What is Functional Obsolescence? An Illustration for BPO agents!!
We have all learned those technical terms in our Real Estate classes: environmental obsolescence, ingress/egress, riparian rights, etc. While we know what they mean (I mean, we passed the test, right?), we may not typically see them in the typical, everyday practice of the trade.
Kathy Fuhriman is the Broker/Owner of Bear River Valley Realty in Tremonton, Utah. Her article below details how functional obsolescence affect the sale and price of a home in her area.
Please click on the title above to comment on Kathy's original article.
Finally, FINALLY, FiNalLY got a Bank owned house sold that I had been working on for 9 months. Bank owned homes should sell fairly quickly right? When priced right, in good condition and great curb appeal that should be true (especially the price part). So what in the world was getting in the way of this house sale? Four (4) major functional obsolescence issues kept buyers away. There were lots of calls and interest on the house generated from my website (www.bearrivervalleyrealty.com) and signs and other online advertising (web marketing is key for any house sale).
The FUNCTIONAL OBSOLESCENE issues with the house:
1) Although there were 3358 sq ft above ground there was only one bedroom. Four bedrooms, two baths were in the basement however appraisals and BPO's are only to consider GLA or above ground rooms.2) The property sits in the middle of a lovely Five (5) acre parcel of land partly fenced with no irrigation or secondary water to maintain plant growth should the buyer want animals. The private well did not include enough approved water rights to irrigate five acres.
3) The house was located approx 15 miles from the urban center for shopping, jobs etc. out in beautiful country and the location was known as the high rent district. Did I mention it was a long way from the main county hub, Logan Utah.
4) The really BIG deal now.....There is a long, LONG, LoNg, shared private road leading up to the home. One would need a four wheel drive to navigate the road in winter plus a tractor to plow the road themselves. The private road was wrought with pot holes and the bridge over the canal (at entrance) was in poor repair.
DO YOU SEE THE HOUSE WAY OUT THERE IN THE DISTANCE? Kind of reminds me of "Where's Waldo".
So BPO agents and appraisers...do YOU consider functional obsolescence when placing value on properties? From a buyers perspective the price will dictate at what point they will be willing to overcome these objections.
In the case of this house, the BPO agent put a value at over $500,000 while my value as an experienced REO agent was $350,000. The house lanquished on the market with a starting price of $495,000 and finally sold at a list price of $339,900. The buyer bought a tractor and hired equipment to fix the road and the bridge. At this price he was willing to overcome the objections. The property in the foreground did not go with the sale so there is a shared easement up to the house. The neighboring property owner will benefit from the buyer of the house plowing the road.
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