would decrease about 9% every year, due to degradation of the systems' effectiveness. 

But, after a while I realized I couldn't really isolate a value difference for that amenity. It's not really possible to distinguish how much, if any, more money is being paid for houses with a PV system. There are too many variables. In my opinion, from appraising hundreds of homes with PV systems, they may add a "bonus" factor (additional appeal, etc), but that may not translate to a significant increase in price, and not worth the price to install them. So, now I just take that amenity into consideration when I assess a general quality classification to a property, but I typically don't adjust separately for a PV system.

As a Broker, I have never had any Buyers say "find me a house with solar panels, I'm willing to pay more!." But, I have had clients cancel their purchase when they found out the houses' PV system was leased and they would be responsible for the rest of the lease.

Ok, the answer to #1 & #2 are:
As a 25+yr appraiser, if I have no nearby recent duplex sales or no renovated comps to comp out my Subject, I raise my assignment fee!

Ok, not the answer you were looking for, I assume, so here are other answers:

So, a good and experienced appraiser should have multiple techniques to approach this situation, which may help in evaluating a potential property.
* I would go back in time (sometimes years) to find any duplex sales, apply adjustments for any differences (size, condition, quality, etc), and then determine and apply any appropriate market trend adjustments (run a market trend analysis to see if there was an appreciating/depreciating values in the area of the comp/s, using linear regression or sale price/sf, etc). Obviously, this is somewhat technical and ways I need to approach it as an appraiser, but you could find a general source for market trends somewhere and/or apply an educated guess. Example: A duplex sold for $100k 2 years ago in your subject area and you find some general sources which state the local market has increased 15% in the past 2 years. Then you simply apply a 15% market trend adjustment to that sale, estimating it's current value around $115k.

* I would also look far and wide to adjacent neighborhoods to find any recent duplex sales and then assess and apply appropriate location adjustments. Example: you might find a duplex sale in an adjacent neighborhood which you determine sells for approximately 10% premium (higher appeal nhbd) than the Subject neighborhood, so you would assume a $100k duplex sale there would be worth about $90k in the Subject neighborhood.

* I would look for 3-4 unit sales in the Subject neighborhood and try to determine an adjustment per unit. Example: I might estimate a triplex sells for $50k more than a duplex, and therefore, generally assess a $50k value for that 3rd unit. Then if I have a triplex which sold for $150k, my duplex may be around $100k. This technique is not usually too accurate, in my experience, but can sometimes give you an idea, in areas lacking recent data.

* You can also use the income approach, although, it is not very reliable in 2-4 unit properties. But, you could determine a general GRM (gross rent multiplier- sale price/monthly gross rents) for the neighborhood (preferable similar type properties-duplexes vs duplexes, etc) and apply that to each unit's rents or potential rents. Example: estimated GRM of 100 x estimated monthly rents of $2,000 for both units, gives you a $200k value. This technique is also not usually too accurate, since grm's can fluctuate based on multiple factors. You can also apply this per unit. Example: You apply the grm of 100 to a $1,000/mth rent for a 2 bed unit, to estimate that unit has a value of $100k. Then if you find a recent triplex sale with a 2 bed 3rd unit (an additional 2 bed unit than the Subject), you can subtract $100k, to give you an idea of the duplex value.

* And for quality and condition, I would look for other sales, preferably 2-4 units, and try and find pairs with differing condition, to analyze market appeal. Example: You may find 2 recent triplex sales, one remodeled and the other not and analyze any sale price difference. I like to use % differences for this, like maybe a remodeled property sells for an estimated 5% more, etc.

Basically, you are looking for sales as similar as possible to your Subject, and attempting to "balance" or normalize them to your Subject, by adjusting for differences (remodeled vs original condition, duplex vs triplex, recent sale vs older sale, average neighborhood vs higher appeal nhbd, etc).  

Also, you mentioned determining rents for rehabbed units. You can use the same techniques for that, by widening your search for any rehabbed unit in any area and then try and adjust for differences. Example, you may find a rehabbed 2 bed unit in a quadraplex that rented for $1,100/mth and another 2 bed unit, not renovated, in a triplex rented for $1,000. That suggests a $100 difference for the rehabbed unit or 10% difference. Of course, that difference could be due to other characteristics also. And again, you can go back in time, to other neighborhoods, etc.

Yes, I know, it is not straight forward at all and can become more of an art. But, this type of situation may create more opportunity for an investor, since it is not as cookie cutter as many investors would like and they may not be able to recognize the nuances or opportunity with some deals.

As an Appraiser, it's always better to have market data tell me where the value is. I would try and do a paired sales analysis, to analyze the potential value of the ADU. Basically, it's finding 2 relatively similar recent sales, one which has an ADU and the other without, adjusting both sales for differences, except for the ADU, and analyze the difference. In the best possible world, you'd have multiple paired sales, which differ only in the ADU.

Now, you said ADU's are uncommon in the area. Then, I would expand the search to adjacent neighborhoods (or further, if need be) and adjust for any neighborhood differences, to see what the difference is with an ADU. Also, you want to search for other terms, like guest house, bonus room, mother-in-law suite, separate living quarters, etc. You can also look further back in time, beyond 12 months, and adjust for those market conditions, at the time of those sales.

Another technique is to use the depreciated cost method. Basically, estimating the cost to build the ADU and applying any appropriate depreciation. The problem with this, is cost doesn't necessarily equal market value.

It is difficult to assess the market value of an ADU these days. Many times, I see buyers willing to pay a similar value for ADU gla, as for the main gla. That's not the same as price/sf. So, if I adjust my comps at $100/sf for the main gla, then I might adjust the ADU also at $100/sf. But, that adjustment differs from Subject to Subject, depending on the specific market. Maybe you can talk to a local appraiser or 2 and ask their opinion of gla adjustment they typically use for your Subject neighborhood and a similar property as your Subject. Then you can multiply that by the ADU gla and have that as an idea.

So, a crude, and by no means accurate, technique may be to just add the main gla together with the ADU gla and find recent neighborhood sales with similar total gla, and mentally adjust those downward somewhat, to account for any market difference for the detached gla (ADU). That may give you a general idea to work with.

Now, as an investor, I would talk to local agents, especially any that have sold properties with ADUs, and ask them their opinion. They will have first hand knowledge of the buyers and what they liked or didn't like about them, what they valued, etc. You may also get some info you can use to let the appraiser know, which may help them value the ADU.

Find a structural engineer in the area. I wouldn't skimp on this also, since this sounds like a potential large liability issue, should anything go wrong. You may also want to check with the local building dept to see if a permit is required.

We have been using these guys for the Phoenix area, for over 10 years, and are happy with them. They handle everything, including the "make-ready" and other construction work, as needed. 
S&S Southwestern Management  *  (623)882-0937

As far as Florida, I would go to NARPM.org and search for local PMs with the proper designation/s and then call and ask them if they handle your area. You can also go online and find good questions to ask a prospective PM. Then ask them for 3-5 references (current or past clients-landlords) and call all of them and ask their opinions of the PM.

I have found good PM's this way, including S&S

Good luck

@John

Go to Narpm.org and search for pms in that general area, with a residential designation. They have the definition of their designations on the site. Then call them and ask if they manage sfr’s in that area and ask for 3-5 references of their clients/landlords. And call all of them and ask them about their experiences with the pm. You can find questions to ask online. Then choose one of the pm’s. I have found good pm’s this way. You can use this link to narpm.

https://www.narpm.org/find/pro... luck

 Well, for me, it comes down to 1 question: Is the area still set to grow and is a good long term prospect? That depends on migration data, building growth, employment growth, etc. There are areas that will still appreciate, and/or hold their value, even as the overall market eases up. I personally know of areas around me that continued to appreciate long after the rest of the market tanked, in 2007-08. Remember the old and true RE adage, location, location, location.

Bottomline, do you want to keep it longterm? Does it fit in your longterm goals?

Also, it sounds like if you cashed out now, you will be taxed as regular income, not capital gains or be able to do a 1031. Keep that in mind in your decision. I suppose technically, you don't need to rent it to do a 1031 (just needed to have had the intention of renting it), but you may have to explain your case to the irs one day. And I am not a cpa, so my advice is worth what you pay for it.

Look up 1 year old sales in that neighborhood and calculate the %, to get a more accurate idea. I could look some up, if you post or send me cross streets or a landmark that I can map in my data source.

Remember, CA property taxes are a flat 1% of assessed value. The additional charges are local taxes and voter indebtedness.

I can only comment on how it would affect a property in CA. I used to work in a local Assessor's office in CA, as a deputy assessor, and have been a licensed appraiser for 25+yrs. This would be fairly common here, where the records may have not been updated or were incorrect to begin with. But, the assessed value is based on the VALUE when you purchase the property. So, if you purchased the house with 200sf of additional gross living area (gla), then, theoretically, the assessed value should already include that gla, since you valued it at the existing size (in the purchase price), even if public records doesn't reflect it. So, basically, you paid for the larger house and that is what the assessed value should be based on - your purchase price (value at the time of purchase).

That said, I do not know how assessed values work in Boston and I am sure they are different, since we have Prop 13, which locks in our base  tax value. Other areas reassess periodically, and most likely would base the new assessed value on the public record sf. So, I would just make sure you have any paperwork (if available, permits, etc) that show the extra sf is legal, but I wouldn't assist the tax assessor in raising your assessment in the future. The only caveat is, if there were some legalities requiring you to notify them or face a future penalty. That's a question for the local assessor and/or an attorney.

 Ok, I'll take a stab at the "little more in detail" part.

Kitchens
*  Appliances - Look for "scratch and dent" stores or appliances. Many big box stores (HD, Lowes, Best Buy, Amazon, etc) get returns and can't resell them as new, so they often have alternative channels they route those products to. Some have their own stores and others sell to secondary buyers at a steep discount. And those secondary buyers have their own stores. I have bought many appliances this way, including some that I personally used. Example, I recently bought a professional 48inch free standing range for $6,600, which sells for around $9,500 new. And this was a new, never used unit, with a dented side panel. I paid a little $100 for them to order a new side panel and change it for me. TIP- don't buy a $6k range, unless it is for a high end rental, mine is for a higher end rehab. Also, check on Craigslist, ebay, Amazon, Nextdoor, Facebook marketplace, and other local buy/sell apps for deals

*  Cabinets - If you are going to rehab the kitchen and bathrooms, look for RTA (ready-to-assemble) cabinets. In my experience they are made with plywood boxes and solid doors, with no mdf. They also have soft-close doors/drawers and are of reasonable quality. It's better if you can find a local store which deals directly with the manufacturer. Where I am at, I can deal directly with the manufacturer, since we are near a main port. Typically, they come from China, so there may be some current supply issues (I don't know at the moment). I used to be get cabinets for an entire typical size kitchen, for around $2000, but, I am sure that has changed drastically now. They also have bath vanities. You can also check out Ikea, they have some interesting stuff and I have seen Ikea kitchens in million dollar houses.

* Countertops - Same as above, look for pre-fab solid surface (granite or composite) countertops. They come in standard 24 inch depths with the edging pre-done (typically a bullnose or square edge). So, when you plan on the new kitchen, make sure to plan on just straight line of cabinets and counters, with 90 degree turns. If you have to do 45 degree or rounded counters or other non-standard shapes and sizes, then the fabrication is going to cost more and the end result (additional renter appeal) won't be worth the additional money. I used to be able to get pre-fab granite pieces for as low as $85 per 8 foot piece, and then fabricators would charge $180/piece to cut/grind them install. I could do a whole house for around $1,500 (including materials). Ok, yes, those were the good 'ol days, so things are different now. But the most recent counters I bought for my personal rebuild, was in 2019. They were $195 and $245 per each 9 ft piece for good quality composite (i.e. Silestone, Quartz, Caeserstone, etc) the kitchen and bathrooms. I don't remember what I paid for the install though.

* Bathrooms - You may want to try and find some pre-fab vanities, which include the cabinets and the counter and sink. They may be less expensive and good quality and install would easier and/or cheaper.

* Fixtures - look up all the online and local sales channels I listed above, but keep in mind that chrome is probably the most common and least expensive finish. So, if you don't need brushed nickel, flat black, for a specific design outcome, etc, just do chrome.

I like putting in a handheld shower head, in the bath/showers, then it can work for all heights and is easy to change, if need be. Also, it's easy to use for cleaning the tub/shower and maybe the tenants will do it. Either with or without a sliding shower bar. The negative with the shower bar, is someone can break it or have a false sense of security reaching for it, for stability.

* Backsplash - Look at tile closeouts. You may find some at HD, Lowes, other stores, that just need to get rid of this inventory. We recently got some natural stone mosaic for our backsplash at around $.99/ft, as a closeout.

* Tile - If you can use a natural stone for the shower/bath surround, you may be able to save money and just grind/sand the end down to bullnose or rounded, instead of having to buy special bullnose pieces or down angles (2 bullnosed perpendicular sides), which are more expensive then the field tile. Or, you can just get metal edging to end the tile. Also, I like building inset niches in the bath/showers for soap and hair products etc. 

OK, that's all I got for now.