Quick appraisal question. We're purchasing a home that seems to be fairly undervalued but the seller needed out.

Appraisal came back 30k above sales price so no issue there but I was curious about adjustments made for land/lot size. The house is quite large and the appraiser obviously prioritized comparing to similarly sized houses. However, all the comparables were only on half an acre vs our 5 acres. I expected a sizable adjustment for that but it was only like $30k. Later on in his cost approach analysis, he mentions safely assuming land at $46k an acre for similarly sized land sales.

Just wanted to see if this seems odd to anyone else. I'm mostly interested because we've considered re-appraising soon after closing to get rid of pmi. Some of the comparables certainly support that idea but then some don't, and the land is the main factor I can see.

Our lender accepted the same appraisal since we removed PMI within 180 days. It was one reason why we chose that method over a bridge loan because there was no extra cost to us.

fishingag14 said:

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Quick appraisal question. We're purchasing a home that seems to be fairly undervalued but the seller needed out.

Appraisal came back 30k above sales price so no issue there but I was curious about adjustments made for land/lot size. The house is quite large and the appraiser obviously prioritized comparing to similarly sized houses. However, all the comparables were only on half an acre vs our 5 acres. I expected a sizable adjustment for that but it was only like $30k. Later on in his cost approach analysis, he mentions safely assuming land at $46k an acre for similarly sized land sales.

Just wanted to see if this seems odd to anyone else. I'm mostly interested because we've considered re-appraising soon after closing to get rid of pmi. Some of the comparables certainly support that idea but then some don't, and the land is the main factor I can see.

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From your description of the event, he made a minimal adjustment because he couldn't find a sale of a comparable site that is more similar in lot size and would justify a larger, and possibly, a more accurate adjustment. In other words, he made a conservative adjustment.

Typically, it is preferable to use acreage that is more similar and have comps that bracket the features of the subject.

There are a few things to considered regarding the Cost Approach. Many residential appraisers put minimal weight on the cost approach and consequently, don't spend much time on it. The weight is on the Sales Comparison, the grid. Looking at the site value, If 5 acre land sales are averaging $46K per acre ($230K), smaller parcels are likely selling for much more than $46K per acre. I've looked at this closely at various times and a couple of examples come to mind. One area had numerous 1 acre tracts that sold for $400K. $400K per acre. Easy math. However, several two acre lots sold in the same market that were $500K. The simple math says that these lots sold for $250/ac. However, that is not correct. The first acre was likely worth $400K, and the second acre was only worth an additional $100K.

I did another property in a different market and the lots sold for something similar to this.

.5 ac - $40K
1 ac - $55K
1.5 ac - $60K
2 ac - $65K
2.5 ac - $70K
3.0 ac - $70K

The first half acre was worth $40 K with the second half acre being worth $15K. Each additional half acre was worth an additional $5K.

If one wanted to project the value of a site based on the 3 acre lot, they might say, $75/3 = $25/ac. Therefore, 5 acres at $25K/ac = $125,000. As you can see from the example above, that may not be correct. The first acre would be $55K, and the 4 additional acres would be $40K for a total of $95K. As the acreage gets larger, the price for each additional acre usually decreases.

TLDR; I have no idea.

He pulled it out of his a$$.

The market has no problem applying basic logic. Appraisers, not so much. I just got burned on one. Subject property in a young family hood at the end of a culdesac. Two of the three comps are on terrible high traffic intersections that took forever to sell due to their individual locations. A 12 year old could see why. No adjustment and don't question my expertise!

CS78 said:

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The market has no problem applying basic logic. Appraisers, not so much. I just got burned on one. Subject property in a young family hood at the end of a culdesac. Two of the three comps are on terrible high traffic intersections that took forever to sell due to their individual locations. A 12 year old could see why. No adjustment and don't question my expertise!

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Everyone wants a culdesac but they never get anything in appraisals. Crazy