Reader Question: Is it proper in valuing residential real estate to adjust the comparable sales value by the “cost” of amenities not present in the comparison properties (i.e. an outbuilding-indoor riding arena)? Fran D.
Monty’s Answer: Hello Fran, thanks for your question. The answer is “yes,” unless the building is about to fall over. Fee appraisers are trained and tested in real estate valuation, which includes learning how to adjust differences between the comparable and the subject property. In some organizations, they must work under a designated appraiser as a trainee. They belong to one of a dozen or more of the organized appraisal groups and earn a designation that signifies they have completed such studies. Examples of those organizations’ designations are MAI, SRA, ASA, NAIFA or SREA. There are others. This would be surprising if it were a licensed fee appraiser that missed this.
Not only should all the comparables have indoor riding arenas, the adjustment for each comparable is likely to be different. A regulation sized arena of superior construction and loaded with amenities could cost $500,000 or more, while a smaller facility with few amenities could be $70,000. Not that they consider the dollar for dollar cost, but the facilities need to be considered individually,
Real estate agents often do not make adjustments
Real estate agents have little training in those techniques as part of obtaining and maintaining their real estate license. Some agents seek appraisal courses that are available and learn these techniques on their own. Others depend on automated evaluation software that utilizes scale to achieve their results that often overlook several key aspects of the appraisal process. The fact that these online appraisals do not see the home is one key aspect. These scale appraisals use algorithms instead. This has often been seen in web-based systems, which many people see as inconsistent and inaccurate. Unfortunately, the result is that many agents trust the scaled approach as it represents the path of least resistance, or that is what they learned to do when they started in the business. This practice, or lack of it, continues because many consumers do not understand appraisals well enough to ask the right questions.
If none of the comparables had indoor riding arenas, it is correct to challenge the results. Overlooking an indoor riding arena is a colossal error. The preparer did not look hard enough if they “could not find” comparable properties with indoor riding arenas as a reason for not including them. If they have to go into other counties, or even other states, that action would be more appropriate than ignoring the adjustment.
Regardless if you are selling the property, or trying to buy it, your red flag should be waving gingerly in the breeze on the valuation. I have included links to two articles entitled How to challenge a home appraisal and how to choose a real estate agent.
I hope this information is helpful, Fran. Please ask other questions after reading these articles, or more help is needed. Good luck in learning the value of the property.