6 bed / 5 bath 3700 sq feet $175,000

[Asher Anthes]

So, I put in an offer yesterday for this house, there were about 4 other bids and I'm hoping I was the best one. I'll find out today if I won it. It's a short sale, but I'm pretty sure the bank has approved it already at this price.

The house needs about $10k - $15k or so as far as I know now to get it to resale. But, I'm planning on living in it and renting it out to friends for 2 years, and then selling it.

The house was built in 1998, all brick, 6 bed 5 bath, 3700 square feet, and it has an additional kitchen downstairs (could be converted into an apartment).

At my price, the price per square foot is $47. The comps average price per square foot are $80 (pulled 6 comps and threw out the highest and lowest). However, those comps are mostly 4 bedrooms 2.5 baths.

My main question is should I discount my assumed after repair instead of basing it strictly on a price per square foot. If I multiply 80 by 3700 I get $296,000, but I feel like $260-270 may be a little more realistic because people won't pay proportionally the same amount more for a 6/5 as a 4/2.5 per square foot.

Is this good logic? I still feel like its an awesome deal knocking off some of the ARV for this reason. Thoughts?

[Jon Holdman]

This stuff varies from area to area. But in my area, here's how I see appraisers handle this.

First, you MUST distinguish between ground floor, second floor and basement footage. Value is largely determined by ground floor footage. Second floor footage might be worth half the value of ground floor and basement is worth maybe 10-20% of ground floor.

When looking for comps, you have to have similar styles of houses. Sounds like yours is a ranch with basement. So, ideally you would only use other ranch with basement houses for comparisons.

Now, look at the comparison floor by floor. An appraiser will figure out some value for each floor. Say they decide ground floor footage is worth $100/sq.ft. and basement is worth $20/sq.ft. And yours is 1850 ground and 1850 basement. Lets guess one of your comps (the 3112 one) is also equal up and down for 1556 sq.ft. each. Now the appraiser will make an adjustment for the difference. It IS NOT the $/sq.ft. overall number. The appraiser might say the adjustment is $40/sw.ft. up and $8/sq.ft. down (i.e., 40% of the average selling price). This is because simply adding 10% to the size of a house without changing anything else is a minor change that costs very little (when originally constructed) and adds little value. That is, a house that's 10% larger probably isn't worth 10% more than the comp. This gets worse and the ratio increases. A house that's twice as large as it neighbors is worth nowhere near double the others.

So, now you have a difference of 294 sq.ft. each. Upstairs that's an adjustment of $11,760. Downstairs is $2,352 for a total of $14,112. So, the sales price of the comp would be increases by $14,112 to get the adjusted sales price for your subject property.

Assuming you're dealing with a ranch with basement then any of your comps that are ranch w/o basement or two stories or any other style aren't good comps.

Really, its best if you have some example appraisals from your area. That way you can see what sort of adjustments are done in your area.