If you ask appraisers to provide examples of complex appraisal assignments, many will focus on commercial or mixed-use properties or two-to-four family properties. However, many single family home appraisals are considered complex assignments. Below, we provide the definition of a complex property and dig into the three types of residential complex properties.
What makes a complex property?
A complex one-to-four family residential property is defined as a property that meets at least one of the following criteria:
- The property to be appraised is atypical
- The form of ownership is atypical
- The market conditions are atypical
Below we dig a little deeper into each type of complex property outlined above, providing detailed descriptions and examples of properties that would fall under each of the three categories.
The property to be appraised is atypical
In this case, the property is an outlier, oddball, or not common for the particular area. Of all the characteristics that can make a property complex, physical features are the ones that are most obvious. Some of the key physical features that can make an appraisal assignment complex include:
- Size (significantly larger or smaller than typical for market)
- Floor plan (there may be functional obsolescence)
- Unique custom features
- Quality of workmanship or construction (higher or lower than the norm)
- Architectural design
- Adequacy of HVAC, electrical systems, well and/or septic
- Additional living unit(s)
- Non-conforming zoning
- Mixed-use property (for example, it was used as both a business and residence)
- Waterfront properties compared to 1-mile radius of non-waterfront properties
Keep in mind that what is considered complex in one market might not be considered complex in another market. For example:
- A mansion in Beverly Hills is not atypical; a mansion in rural Alabama may be.
- A log cabin in the mountains of Virginia is common; a beach-front log cabin in VA, not so much.
- Manufactured or mobile homes with additions are common in rural areas, but not in cities.
- Earth or berm houses can be found in the mountains, but not in the city.
Atypical properties include:
- Dome houses or other homes with very different or unique architectural styles
- Converted barns
- Partial house—for example, half the house or the basement—is built, and the owners will finish the rest after they have saved enough money to do so
- Regular houses with unfinished additions
- A house that has been added onto and remodeled and is excessively large and/or its amenities are atypical in its market
- A new construction house that is over-improved for its market (luxury homes)
- Homes that are historic in age or possibly a new construction home in an area of older construction
- A larger than typical site size
- A house situated on a commercially-zoned site
- A property that has been stigmatized from an event that occurred there (death or notorious crime)
- A property with outbuildings situated on rural acreage
- A property that is in poor condition (if it is atypical for an area or there are no sales of poor condition properties)
The form of ownership is atypical
In this case, circumstances involving ownership are uncommon or make the appraisal more complex. For example:
- The owner doesn’t own property rights on a waterfront property.
- Life estate deeds exist on the property (i.e., the owner of a property—the grantor—transfers the legal ownership and use of the property to be used by another person for the life of that person).
- A partial ownership interest in the property exists.
- The property is bank owned.
- The property is a flip.
The market conditions are atypical
In this case, unique market conditions increase the complexity of the appraisal. For example:
- The property is located in an area where there are no other sales.
- There is no market for the house; no sales are occurring for some reason (e.g., the property is near a nuclear site cleanup).
- The sales in an area are in a severe decline as the result of a housing bust.
- There is a lack of sufficient comps.
- There is a lack of sufficient data, or market reaction was not easily measurable.
- The market conditions are rapidly changing or the neighborhood is in transition.
- Conflicting information, such as comparable homes selling for wildly different prices for no apparent reason.
Further reading: How to Pull Comps on a Complex Property
Complex property appraisals can be both challenging and profitable for the residential appraiser. It’s important to consider that a complex property will require more time and expertise, so you’ll want to set the fee accordingly. For more insights, enroll in our top-rated CE course, Complex Properties: The Odd Side of Appraisal.
Editor’s note: This post was originally published on March 16, 2021 and updated December 16, 2022.