It’s relatively easy to establish the market value of a property located in a neighborhood where the houses are created in the mirror image of one another. Figuring out the valuation of an unusual property is another story.
Appraisers determine market value by comparing the property in question with three similar properties in the neighborhood that have sold and closed within the last six months
In recent years, there has been plenty of sales activity, so finding comparable sales in most neighborhoods hasn’t been a problem. However, in certain low turnover markets finding comparables can be challenging. Even more taxing is finding comparables for a truly unique property.
Recently, a one-of-a-kind listing came on the market in the desirable Crocker Highlands neighborhood in Oakland, Calif. What made this property unique was its impressive architecture and size. It was a 4,500-square-foot home in a neighborhood where a 3,500-square-foot house is considered big. The lot size was big and the yard included a swimming pool — also uncommon for the neighborhood.
The special nature of this listing attracted a lot of attention from multiple buyers who wanted to make offers. The trick was figuring out what it was worth. There was not a single house in the neighborhood that could be called comparable to this one.
HOUSE HUNTING TIP: Appraisers who are faced with this predicament look to other neighborhoods that could be considered somewhat comparable in order to help determine the market value. In the above example, expanding the geographic boundary to neighboring Upper Rockridge and Berkeley yielded valuable insights into the probable market price for the property.
The winning buyer in this particular situation paid all cash. The purchase was not financed with a mortgage, so the property wasn’t put through the scrutiny of a lender’s appraiser. However, if the buyer had included an appraisal contingency as a condition of the purchase contract, an appraiser would have used the same approach.
Last year, a unique property was sold in the Rockridge area where most homes are on postage stamp lots. This special property had one level acre of land with a tennis court and a recently restored Mediterranean-style home built in the 1920’s. There was literally nothing like it in the neighborhood.
This time, the buyer needed a mortgage to finance the purchase. The appraiser for the buyer’s lender appropriately considered the property an estate. He looked to Piedmont for comparable sales — a nearby affluent community with many estate properties.
Piedmont’s claim to fame is a fabulous school district. Oakland’s schools, while improving, aren’t considered on par. Appraisers make adjustments to account for the value-added benefits that one comparable property might have over another to derive a justifiable market value for the subject property.
Even if a listing isn’t unique, there are times when there’s little comparable sales data, especially when sales activity drops. Although this hasn’t been a big concern during the last few years of robust home sale activity, it has been a problem in the past.
In this case, appraisers look for similar listings that sold longer ago than the generally accepted six-month cut off date. Valuation adjustments are made for market changes during the intervening period.
We’ve been in a market of rapidly increasing home prices for several years. During this time, buyers have often waived their right to have the property appraised. Going forward, it might be wise to rethink this strategy.
THE CLOSING: Depending on how an appraisal contingency is written, you may be able to withdraw from the contract without penalty if the property appraises for less than the price you’ve agreed to pay.
Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers,” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.
