Barndominium properties usually pop up in more rural areas. They might be converted barns or shiny new metal pole buildings transformed into homes. When it comes to the appraisal process and reviewing the appraisal report, barndominiums need special attention because they’re often unique to their surroundings.
Simply put, if you’re planning to finance the home through a lender, get it insured by FHA, or sell it on the secondary market, it’s crucial to put together a fair and comprehensive report to safeguard the lender from potential losses. Keep in mind that these appraisals take extra time and effort, so it’s only fair to charge a bit more for them. Here are five guidelines to stick to when appraising barndominiums.
1. Consider each barndominium on a case-by-case basis
Both you and the underwriter need to figure out if there’s enough information to form a solid opinion on the market value for each specific property. This hinges on how much the barndominium differs from the more traditional houses in the neighborhood. It also depends on how many of these properties have already been sold in the area.
2. Assess the perceived value by buyers
When you’re appraising a barndominium, don’t assume that buyers will dish out more—or even the same—as they would for a more traditional property. Consider the location; are people willing to pay extra for the home’s unique perks?
Perhaps it’s cost-effective to build, or they value the spacious open-concept living. Is it practical, and do the benefits outweigh any drawbacks? It’s crucial to acknowledge obsolescence, especially whether the home’s maintenance might turn it into a less appealing option.
3. Dig deep for comparables
You don’t have to stick to comparable sales that exactly match the design and appeal of the property you’re appraising. But, if you opt for comparable sales that closely resemble the barndominium, you’ll boost the accuracy of your appraisal.
Because the property could be the lone barndominium in the neighborhood—or even the entire town—you’ll have to widen your search. Look beyond the past 6 months and consider areas outside the immediate vicinity to find comparable properties.
It might take you to a different neighborhood, town, or even another state. Just make it clear in your report that you found the comps in a different market and specify whether that market is a competitor, superior, or inferior.
4. Be consistent
When appraising barndominiums, pick comparable properties that match the size of the subject property. Also, it’s crucial to stay consistent when calculating and reporting the finished square footage of the gross living area. For instance, if you’re comparing a barndominium with a workshop on the lower floor to a more traditional home, focus on comparing the finished living space of the barndominium to the traditional home, rather than the total square footage of the entire barndominium.
5. Compare improvements to those in the neighborhood
Any upgrades should blend in with the neighborhood in terms of age, type, design, and materials used in their construction. If there’s pushback in the market against a barndominium property due to its upgrades not aligning with the neighborhood or meeting the competitive market standards, be it plumbing, heating, electrical services, design, quality, size, condition, or any other factor tied directly to market demand, address how this affects the value and market appeal of the subject property.