Front Page - Friday, January 22, 2016
Home appraisers explain how they calculate value
Appraiser Myles Heckaman discusses how he calculates the value of a basement during the appraisers panel hosted by the Women’s Council of Realtors Jan. 6 at the Chattanooga Choo Choo Hotel.
- (Photo by David Laprad)
“How many of you think real estate has changed in the last year?” Susan Barnette, president of the Women’s Council of Realtors (WCR), asked Wednesday, Jan. 6 during the WCR’s first luncheon meeting of 2016, held at the Chattanooga Choo Choo Hotel.
The question was rhetorical. But the queries presented during the appraisers panel that followed were not. For 2016, the WCR has scheduled several panels that will allow Realtors to ask specific groups of professionals questions that will inform the agents about a particular field related to real estate. For the appraisers panel, the WCR tapped Chuck Martin of Appraisal, Inc., Laura Covington of Covington Consulting and Appraising, and Myles Heckaman of Heckaman Appraisal Firm to answer previously prepared questions as well as queries from the audience.
As Martin approached the podium to discuss the value of curb appeal, Barnette told those in attendance not to insist the appraisers adhere to their statements when doing a job. “Every appraisal is unique,” she said. “So don’t hold them to what they say if they do an appraisal for you.”
Licensed in Tennessee and Georgia
Task force question: Does curb appeal or landscaping play a role in the evaluation process?
You’re going to hear the same answer to all of the questions: “It depends.” Our appraisals really do depend on a number of factors. Does curb appeal and landscaping make a difference? It depends. Would I look better with a full head of hair? Some people say yes; some people say no.
If you decide you want $50,000 worth of landscaping, do it. It’s your house. Just know you’re probably not going to get $50,000 back. We have to think of landscaping in terms of the market, not our house. Appraising considers the entire market and says, “This is what the majority of the market would pay for your home.”
Does a pool or hot tub affect the value of a property?
Ninety-nine percent of the time, a hot tub is not going to add a penny of value to your home. It can be moved, so it’s considered personal property. Even if the hot tub is sunk into a deck and it would be hard to move it, if the hot tub isn’t fixed to the property, 99 percent of the time, it’s not going to add value to your home. A pool will sometimes add value to your home, and will sometimes take value away from your home. It depends on the neighborhood.
The news is crazy. They’ll say, “The real estate market is up so-and-so,” or, “The real estate market is down so-and-so,” and they talk like it’s one market. But we all know a house in Polk County, Tenn., isn’t going to be worth as much as the same house on Signal Mountain because of the location. You have to know your specific market to be able to valuate anything. That’s what we do as appraisers.
What you paid doesn’t matter. If you paid $40,000 for your in-ground pool, and you get your appraisal and you’ve been given a $5,000 credit for your pool, that’s what the market will give you for your pool. People will pay you something for your home improvement, but they don’t want to pay you what you’ve paid because that’s not a deal.
[The market is] based on the theory of substitution. If a buyer can get the same house without a pool, and they can put a pool in cheaper than buying your house with a pool, then they’re going to buy a house without a pool and pay for one. If they can buy your pool for less than it would be to pay for one, then they’ll buy your home. Like Susan said, each appraisal is unique, and has its own set of adjustments for things like swimming pools. If a pool isn’t working and it would cost a certain amount of money to repair it, then it can be a negative.
Audience question: What about irrigation?
Irrigation usually does make a difference, but again, it depends on the area. If you’re in a gated community or a restricted subdivision, and every home has irrigation, then the price for the irrigation will be included in the cost of your home. If you’re in a home in an area where irrigation isn’t common, then depending on the area, the market will give you a certain amount for an irrigation system. I know I will because I don’t want to water my yard; I want it to water itself.
Licensed in Tennessee and Georgia
Task force question: How is the age of a home used in establishing its value?
Without going into the details of the age-life method of evaluating a home, if it’s new construction, or if it’s five to ten years old, we have to make certain quality adjustments. Then we have the revitalizations and additions to older homes, such as one built in 1935. Are those homes worth as much as ones built in 2014?
Let’s use a home built in St. Elmo in 1935 as an example. Will it hold as much value as a brand new home? Probably – because of the quality of the older construction versus the quality of a newly constructed home. Then you have reproduction or replacement. What will replacing the house cost, and what will reproducing the house as though it was built in 1935 cost? As Chuck said, it depends. You can have the same home in five different areas, and it will have five different values. Certainly keep your kitchens and bathrooms updated, as that will help with value.
Task force question: Discuss primary and secondary heat source issues.
The preferred primary heat source is central heat and air – gas or electric. Older homes do have baseboard heat, and window air units. There’s nothing wrong with those, but a house must have a permanent heat source for it to be considered finished square footage.
This leads to, “I’ve finished my bonus room, and it would be too expensive to tie it into my original unit.” This happens a lot. Or, “I’ve finished my basement, and it has a fireplace. That’s the only heat source because it would be too expensive to tie the basement into the original heat source or add a second unit.” If someone wants to finish a basement, and they don’t want to tie into the original unit because of cost, I’d recommend a baseboard heater or a wall heater. It can’t be something you plug in; it must be affixed to the wall to be considered a permanent heat source. A window air conditioner or a fireplace are not considered permanent units.
Certified in Tennessee and Georgia – FHA approved
Task force question: How is value determined for a finished basement versus an unfinished basement?
Chuck and Laura are right – a home’s value does depend on a number of things, so I don’t come to your house with a pre-determined adjustment schedule. But I want to provide specifics today so I ran a regression analysis on Hamilton on Hunter data. I did existing inventory year build up to 2012 for unfinished basement space. And then I did existing inventory year build up to 2012 for finished basement space. So I had two sets of data: one with only unfinished basements and one with only finished basements. The regression analysis indicated a $17 per square foot contribution from finished basement space.
That surprised me. My minimum thought when I appraise finished basement space in that neighborhood is $20 per square foot. And that isn’t cost, it’s contributory value. If your listing has 600 square feet of finished basement space and I’m using a comp that has 500, I’m going to adjust for that 100 square foot difference.
It’s driven by utility, quality of construction, and condition. We’re going to use whatever definitions of market value that specific location has to determine our adjustment schedules.
The big thing I want you to take away from this is I don’t come to your listing with a pre-determined adjustment. I’m going to see what you have and see what other people have paid.