These days, more than ever, it has become a lot more difficult to determine the value of a home’s intangible assets.
While everyone can assign a dollar value for the number of bedrooms and baths, the type of construction, or even the school district, home characteristics such as being designated as historic, having a great view, or possessing a unique charm are all subjective qualities that may be difficult to appraise.
And while sellers may wish to promote these properties as “one-of-a-kind,” real estate brokers and licensed appraisers alike often have difficulty finding suitable comparable properties.
True fair market value is what a buyer will pay and a seller will accept without duress. If a third party is thrown into the mix, the subjective nature of the purchase offer will have to stand the test of objectivity and be measured accordingly.
Here in Newnan Georgia, we have seen many of these intangible assets decline in value over the last few years. Lender enthusiasm for these attributes has eroded.
And evaluations have taken the charm out of the purchase process!
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I struggle with this, too...although not as much as Sellers do. I am also finding these days Sellers want "credit" for new furnaces or heat pumps and the link...they don't consider it the cost of homeownership, they sometimes expect to be compensated by way of an improved price.
Susan...
I often wonder where sellers get the idea that they should be reimbursed for normal maintenance? THX
Hi Richard....the intangible attributes of real estate are equivalent to the "blue sky" of a business.....those values have declined or are non existent today....
Richard, here the housing stock in downtown neighborhoods is so diverse, it's like comparing apples to monkeys. Then there are some sellers who think they should get more for their house because of celebrity value. And our celebrities are mostly politicians. Go figure.
There are some homes with wonderful curb appeal, locations and that 'so called intangible'. These homes often get lots of attention and can get offers that are quite good. Often the lender and their appraiser don't see things the same way though. It's always a tough call pricing these homes.
Richard,
Add appraisers and banks into the mix of who struggles with "intangible assets."
Rich
I just had this conversation with a seller last week. They thought they should receive extra "compensation" because they poured an extra wide driveway, had the largest lot in the neighborhood, stained the concrete in their garage etc. Not anymore...not in this market. Their house appraised for $40K LESS than original list price!
Richard, I just re blogged with this addition:
Sometimes the intangible assets or attributes of a home may translate in to why a Buyer will buy the home but not necessarily a dollar value. The post below mentions how this dollar value has eroded. The good part is that one special item in the house may be special to the new Buyers, too. So the Sale might be the best reward!
An often missed and under appreciated asset to the homes, emotional appeal items. Views, character of the home, location proximity to an acclaimed sought after school, trees, even site size. When it comes to unique items that there are no true comparables with this positive feature then it becomes a valuation nightmare. Even when the market reacts with enthusiasm for a price because the home has a sought after appreciated feature the concern is if there is a need for a loan if the appraiser/underwriter will extend thought and similar appreciation. Easy to overlook in the paper world. That is why if a loan is needed that the strength of the buyer should be examined and the lending institution being utilized before the seller accepts a contract. I would caution against lenders with appraisal management companies as they tend to hire less experienced appraisers who don't know how to properly handle the more special homes. Great post, congrats on the feature .. may you have a gold star weekend too!
We have this discussion frequently with different investors. Do upgraded kitchen cabinets really add to the appraised value. The answer: No, but....
The real hook in this business is the emotional one...When a buyer locks in emotionally, every other consideration becomes second. Getting the banks, appraisers and seller to agree remains the job of the agent. Good discussion post thank you Richard
Richard, these intangible benefits seem to be nice to have items, but rarely do buyers want to pay for them.
Very interesting post Richard.
Recently a property which was showcased in a very prominent movie came on the market in our community.
This is a very well known (and attractive) property where tourists will frequently make the pilgrimage to town to drive by.
It came on the market recently with a very polished, national promotion, and may have had a premium price because of its notoriety.
After approximately three weeks, it had a 10% price reduction. Now it seems to be priced more in line with comparable properties.
During the height of the market, we have no doubt that this home would have sold quickly at a premium to comparable properties. The "intangible premium" seems to have disappeared from our market these days.
Funny, I was just having this conversation with someone yesterday....great timing!
I could see where these things would decline in value. With the market being distressed people just don't want to pay for any extras. I have had a few people come through my doors where the wife wanted a historic home while the husband did not want a money pit. Do you find that in your market too? I love the historic houses myself.
Hi Richard, Here on Fort Myers Beah we have gulf front homes listed well over 1 million dollars. The only difference between them and similar homes 100 feet away would be the unobstructed view of the Gulf of Mexico. And if you ask the gulf front owners if the extra money is worth it they will say " YES, ABSOLUTELY YES " !!!
One man's pride and joy is another man's junk. Value is in the eye of the beholder!
Richard:
Those are the items that Seller put a premium price on and I have to tell them that they might not be as valuable as they feel. It is a very difficult situation to value those things, some of which are truly a valuable addition to the home.
Darrin, #10 comment, why don't updated kitchen cabinets add to the value? If everyone else in the neighborhood has original cabinetry and a seller has updated his cabinetry, he could absolutely ask more for his home.
Those subjective goody attributes Richard you are right are hard to assess at times and beauty is in the eye of the buyer.
The truth is, it is difficult for an appraiser given the current guidelines to appraise for these type of "special" features.
Kathy in #22 is right. Guidelines do make it tough right now for the appraiser to address these more intangible pluses and minuses of a home. And the more closely underwriting looks at appraisals, it will remain so. Rather than take the chance that these more special features/intangibles be thrown back at an appraiser for further clarification or adjustments ... or take the chance that they raise a red flag on a report .. many appraisers will just not address the issue at all and have a blind eye regarding them. This has to be so hard for a seller that loves their home to accept.
Gene
Hi Richard you are so right the lenders do not care any more--unless of course you do not need the money
Richard, at times it pays to visit with the Appraiser if allowable. If there are extras in the home that they wouldn't spot they would have to have some way of coming to their attention. For example: heavier and denser insulation, steel framed, osmosis systems, built in generators, and what's that barrier called under the roof? Jeeze, it's tough getting old! LOL, anyway you get my point. Some things are not obvious enough to be seen and they shouldn't be ignored. Great post! You got it!
Well Richard ... You are right again! I'm currently marketing a very unique ... beautiful ... signature property in our market for sale. It's gorgeous, its well located, its a golfers dream ,,, its top of the line!
The only thing is ... how many buyers need a 6,000 sq. ft. ONE BEDROOM home!
Amenities are in the eyes of the beholder!
Lender enthusiasm for these attributes has eroded.
You can say that again, Richard! I have had appraisers completely ignore upgrades in a home such as granite, stainless appliances, hardwood flooring, etc. We don't deal in many historic properties, but the beautiful historic homes in Newnan are so gorgeous. How sad that lenders are downgrading them as though they were just any other ordinary house.
Sharon