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Getting a 6-Figure Home Appraised: An Interview with Marcus Denton of Yellow House Appraisal and Valuation Services

By Marcus Denton

Tell us a little bit about your company and the services you offer.

We are Real Estate Appraisal and Consulting firm with 2 full time Certified Residential Appraisers and 1 full time office manager. Our appraisers have 10 and 15 years of experience. We are primarily a residential company, but also have partnerships with Certified General MAI appraisers to handle commercial properties. Our primary service areas are Kent and Ottawa counties and along the Lake Michigan shoreline. We also service portions of Allegan, Muskegon and Barry County. Both of our appraisers are FHA certified and our chief appraiser is VA certified. We perform appraisals for a variety of uses besides lending, such as; divorce, tax appeal and pre-listing services. We will soon be an active real estate brokerage as well.

What are some key things to take into account for a multimillion dollar home appraisal?

The same factors that apply to any real estate apply to multimillion dollar properties. Things such as location, quality, condition, scarcity, etc. These items individually may play a more dramatic role or may seem more exaggerated in a multimillion dollar property than they would in a typical single-family residence, however, the same factors that contribute to the value of any piece of real estate contribute to the value of more expensive real estate.

As an example of items that may seem more exaggerated, marketing time is often significantly longer for a multimillion dollar property than it is for a typical single-family residence.

Our area is primarily the Southwest Michigan area, covered by the SWMRIC MLS. In the past 12 months, per the MLS, there were over 27,000 sales. There were only 109 sales of homes over $1 million. The average total days on market for properties over $1 million was 306. The average DOM for all other properties was 98. Sellers need to be prepared for a long marketing campaign. Appraisers need to realize that marketing time are longer and consider that in their value estimates.

Another issue is the cost of items versus its resale value. Does a particular improvement have any resale value. Many higher-end homes cost significantly more to customize than their resale value would allow, especially off water properties. As an example, here in West Michigan, the Tassell estate cost more than $6 million to build, per the family. This is an extremely high end newer home, with 10,000 ft.² of living area, on a 14 acre parcel on the outskirts of the Grand Rapids Metropolitan area. This property has been actively marketed multiple times beginning in October 2010 with an asking price originally of $3,200,000. The current asking price is $1,825,000. This property was built to a person's very particular tastes. And while this is an exceptional property, the market for such a property is very limited. Overdoing something or making a property too unique can significantly hinder a property's marketability. An appraiser needs to know how to quantify the marketability of more lavish improvements.

Here in the SWMRIC area a vast majority of multimillion dollar properties have some sort of water frontage. As with any real estate the primary factor affecting value is location. As an example, the smallest property to have sold over $1 million in the past 12 months was located in Bridgman and has only 945 ft.² on 0.40 acres. This property, however, has prime Lake Michigan frontage and is towards the southern end of the lake in an area that is popular with more wealthy out-of-state buyers looking for more affordable vacation properties.

Does a home appraiser need to do anything differently for 6-figure and over homes versus under 6-figure homes?

The essentials for any appraisal are the same. A person appraising and million dollar plus home in the Southwest Michigan area would need to figure out and be able to quantify the items that give that property its value just as they would with any other property. As indicated in the other question these items that give the property the value are often exaggerated or more dramatic. This often leads to more research on the part of the appraiser than would be necessary for a typical single-family property. For instance, many properties are valuable because of their location on Lake Michigan. Many times properties that have direct walkout beach frontage are considered more valuable than those properties perched high on the dunes and have long staircases to reach the water. It is often measurable using historic data to determine value in not only lot size, road or water frontage but also in elevation. The appraiser needs to be able to use multiple methods to get to a point of value.

What factors typically play the biggest role in a multimillion dollar home's value?

First and most important is location. Location, location, location. This is the most important factor in any type of real estate. It probably sounds cliché, because it is, but it is also true. I quite often hear the argument that, "Well if my house was over there it would be worth X amount more." The problem is that the house is not over in X neighborhood it is where it is. Real estate is inherently subject to the surrounding elements and cannot be moved. Real estate is the land and all things attached to it including the improvements. The improvements may have value and may be able to be moved to another location where they potentially have more value, however, that is not what real estate is. When you are buying real estate it is a specific plot of land.

Size, quality and condition of the land and improvements obviously also contribute to the property's value, however, location is the biggest factor. The estate noted above is an excellent illustration. If the improvements on this property were located in a myriad of other places there would be little question as to the value of those improvements. As part of the real estate that those improvements are part of, the value of those improvements is diminished.

In the Southwest Michigan area, over the past 12 months through the SWMRIC MLS there were 95 sales of homes between $1m-$2m. This MLS covers a majority of Southwest Michigan. There were a total of 13 sales of homes that were between $2m-$4m and 1 sale of a home at $7.8m. Of the total 109 homes that sold over $1m., 79 were waterfront with a majority residing on Lake Michigan or Gull Lake. As noted in a previous response, a very small cabin on a very small lot can be worth more than $1 million because of its location.

How do you evaluate some of the unique features that multimillion dollar homes might have?

With your standard single family home there are considerably more elements that are measurable and quantifiable. With a multimillion dollar property throughout the SWMRIC market there is often a more emotional response in purchasing this type of property than there is with your typical single-family home, where the purchase is based more on need. In order to evaluate more unique features it is often necessary to use a wider scope of data and a combination of approaches to extract a contribution to value estimate for those features. In some instances it may be possible to extract based on cost, however, as is illustrated in one of the previous responses cost does not necessarily equal resale value and an estimation of depreciation will often need to be applied. With lakefront properties, in particular, income can also be a factor. It is not necessarily uncommon for a vacation home to be purchased with the intent of renting it out a portion of the year to offset the cost of the property.

Do you have any tips for a waterfront homeowner before they get an appraisal?

For people with waterfront property that are going to be getting an appraisal it is a good idea to have as much documentation as possible concerning their property. If you're aware of any particular special water rights or restrictions, lists of recent updates or upgrades, surveys, etc. Also, many times, there may be sales within the immediate area that have not gone through the local MLS. An appraiser should be trying multiple sources when it comes to more unique properties such as waterfront properties, however, that information is not always available. A person that is getting an appraisal should not hesitate to share any information they may know of concerning a sale in their area.

What's the best way for people to contact you and your company?

The best way to reach my company is via email at orders@yhvaluation.com. You can also reach us by telephone at (616) 805-YHVS (9487).

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