Appraisal Problems
Friends and Colleagues:
We are having a problem with a low appraisal which at its roots
is probably an industry-wide issue that you are certain to bump
into. Without immediately going into a bunch of detail, a customer
that we are hoping to build for has received a low appraisal on
their proposed project, which prevents them from meeting
loan-to-value ratios that their lender demands.
I’ll go into more detail but if anyone else has experienced
this problem, would you please share your thoughts and experiences.
Our customer has a contract on a 50 year-old home in a good
location here in Winter Park. The home has been updated with new
windows, cabinets, appliances, roof and fresh paint. It really is in
excellent condition. We want to add 1400 square feet with a Master
suite, billiards room and home theater.
I’m sure the appraiser feels like he’s doing his job
correctly, but he’ll be paid whether the deal consummates or not.
With only distressed sales to use as comps, the square foot value
used to assess the value is quite low. The additional space
supposedly has a value of $64 per square foot – ridiculous, huh?
What do we do now?
Cost-per-Square-Foot
Builder Magazine - McMansions vs. Smart
Design (PDF)
published January, 2010
I’ve
just finished reading “Is the
McMansion Dead?” by Jenny Sullivan in the current issue
of Builder. There has been much written and broadcast in the media
recently about the plight of the McMansion and I can’t help but
sense some animosity in the tone of many of the stories. I have sensed
that some people show a little pleasure in seeing those, perceived as
being more affluent, now suffering and losing their homes. Some may
feel that the death of the McMansion is reprise for the flamboyant or
pretentious lifestyles of their owners. While I generally agree
with much that has been said, I can’t help but think that the
consumers’ desires for “newer”, “bigger”, “better”, have
managed to put bread on our table for many years now.
All
that said, my response has more to do with what wasn’t mentioned in
Jenny’s story. Here in
Central Florida
where we are suffering from one of the worst new home markets in the
nation, Cost-per-Square-Foot continues to be the overwhelming
guideline used by consumers and most real estate professionals, to
compare the value of homes for sale. This Cost-per-Square-Foot
mentality fueled the boom market with big, boxy, generic floorplans
and a cafeteria buffet line approach to design and amenities. With my
own unsold masterpiece, twice I’ve lost sales to other homes that
were actually more expensive than mine but offered a lower
cost-per-square-foot. One of the buyers told me they preferred my home
but felt the larger one was a better value. They actually spent more
and purchased a home that is bigger than they need because of this
brainwashing. In addition, my home is green and will cost much less to
run and maintain, which wasn’t even a factor in their decision
process. If this rationale carried over to our automotive purchases we
would all be driving gas-guzzling SUV’s and be willing to spend more
for them than a practical, efficient vehicle. Oh wait a minute…
This
past spring, our local HBA Parade of Homes featured the seven
most-expensive new homes in the southwest quadrant of Metro-Orlando.
They were built by seven different builders but were all basically the
same floorplan. As builders and designers we must accept our share of
blame for part of the problem. If we persist in building big, glitzy
drywall barns with no real discernable differences, then the public
will continue to treat housing like a commodity. The solution may be
better design. In addition to creative style, our homes should be
designed and built to provide low environmental impact, accessibility,
adaptability, sustainability and ease of maintenance. Smart design
should create a timeless appeal and lasting value, and there isn’t
any reason they can’t be exciting and glamorous as well. Think about
it.
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