The Problem with Pretty

Sullivan County doesn't have a deep supply of stylish 'magazine-ready' homes, much less many for sale at any given time. Occasionally I come across a house that's been beautifully designed or renovated that has that extra something that makes a house special and a delight to show. Yesterday I was showing one of those --- very Hamptons country-cottage style, bluestone countertops, soapstone sinks and lots of cool little details. But the home was small, without lots of square footage or bedroom and bath count, and lacked a garage. The house is priced about 25% to 30% above other farmhouses of similar size and acreage that have sold lately. Those other houses have been nicely redone, but frankly don't have the stylish flourishes of this one that gives a house that extra cool boost.

But what's the premium a buyer is willing to pay for that? At or near its asking price the house will fail an appraisal. Unfortunately, in the case of beautifully done houses, an appraiser can't add on a 'beautiful and tasteful' premium. Expensively renovated houses here are actually at a disadvantage, because on a sale involving financing they'll ultimately be compared to more pedestrian comps. With a declining number of sales and tightening appraisal standards (for example, some lenders now are only accepting comps within the past 6 months, not the traditional 12), it may become even harder to support the price of 'better' houses.

Without a significant price reduction, in the face of a short appraisal, a buyer will be in the position of making up what could be a wide appraisal gap. Buyers right now are very nervous about 'overpaying' for a house. I've heard of a number of deals recently that have dies because the appraisal gap wasn't able to be bridged between the buyers and sellers.

This is a tough dilemma. Some well done houses are clearly worth more than some of their comparable counterparts. The question is 'How much?', and how does the buyer pay for that extra 'much' above what a bank is willing to lend on it?

Comments

[Chuck]

I wish the assessors abided by the same methodology as the the appraisers. Does it make sense that the appraiser doesn't value quality, but the tasteless tax assessor has no problem adding a premium to the assessed value?

[Tyler Durden]

I wish the builders valued integrity as much as they vauled quality and taste.

[JL]

The appraisal process should take into account upgrades and aesthetic value (i.e. taste besides just "comps" which is too simplistic in my opinion.

P.S. David - please provide us with a link to the listing!!

[TR]

The appraiser should be as objective as possible when making an opinion of value.

That means using current sold comparibles - not houses that were sold nine or twelve months ago - since home prices are depreciating every month at present due to current economic conditions.

Taste?

Is the interior decoration of the house - say - Laura Ashley or modernistic Dwell?... that should play no part in ascertaining value -nor should the furnishings since most times they might not be included in the sale of the property.

Appraisers usually stick with solid fundamentals of a property such as:

Age of house (NOT style of house)

Size of house in square footage

Location of house - near a lake, river - or on a main street, etc.

Quantity of bedrooms and bathrooms in house - large or small? High ceilings?

Along with amenities such as - fireplace?, patio?, deck?, wooden floors?, garage?, landscaping?, cathedral ceiling?

Better for the current homeowner to find out what rooms usually appreciate in value before making expensive repairs and renovations to a house.

I believe it is the kitchen and then the bathrooms that increase in value after renovations.

And consider the expense of the repairs because you and your family want to do them when you're living there for enjoyment during the present - not for the next person who purchases your house in the future since their taste might not be yours.

~TR
Narrowsburg, NY

[Steve]

Don't appraisers use value in ways other than finishing? For example, a historic house with a historic barn is appraised higher than the 1970's ranch down the street. Isn't that accomodating aesthetic value? Also, countertops, paint jobs and tiles all degrade over time. It is presumed that the structure is the main draw of the house.

[TR]

Yes.

The style of house (ranch, split, cape, farmhouse, cabin, contemporary, etc.) should be one of the factors considered throughout the appraisal process.

Other sold comps should be the *same style* as the subject property.

However, the aesthetic style of house should not sway the appraiser in setting value - namely, a farmhouse should not be considered a 'better class of style of house' as opposed to a ranch.

~TR

[DSS]

I suppose the time to really start worrying will be when the How Much Do Houses Up Here Cost page on this site is revised.

[TR]

(Audio clip - from marketwatch.com - today.)

http://www.marketwatch.com/tvradio/player.asp?guid={06FA0911-E31F-446B-96CE-FA742724FBC1}

[Chuck]

A report in Business Week states prices in the northeast have risen for the past 6 months, so perhaps the 'catastrophy reporting', statisical manipulation, and general 'bad news sells' tendency isn't the whole story.

[JM]

1990-1998 all over again

[TR]

Chuck writes...
"A report in Business Week states prices in the northeast have risen for the past 6 months, so perhaps the 'catastrophy reporting', statisical manipulation, and general 'bad news sells' tendency isn't the whole story."
==================

A link to the article - or a URL please?

[David Knudsen]

DSS, I may update the "How Much Do Houses Cost Here" page in the next month or so. I'll probably only be dropping the low end of the price ranges on a few categories, like bringing the low end for the small ranch down to $150,000. Likewise the large ranch/cape, the suburban and the cabin. I'm still thinking about whether the upper end of those ranges should change, because I'm not seeing much movement in asking prices for properties that have really good settings. But I do expect to bring some of those ranges down.