How can similar homes compare when the acreage does not?

Asked by JM, 76087 Thu Oct 18, 2007

Our home has 20 acres but when the comps come up they can have 5 or less, why are they still comps? Why don't they concider the amount of land?

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x, , 30650
Fri Aug 8, 2008
It depends what the question really is... if the appraisal is being done for a re-fi, the bank may only be willing to underwrite the home plus 5 acres - so comparing to other homes with 5+/- acres makes sense. Its not that the remaining land does not have value, but many loan programs will simply not accept acreage as collateral for a standard residential loan.
If its a "market value" comp, then you can still be compared to homes with less acreage, if those are readily available, but you would get an adjustment for your additional land.
There's a principal of value in real estate that the "buildable lot" has a certain value - whether thats 1/6 of an acre or 2 acres, or 5 acres - and then the remaining land has lesser value.
For example, in pricing an estate lot subdivision with a minimum acreage requirement of 1.5 acres per lot, the 1.5 acre lots have the highest value per acre and the 5 acre lots have a lower average price per acre.
1 vote
Ute Ferdig, Agent, Auburn, CA
Thu Oct 18, 2007
Hello JM. I live and work in a rural area and I know exactly what you mean. Preparing appraisals has always been a lot more difficult in more rural areas due to the fact that it is much harder to find true comparable sales. This result in having to consider homes that are on smaller or larger properties than the subject and then you have to make adjustments to the prices as best as you can. You also have to consider that not all acreage is equal. A 20-acre parcel can have less usable acreage than a 5-acre parcel which will affect value. I wouldn't say that the extra land does not count at all, but it probably does not count as much as you might expect.
Web Reference:  http://www.theMLShub.com
1 vote
Ruthless, , 60558
Sun Oct 21, 2007
When it comes to the acreage, you need to consider "highest and best use." If you sold your home on 5 acres for $500k, would you be able to sell the 15 other acres for $50k, $100k or $300k? What value is the land? Is it just for beauty? If the home next to yours is $500k and only has 5 acres but they see the same beauty in your 15 acres, why buy the cow if you can get the milk for free?

If the land is used for farming and the expense to farm 20 acres costs more than the profit but 5 acres can be managed for personal use, why spend $100k more if you are not going to get a return on the extra land?

You need to think of your extra land the same as some people consider a swimming pool. If someone wants a swimming pool, they will pay extra for it. But if your buyer has a toddler and worries about he danger and the cost of maintaining the pool for it's limited use is not worth the effort, the pool lowers the value of your home.

You might consider getting the 15 acres appraised and donating it to a charitable organization for tax benefits and selling the home and 5 acres for current market value.

Good luck,
Ruth
0 votes
Jolie Muss, , Upper West Side, New York, NY
Sun Oct 21, 2007
JM,
Are the comps you are talking about from your agent or appraiser? You may have to go to a neighboring area where there are larger pieces of land, also you may be able to obtain comps of land parcels for sale and arrive at a more realistic comp (my averaging) if the appraiser will work with you..I've been in your situation and it is quite sad because it sometimes forces people to subdivide and sell their land off to obtain an appropriate appraisal.
Good Luck,
Jolie
Web Reference:  http://myspace.com/nycexpert
0 votes
Carrie Crowe…, Agent, Southaven, MS
Fri Oct 19, 2007
JM,
Rural comps are always harder than comps in specific neighborhoods. Surprisingly the land does not ad as much value as you think. If I have a difficult property to price I generally use the aid of a licensed appraiser. Sometimes there are just not enough properties that match.
Web Reference:  http://carriecrowell.com
0 votes
Sylvia Barry,…, Agent, Marin, CA
Thu Oct 18, 2007
Hi JM:

Maybe one of the problems is that there is just not enough properties around your local area (how big a local area is relative) with that much land.

When we do comps, we select properties that are either currently for sale, under contract or sold recently - depending on how many there are to get a meaningful number of houses, we may go back 6 months to a year.

If yours is the only property with 20 acres and all the others are 5 acres or less, than that's what we can compare with. Even if there are other similar properties with 20 acres of lot, if they are not local, or if they were not on the market during the recent year, then they would not be selected.

In short, maybe there is just no other choice.

Sylvia
0 votes
Thesa Chambe…, Agent, Bend, OR
Thu Oct 18, 2007
If you have had an actual appraisal done - they try to use homes that have sold in the same area as your home. They will give your acerage consideration when they compute the value - sometimes you will see a 3 bedroom home on an appraisal for a 4 bedroom home. You may find properties from the same neighborhood with 1 acre often compared to 5 acres the appraiser makes adjustments to give you the value using properties that are similar and in the same area.
0 votes
Ken Herrera…, Agent, Las Vegas, NV
Thu Oct 18, 2007
Hello JM,

If your home happens to be unique in acreage but similar in size and amenities as other homes in the area, most people will not take the time nor put in the effort to effectively find the value of your home. Amount of land must be considered. I would speak to an appraiser in your area and have them check neighboring areas that may have homes with lost your size. It is difficult to say the value of your land in relation to your property , it is not as cut and dry and adding a number relative to the other properties. Most people check for homes that are similar and it may just simply be "too" much work for people to get you the value you need. Please consider the fact that it is not always best to own the biggest house in the neighborhood, the fact that your lot is rare may hinder you in the long run as it may not be uniform with the neighborhood.

Good Luck,
Ken Herrera Century 21 Infinity
http://www.C21Infinity.com
0 votes
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