Home buying & appraisal

May 19, 2015 7:14 PM

Does the lot size play a significant role in home appraisal?

I can see how an extremely large lot/yard can potentially be undesirable (maintenance/upkeep etc) but otherwise, does the lot size play any role in appraisal? Say we have 2 homes A & B. A has a living size of 1100 Sq. Ft. & lot size of 3800 Sq. Ft. (a decent looking yard) and B has a living size of 1250 Sq. Ft. and a lot size of 2200 Sq. Ft. ( no real yard to speak of). Will there be any significant differences in their appraisal for mortgage purposes?

posted by asra to Work & Money (8 answers total)

When you buy or sell a house, you are basically buying or selling land, plus a structure built on it. Everywhere I am aware of, the home is appraised as a combination of the values of those two things. You should be able to determine the value of the land based on council rates, if you pay rates relative to the size of your land. You can determine the value of the house from various online calculators used for home insurance purposes.

Different locations have different proportions of land vs house value. Here (Sydney, Australia), the land is usually worth a little more than the house, so a property with twice as much land would be worth much more than the other, but not worth twice as much, as the house is still worth something. In other locations I have lived, land is worth very little compared to the value of the house, so doubling the land size might only add 5-10% to the property value.
posted by lollusc at 7:21 PM on May 19, 2015 [1 favorite]

(There are also other considerations, for example, land that is large enough to subdivide or to build townhouses/duplexes/apartments on, would be worth MORE than twice as much as half that land, because land plots that large are relatively rare, and can be leveraged into a lot of profit if developed.)
posted by lollusc at 7:23 PM on May 19, 2015

House A has half again as much land as house B. I can't think of anywhere around here where the dubious benefit of low maintenance requirements would trump 50% more land (everything else being equal. IE say both houses are mid street right next to each other).

You already have the difference though that house B is 10% larger. People who desire small/no yards generally consider the cheaper price of their heavily built land to be a bonus rather than something worth paying extra for.
posted by Mitheral at 7:39 PM on May 19, 2015

The appraisal tells the bank the value of the property guaranteeing the loan. Everything that affects what the property would sell for can and usually is factored into that, including both the lot size and desirability/location of the land.
posted by Candleman at 7:42 PM on May 19, 2015

The lot size is considered, of course. How strongly it is considered depends on a number of factors, such as where that lot is located, how flat that lot is, how it is zoned, and what features it has. Bigger is always better, because it gives you more flexibility. Ultimately if you don't want to keep up a yard, you can just pave it or park cars in it or whatever you want, or heck, knock down the existing house and build a new one so big that there's no room on the lot for a yard.

The most extreme example of this is a house going for "lot value": i.e. the house on the land is so old/decrepit/otherwise undesirable that the lot is appraised as if there weren't a house on it at all.
posted by town of cats at 8:06 PM on May 19, 2015

An appraisal isn't the same as land value.

Whomever is appraising your property will be looking for similar properties in the neighborhood to compare against. The prices that those properties got at sale are what determine the "comps" for your target house.

If all the 1100/3800 homes that sold recently are in one range of values and the 1250/2200s are going for another range then yes - lot size is, indirectly, a factor.

The condition and features (e.g. deck, paved areas, fences, etc) are of course used in adjusting the comp value into the final value of a home so I'd also say that a nice backyard is a positive in the appraisal process.
posted by JoeZydeco at 8:48 PM on May 19, 2015 [1 favorite]

Don't forget the zoning. Some smaller lots could be considered unbuildable if the zoning has changed since they were built. Many communities are doing this to prevent McMansions.
posted by Gungho at 9:00 AM on May 20, 2015

I note that your location is San Francisco.

The value of the lot is everything in the Bay Area. The value of the actual property on the land is a rounding error or footnote ("Gorgeous 5000 sq foot lot with bay views. Oh yeah, there's a house there as well. 3 bedrooms or something"). The location and condition of the land matters a great deal (busy street, nice view, flat/hilly, etc), but the land definitely figures into the appraisal and will probably be a significant part of it where you are.
posted by It's Never Lurgi at 11:49 AM on May 20, 2015