"when you build the largest home on one of the largest lots in the neighborhood does this affect the value?"

Yes.

Great...thanks. That was so informative!

Generally it may pull Down the actual value of the house. It is best Not to have the largest or nicest house in the neighborhood, it is more to your advantage to have one of the smaller, less nice houses in the neighborhood.

You can start by comparing price/sf. How does this house compare to recently sold comps on that basis?

Is $70 -$100K 5, 10 or 25% higher than the other homes in the development. That also makes a difference in offering price.

Also, what is the value (rental value) of the MIL apt? In many areas that can raise the price by 100k automatically.

"Also, what is the value (rental value) of the MIL apt? In many areas that can raise the price by 100k automatically."

Make sure the zoning allows the apartment to be rented to an unrelated person.

Many houses have such apartments that are not technically legal for anyone but a direct relative.

As for the largest lot size, it depends upon how much larger and if the larger size is actually useful. For example, in my neighborhood lot sizes range from 3 acres to 17 acres. Most of the larger lots are heavily wooded with a similar amount of cleared area as the smaller lots. The additional woods provides privacy and recreational opportunities not available on the smaller lots. Is it useful? That is an individual opinion. Some may see the value. Some may not.

Generally if one is talking about smaller, typical lot sizes found in suburban neighborhoods, the difference in lot sizes is negligible.

In this instance of this house, the in-law apartment may or may not have daily value for a buyer or owner. The extra square footage will bump up the value, but ultimately a buyer will determine if it is worth the extra cost.

I think terriks has it right. It depends on what percentage of the overall price it is. If the price is 1 mio, then 100K more for a larger house on a larger lot with an IL apartment would probably be a bargain. If it's 250K, then probably not.
Can you find out what the price differences where when the houses originally sold?

The entire concept of "comparables" is a bunch of horse crap. It's lazy and superficial and wholly inaccurate.
But it's how the real estate game is played in 'merica.
More's the pity.

And the alternative is? What information do you suggest using in pricing a house or determing what to offer on one? Do you really not want to know what the similar house sold for across the street last month?

Really what approach to valuation do you suggest that would be more accurate for the types of property discussed here.

I know for income producing property you can use the income approach to valuation, but that only works for rentals or other income producing properies like farmland are used. Another approach to valuation is the cost approach but often that doesn't tell the whole story either. Right now in many areas you can still buy properties for less than cost. most commercial appraisals I see usually discuss all three approaches, but weight them according to the type of property.

The entire concept of "comparables" is a bunch of horse crap. It's lazy and superficial and wholly inaccurate.

I'm curious too. What alternative method would you suggest?

"The entire concept of "comparables" is a bunch of horse crap. It's lazy and superficial and wholly inaccurate. "

Then just how do you propose to determine the value of a property?

Use a Ouija board/

Throw dice?

It is used by both buyers, sellers, and lenders to at least try and establish value.

Or do you think your asking price automatically determines the value?

No, brick. I believe anything that is for sale, be it a bicycle or a house or a car or any sort of widget, should be judged and appraised on it's own merits.
If I've upgraded my home over the years, invested in things like new HVAC, custom kitchen & bath renovations, and so on, why should the value of my home be set, in part, by what my neighbors have or have not done to their homes??
Let's say I have a top of the line 2011 camry, loaded up, new tires, meticulously maintained, low mileage, and you have the 2009 base model, high mileage, worn tires. We're both trying to sell these cars in the same town. Why should my car's value be compared to yours?? Because they are both Toyotas? Not exactly sound logic and reasoning, is it.
I apply the same rationale to houses. You don't. And so it goes.

But your car's price is compared to the older worn out car. They start at the same value, but value is added to yours because of upgrades, condition and age, and the other car is devalued because of its condition, lack of upgrades and age.

Exactly the way that real estate is appraised. :-)

Yep, you're right, terriks, and I agree. I think I should have put a finer point on my gripe. What I object to is lumping "comparable" homes into a $/sq ft range, which does not allow very much latitude for upgrades and quality.
My home is worth waaaaay more than my neighbor's down the street, even though they are the same floor plan. They haven't done anything to their 14 year old builder grade house, while I have put a major chunk of change into mine to make it higher quality and more desirable. But somehow, both of these houses will be looked at in the same relatively narrow $/sq ft range, based on "comparables" that take nothing into account other than size and sell price.
As I've said already, it's a ridiculous methodology.

The lot is basically the same as all the rest...cleared with a tree line at the back. So all is "usable".
The owners bought the lot 10 years ago and built the house...so the only price history is what they paid for the lot.
The mother-in- law apartment cannot be legally rented. It's not zoned for it.
It has been my experience that when homes are in a development the value of the other homes determine the value of yours. Of course you can up the asking price for larger, more upgrades but not to the extent that you could if the home was in a development with houses similar in size etc.
Is this out dated thinking in todays market?

However, the value of a home doesn't usually increase dollar for dollar of the costs of the improvements.

This recently happened in our neighborhood of houses 5-15 years old. The sellers got about $50,000 more for the house than other houses have sold for, and it sold very quickly. From what I've heard, they got about $40,000 less than they put into it. Looking at sales over the past few years in our neighborhood, it was the right price considering the size and age of the house (it was a little newer than most).

Depending on where you live, tax valuations might give you a clue to the value. In my city they are pretty consistently 10% below the market price.

If you think my Market Valuations only take into account sq, ftg. and sales price, then you do not understand what other variables go into the mix... I adjust for exterior materials, # of baths, # of parking spots in garage, lot size, age, upgrades, fences and much more, and then I always have a column for Additional Features or Delinquencies to capture those items that are less obvious, like location or, odd floor plan or a great view.
You keep saying that this way of determining the home's value is no good, but then fail to offer us a better solution.

I didn't fail to advance an alternative, NC guy. I suggested that the value of a home should be calculated by independently appraising it in it's entirety.
What I don't think should factor in is what other homes sell for. There is no rational correlation between the two. Why should an uncared for home drag down the price of my lovingly maintained and upgraded home, simply because they are similar in size, year built, and layout (but otherwise night and day)?
The way "comparables" are used is totally facile, and it rewards the lazy slobs and punishes those who have strong pride of ownership.

I think the question is to what extent you really can calculate the value of a home completely independently of its context, i.e. the value of the surrounding houses.
There's a certain base value for a property, no matter what condition it is in, based on location, lot, square footage and/or number of bedrooms and bathrooms. Then you add or subtract for features, special circumstances, and condition of a specific property. In some cases, condition is negligible because lot and location account for the bulk of the value of a property, not the house itself.

Location, location, location.

It makes perfect sense to determine the value of a house by comparing what nearby properties have sold for. A beautiful mansion with top-of-the-line finishes in a neighborhood of crack houses (or for a more modern spin, meth labs) is going to have a significantly lower market value than the same house surrounded by similarly upscale homes. If your block is filled with ramshackle houses in varying states of disrepair, the value will be diminished by the surrounding properties. Of course that sucks for the person with the updated/well-kept home, but it is not some conspiracy designed by appraisers to penalize you. It is simply due to the fact that poorly-maintained neighborhoods are not desirable places to live.

None of that hyperbole applies in my case, but I appreciate your post.

I suggested that the value of a home should be calculated by independently appraising it in it's entirety.

Value is what a willing buyer will offer ... and part of the buyer's offer is going to be based on the location, the neighborhood, even the zip code and city.

I do get what FmrQuahog is saying, and I can also understand some of the other reasons for comparables. What hasn't been mentioned, though, is foreclosures being included in comparables. I don't agree with that. Someone's misfortune or inability to pay shouldn't punish everyone else who is trying to sell.

This post was edited by frozenelves8 on Sat, Jun 22, 13 at 19:42

But those foreclosed homes are part of the market. Why would a buyer pay more for a non-foreclosure if they can get a comparable foreclosed home for less money?

Exactly. The fact that a foreclosure even occurs and that the property hasn't been sold earlier, or if it sells for less once it is a foreclosure, shows that it's justified to be included in comps.
In my area, there are hardly any foreclosures on the market. (The banks are holding on to them for now.) If there are, they certainly don't sell for a lot less than what other houses sell for, unless they require extensive repairs or have serious defects (mold, water damage, asbestos...).

Ignorance is not bliss...it is just ignorance.

FmrQuahog,
Either you are just a troll or are just skimming my posts.
I stated that comps are used and then adjustments are made for items that are not of equal value. Such as condition. Then you come on in the next post stating:
"Why should an uncared for home drag down the price of my lovingly maintained and upgraded home"
And again, it will not affect your value, as condition is another one of those items that are adjusted when comparing two separate properties.
You also state:
"I suggested that the value of a home should be calculated by independently appraising it in it's entirety."
But at what baseline would the appraiser start at? At some arbitrary, random price? Like others have said, two homes exactly alike, can have two very different market values in two different locations.
Everything in the free market is valued this way, rather you want to admit it or not, even your widgets that you make at work. You don't really think that the buyers of your widgets don't compare the attributes and qualities of your product against the competition do you? Sure they do. And after comparing them to the rest of the comparable products on the market at that time, they decide if your asking price is reasonable or not.
Same process as valuating your home.

I reject the status quo because I do not benefit from it.