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Why Most Architects Don't Understand the Value of Market Value

  • 1.  Why Most Architects Don't Understand the Value of Market Value

    Posted 07-03-2011 09:50 AM
    This message has been cross posted to the following Discussion Forums: CRAN Custom Residential Architects Network and Residential Knowledge Community .
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    The reason why most Architects have a hard time understanding what value really means in the market place is because we choose to fight the system used to determine real market value. When we design end user houses, we avoid the judgement of the free market. The term "sales history" doesn't resonate well with Architects because we design mostly houses for wealthy end users which always sell in the market place as "used", eventually. The Spec builders always sell their houses as "new". The cost per sf is higher for the new house than it is for the end user house that is eventually sold as used. This makes our houses appear to be less valuable than a builder box when it comes to sales history and the market price per sf. I designed a spec house that sold for almost a million dollars in 2006 and was later sold as used in 2010 at more than 30% less. New went to used in a few years and the value was almost cut in half. Now the housing crash didn't help, nor did the short sale when Corp McDs dumped the house as quick as possible when relocating their employee. Had I designed it for the end user directly and had I never been known as the first and possibly only Architect to design a million dollar house to sell at market in my neighborhood, I would be forever cursed as the guy whose Architectural design sold for the least per sf in the last decade, including tear downs. I'm blessed when it sold at spec, cursed when sold used. This is the kind of story people in an American Idol society love to remember. The professional gets bested by the amateurs. The same exact house made me the million dollar Architect and the schmuck who can't design a house of good quality (i.e. the price per sf) according to when it entered the market place and how. Nobody cares about when and how, they only care about the final sales figure.

    Below are some Laconic talking points concerning the value of Architecture in the market place:

    If we judge two houses with the same check list of items, how do we determine which one is better? 

    A check list of the same items can only be made better when arranged in a better way, this is also known as the design. 

    Our profession depends on design making the difference. If design makes the difference, then how can we prove this?

    Who decides if one design is better than another? The consumer decides, not the appraiser or the bank.

    Beauty is only one component of desirability. Functionality and cost are as well.

    What consumers desire more in a specific arrangement of the same parts (design) cannot be represented by averaging the success of a community of competitors, nor by creating a more complicated check list of value for it's parts.

    Spec houses are the only new houses as far as the market place is concerned.

    A spec house is a product that a builder takes out a business loan to create and this product is sold directly to the consumer as a new, off the shelf item including a one year warrantee.

    An end user house is a personal possession that a private owner commissions to be built. 

    An end user house can never be valued in the free market as a new item since the possessor is the facilitator of it's creation. (This is like valuing a car you made in your garage. We will only know what it's worth when someone buys it, but the next BMW coming out in 2012 already has an inherent value because the company has an established sales history.)

    BMW is a spec builder and so is Armani and Wonder Bread.

    Architects must sell new houses (i.e. spec houses) if they want to compete for new house sales histories. 

    We cannot convince the market place that design makes the difference unless our sales history can prove it. 

    If it takes an average of 10 years for Architectural end user houses to be sold at market, then it can take a long time to establish a sales history as a designer of used end user houses.

    The only reason a new BMW can be sold at a higher price than a new Honda is because of their sales history. Same holds true with their used cars.

    The key to the quality of profitable new construction is based on how much the bank will lend per sf. The remainder comes from either your pocket or the buyer's.

    End user houses can never have a new sales history, but are valued as new by the lender when considered for a construction loan.

    If spec houses are the only houses on the market capable of having a new sales history, then how can the value of a new end user house be established without comparing it to spec houses?

    Who is more likely to invest more money than the appraised value of a new house, a spec builder who has to sell it right away or lose profit OR the end user who intends to live there?

    How can a spec house be compared equally to an end user house, no less more favorably? This is the question that has us all scratching our heads and the number one reason we avoid the judgement of the market place by designing unique end user items that can only be sold as used rather than products created by companies with a business model and directly sold at market as new items.

    26.09.14 CRAN Symposium Final


  • 2.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-04-2011 10:22 AM
    Eric,

    At some point, the comparisons you're making become purely straw arguments. You're talking about how one might value a house. In reality, there are as many value propositions as there are sellers and buyers. Banks, those entities which guarantee the loans, are talking about risk management. 

    The latter depends on quantifiable data beyond the personal sales history of an individual architect/builder/etc. The latter also does not determine, purely, the underlying value of a property, only what risk they are willing to take in backing the loan. Everything you've laid out over 75 posts now would be true without the pesky need for them to back a loan - if someone can pay for the "BMW" upfront, without borrowing, then the value is determined only by what the buyer and seller are willing to agree upon. As we all know, that simply isn't the case - people get loans. Loans, especially going forward, require more advanced forms of risk management. If one can address those needs creatively, you won't have to worry about the market valuing your services.

    If the goal is to advance the opportunities for architects to design more spec homes - a worthy goal btw - then I'm going to suggest (yet again) that we focus our efforts on creating a better set of objective criteria that define a higher value home. Durability, sustainability, etc. are all on the table. The sheer talent of the architect, quite simply, isn't. There's simply too much subjectivity involved. However, show the lenders that you're creatively satisfying their risk management need and they will listen. Comparing yourself to a BMW in a Honda world won't.


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    Gregory Walker AIA
    Houser Walker Architecture
    Atlanta GA
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    26.09.14 CRAN Symposium Final


  • 3.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-05-2011 06:42 AM
    The suggestion Gregory that the banking industry will respond to the criteria of "durability, sustainability, etc." for a higher value on the home has not worked for me in the past.  In having my own home appraised recently, the stronger walls and roof, more insulation, radiant barrier, air barrier, durable materials, good windows with low-E insulated glass, daylighting, healthy interior materials, local materials, rainwater collection, very energy efficient, geothermal heat pump, orientation, thermal grounding, shading, ventilation, etc. did not get me any higher in the rating. However, a chandelier and a Jacuzzi will.  It would be interesting to know if the house was LEED certified, if that would make a difference.  However, the cost of getting it certified was much more than I was willing to pay.  I think the banking industry needs to change.  As architects, all we can do is produce good architecture, and make sure the banking industry understands the difference between good architecture and a building.

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    Edward Cazayoux FAIA
    Principal/architect
    EnvironMental Design
    Breaux Bridge LA
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    Original Message
    26.09.14 CRAN Symposium Final


  • 4.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-05-2011 09:45 AM
    The lending/ appraisal industry is working toward expanding their check list of value items when it comes to green components. Certifications will be a part of that on a large scale soon. The problem for Architects is that check lists do not describe how the check list is arranged. The builders are masters at duplicating check lists. The Green industry is heading in a product oriented direction and this is very dangerous to designers. Design is the arrangement of the check list of parts, but the appraiser can't judge the arrangement, only the consumer can. I'm convinced that builders would start using Design to compete with one another if they were forced to accept their own sales history when their new Products are being appraised. All it takes is one nice house to sell for more that has the same check list and the whole community of competitors can use it as a Comp to justify a higher value than their sales history shows. This is how the property values spiraled out of control. The weak could get better value from using the hard work of the strong and ultimately ask for more, but it didn't work out the same for the strong.

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    Eric Rawlings AIA
    Owner
    Rawlings Design, Inc.
    Decatur GA
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    Original Message
    26.09.14 CRAN Symposium Final


  • 5.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-10-2011 08:47 PM
    Good grief - why architect's don't understand [fill-in-the-blank] about value, values, business, economics, marketing, finance, management and a few other things is that they haven't bothered to actually learn those things. The few who have are the entrepreneurs who have learned sometimes the hard way and the few who have the education or interest enough to read a few books. The "most" of most architects are getting a salary and doing architecture - they are not bringing in the work, having to meet payroll, or dealing with a host of other challenges that have so very little to do with "design" discussions or analogies to cars. 

    When the only way you're going to eat is to eat what you kill and you have to hunt down and capture the work, you'll learn. Or read. Or take some classes. Just don't pontificate on that in which you have so little ammunition.



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    John Hrivnak AIA, MBA, NCARB, LEED AP
    Principal
    Hrivnak Associates, Ltd.
    Saint Charles IL
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    Original Message
    26.09.14 CRAN Symposium Final


  • 6.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-11-2011 08:32 AM
    I'm sorry this discussion isn't interesting to you. I have to disagree. Most Architects are not working for salary, they've been laid off. In GA we had over 12,000 Architects in 2008 and today we have 5500. Most Architects need a way back into the industry and despite residential being in shambles, this sector still has more individual project potential than commercial. At the height of the boom, residential made 200% more GDP than commercial. People are renovating homes like crazy because they're underwater or can't sell. This is an opportunity for laid off Architects to start up sole proprietorships initially focused on residential. In order to understand how to survive in the Residential sector, it is imperative that one understands the appraisal system. There is good reason why most Architects avoid residential work. It's far more difficult than it seems and I'm trying to help everyone understand some of the pitfalls to avoid. 

    After the gross misevaluation of property values, there has never been a less credible moment for the appraisal system. If we're going to change things, now is the time to do it. The small contingent that sees this subject as pointless pales in comparison to those who have responded to me in a positive way. I want our profession to be relevant, respected, and well compensated. This will never happen under these current conditions. We have to expand our territory to expand our numbers. We must design houses for regular people in order for them to appreciate what we do. We all sit around and wonder what's wrong with the average American's taste in housing. Why does everyone embrace such ugly forms? No one understands us! Americans just don't appreciate Architecture. Perhaps we should all ask ourselves, "Why should they?" We all talk about educating them, but no one talks about our role in this problem. I've found that an AIA educational video is probably the least effective way to inspire average folks to appreciate fine Architecture. The most effective way is to design them a real house! Perhaps we should focus our efforts in community out reach by actually reaching out and designing something for them?

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    Eric Rawlings AIA
    Owner
    Rawlings Design, Inc.
    Decatur GA
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    Original Message
    26.09.14 CRAN Symposium Final


  • 7.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-12-2011 12:00 PM

    Eric, I'm not really following what you have been saying.

     

    You are saying you have designed homes that have been built on spec.  I'm assuming these are "one-off" homes that are not being replicated throughout the community?  If a builder built these homes, and made a profit, then their had to be some market for them.  Now, you are saying, people wish to sell these homes, but cannot get what they put into them our of them?  That may just be the fault of the housing bubble deflating costs of homes.  Yes some unique, custom homes are not going to hold their value if people turn right around and sell them in a down market.  Additions and renovations are even more vulnerable.  In themselves they cost more per square foot, than new construction.  They can be risky.  I often advise people on what makes sense in terms of keeping its value when it comes to renovation dollars. 

     

    Home ownership is a great thing.  However, the real estate profession has everyone convinced that their home is only worth what it can sell for.  In other words a house is a mere building that someone buys for an investment.  When they want more, they can "trade up".  Who gains the  most from this?  The realtors and mortgage brokers.  And let's not forget that spec builders and their architects have also benefited from this practice.  Perhaps the downturn will change peoples perceptions of what their home is and can be for them?  But, remember we are in a mobile society where people relocate for job opportunities like never before.

     

    The custom home industry is a cottage one at that.  If architects and builders can come to appreciate each other, and maybe come together and convey to the public the value in staying put and investing in their homes to improve their lifestyle (not turn a buck) we might get somewhere. 

     

    "It costs a lot of money to build a flawed home"

     

    This should be the message that residential architects convey to the public.  And if the AIA can't "get its head out of its rear" and realize that most people are repelled by the Euro-boxes that are associated with architects doing custom homes, then I think it is time for residential architects to band together, secede from the AIA and form an organization that better promotes residential architects to the general public. The AIA has failed at this so far.  And, if I don't see changes, I won't be have those three letter after my name any more.  Sadly, I think AIBD is doing a much better job at reaching the middle class, instead of the culturally elite that the AIA have aimed at.

     

    Lastly, you mention laid off architects now breaking into the booming residential sector.  I'm not sure how things are in Decatur, but I know Chicago cannot support this.  There are enough established residential architects living hand to mouth right now.  People are very hesitant to commit to building a project.  At the last firm I worked for, an established design/build company on Chicago's North Shore, the phone began to ring after the holidays in 2009. We had seven projects go to schematic design.  Not one of them made it into CD's.  People did not see an urgency to embark on these projects with the markets as unstable as they are.

     

    Establishing a residential design firm is a serious investment.  A CAD station can cost up to $ 10k!  Gone are the days when you could get an old door and a pair of horses, dig up your old mayline and hang your shingle.  What about professional liability insurance?  Hard to get when you are not established as insurers don't like to insure those who "dabble" in the profession, as they are seen as being too risky.  The AIA publication, "Residential Architect" did a serious disservice to the residential sector when it did it's editorial on sole proprietors.  Complete naïveté if I ever saw it.  The notion of going on one's own to do houses when out of work should not be encouraged as it only drives down fees.

     

    Please look at my one line slogan above.  It is one I have suggested on a LinkedIn forum.  I'm sure there are other, simple sayings that can convey to the public the value in hiring an architect.  Let's find ways to convey this.  And, if they AIA can't or won't for us, let's unite to do this on our own.



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    Edward Shannon AIA
    Waterloo IA
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    Original Message
    26.09.14 CRAN Symposium Final


  • 8.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-13-2011 07:37 AM
    I was merely illustrating an extreme case of a house that sold as a NEW spec house for a very high price and then how it was devalued sharply in just a few years when sold as a USED end user house. Part of the point is that selling houses at spec gives you the highest appraisal value per sf because they are the only NEW houses as far as the market is concerned. When we Architects design mostly end user houses that begin as a possession and therefore automatically are considered used once the original owner sells them. This makes our houses appear very over priced. If we sold more NEW houses, then our work would appraise higher. Yes, selling and appraisals are two different things and ALL of my spec houses sell for well over appraised value. It's asking a lot of people these days to go underwater on a mortgage, but when the competition's sales history is consistently lower than yours, then your appraisal will be based on their comps and yours. I wouldn't have to ask my clients to go underwater if my own houses could appraise at the same value ass ALL of my very consistent sales indicate. 

    The other point is that some real estate agents seem to hate us as much as we tend to hate them. They love seeing an Architectural house sell for a low price, as it justifies their ideological vision of what they think their neighborhoods should look like. This was a perfect opportunity for the haters to ridicule my work and it made me aware of how agents can really hinder OUR progress and later I found the ones that were willing to help. We wonder why were not doing more residential work and that requires a very complex list of answers, but here are a couple of reasons.

    As far as the Housing Bust is concerned, one of the hardest hit areas of the country was just north of here. Architects tend to focus on the work of the wealthy people that can afford our fees. I think most are ignoring the vast amounts of regular people work. In just about every part of the country, people are doing small additions to their homes because they can't sell, but they're still having babies and getting married. We over look these small renovations, but I've found them to be a great resource for bread and butter. The secret to being affordable is to narrow your scope of services. Most only need a good idea and a permit. Let them fill in the blanks with the builder. By providing just the broad brush strokes, it allows us to fit into the economics of such a small project. This is great work for sole proprietors.

    Most Architects have a computer and a copy of a CAD program. I was able to get insured. I started from nothing and living in Decatur certainly has nothing to do with my will to survive. Negative thought will hold you back from finding work in new and unexpected places. I can't compete with established firms, so had to open my mind to other possibilities and I'm being kind enough to share my business model and trade secrets so that others can infiltrate the home building industry in areas we've neglected for decades. You want most of America to understand Architecture and the power of design? Well, maybe we should be designing homes for the regular people that make up the majority!
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    Eric Rawlings AIA
    Owner
    Rawlings Design, Inc.
    Decatur GA
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    Original Message
    26.09.14 CRAN Symposium Final


  • 9.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-06-2011 07:11 AM
    Right now in GA, our appraisers may give you a small bump for select green gadgets. For any upgrade item, the appraiser gives about 1/4 of the actual installation value. Geotherm system @ $30K might give you $8K. If you want to spend $20K more for brick, you might get $5K on the appraisal. At a net loss of $15K, you can have a nicer house too. 

    What everyone seems to think is that adding more cost and features is helpful on your appraisal, but that is a HUGE myth! The more you spend on stuff, the more the upgrades hurt you.

    95% of the appraisal is Location and Size. All the stuff you add makes up the remaining 5%.

    Spec builders make the cheapest house that intentionally sells for the least total price, but they tend to be valued at the highest cost per sf. The total cost isn't the profit, it's the price per sf. The closer they build to the average size, the better comps they'll have for comparison. The law of averages pulls the weak up and cuts down the strong. When you add the strong number 10 to the weaker number 2 and divide the total by 2 (average them) then 10 becomes 6 and so does 2. Now would you rather your 10 get drug down to a 6 or your 2 brought up to a 6. 

    Less effort = More profit. Less effort = Less risk. 

    More effort + Higher sale price = more sharing of your success with the lazy 2s.

    This is why I keep saying that spec builders that produce products, should be required to be valued by their own sales history, not the average of their community of competitors like we do now. The builders in my area love my high comps that they get to sponge off of. One sale of an $800K spec house of mine brings their average $600K spec house up to $700K without doing a thing. I give everyone an instant pay raise every time I do a good job, but when my effort is averaged with theirs, I get penalized for a job well done because my $800K sale makes my next house $700K as well. I'm grossly simplifying this to illustrate the problem. This is how property values went out of control and how home builders ended up filthy rich while we have always been paid pennies on the dollar. They do a lousy job on purpose and we keep trying to do a better job. We need a system that works in reverse to encourage a better job and penalize laziness! It's un-American that we have an industry with an internalized economic sub-system that is sort of socialist when you think about it, yet capable of destroying our capitalist economy.

    You will never stop builders from using your work as comps. You have no control over how they influence their appraiser and what they choose to use for comparison. You won't protect yourself with more gadgets and stuff. The check list is pretty basic when it comes to what qualifies as a comp. At best, you might get your appraisers to look at your comps only (if you have enough), but this doesn't solve the problem of sharing your success and encouraging the builders to be lazy while making WAY more money than YOU!

    Did you ever wonder why so many spec houses look the same and why it's hard for us to get anything nice done? I hope you all understand that the sales of single family houses are by far the most numerous real estate transaction and guide the industry in how commercial is valued. This effects everyone of us eventually, whether you design houses or not!

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    Eric Rawlings AIA
    Owner
    Rawlings Design, Inc.
    Decatur GA
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    Original Message
    26.09.14 CRAN Symposium Final


  • 10.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-07-2011 08:53 AM
    Mr. Rawlings is in the wrong business if expects his spec houses to get more than they appraize for.  When he considers sustainable design as "select green gadgets", he has missed the boat on good design all together.  So if "The more you spend on stuff, the more the upgrades hurt you.", then no wonder spec housing is so poor.  If he considers good design as "gadgets and stuff", what can you expect.

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    Edward Cazayoux FAIA
    Principal/architect
    EnvironMental Design
    Breaux Bridge LA
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    Original Message
    26.09.14 CRAN Symposium Final


  • 11.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-08-2011 11:48 AM
    Edward,
    ALL of my spec houses have sold for above the appraisal. I have at least 5 dozen projects in this same neighborhood and about 2 dozen are unique spec houses. Every single owner ponied up additional money above the loan amount to buy my houses. You're the only one who has told me I'm in the wrong business.

    The market has spoken about what people think of my idea of "good" designs. What people are willing to pay is a pretty good indicator of how good of a job you're doing.

    If you read the post more carefully, perhaps you would understand that I was commenting on the current appraisal forms that only recognize a small handful of energy efficient devices. This is driving the industry in a green gadget mentality toward sustainability and not a design oriented approach, which is dangerous for Architects. Any builder can fill a box with gadgets, only an Architect can really design a house with the same list of parts and make it better. Where did I say anything about my views toward good design? Explain to me what I said to deserve such a visceral response from you about my work or design ideals!

    You missed the boat completely and I'd like you to reconsider your accusations toward me. I'm trying to point out some simple reasons why we Architects are getting killed by the home builders. Agents get it, builders get it, brokers get it, my little sister the Veterinarian gets it, but it seems that Architects are completely convinced that WE have nothing to do with the fact that WE are MIA in the housing industry. It's the builder's fault, the agent, the American People themselves, but it's not our fault. It's embarrassing, no humiliating that 82% of all new single family houses are spec houses, most of which are not designed by Architects. 

    Adding gadgets, stuff, extras, or whatever you want to call it is like itemized deductions on your tax return. Each deduction gets about 1/4 of the actual value off your taxable income. No sensible business person goes out to buy a $4000 computer they don't need just to get a $1000 tax deduction. When you pay $30K more for geothermal, $20K more for brick over siding, $20K more for a solar water heater, and $10K more for better windows, you're paying $80K over the baseline and the appraiser only gives you $20K credit for your upgrades. For a $60K loss, you just made your house better, but the builders in the area can use the exact same comps as you to get the same appraisal number (minus $20K for your $80K list of add-ons) without spending a dime on all this stuff. This makes it difficult to sell a better house than them for less than the appraised value, since the community of competitors sales are distributed to all through the comp system.

    The myth most Architects keep insisting on is that you can keep paying full price for upgrades or "deductions" and get full price back on the appraisal. When it comes to value, the more items you want to upgrade, the more it makes you upside down on your construction cost to appraisal value. 

    How you got the idea that I hate good design out of an explanation of something everyone in the building industry seems to have a handle on, but we Architects, is the very reason I titled the Post "Why Most Architects Don't Understand the Value of MARKET VALUE"! 

    MARKET VALUE! When your clients can get a loan from a bank based on sentimental value, design value, or green value, please let me know!

    -------------------------------------------
    Eric Rawlings AIA
    Owner
    Rawlings Design, Inc.
    Decatur GA
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    Original Message
    26.09.14 CRAN Symposium Final


  • 12.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-10-2011 06:55 PM
    Other industries have better information provided for products that don't approach the cost & value of a home. The market will dictate the value placed upon energy efficiency, healthy homes, and architectural character - but why are these factors off in the margin rather than front & center? Appraisals are a blunt tool for establishing a bank's risk based on market value. But they are also the only written assessment of a house that makes it to the financial table. This is an issue of consumer information and protection. The bank is lending the money, but the consumer is buying the home.

    Take a look at the 'Uniform Residential Appraisal Report', the Freddie Mac & Fannie Mai form created in 2005. In the Comp section line items include: 'Quality of Construction, Functional Utility, Energy Efficient Items, and Amenities'  but all they get is a word of description such as 'good' or 'average'. In the 'Improvements' section there's a line item for windows, but my new triple-glazed casements got a rating of 'good'. There's a note about those, and increased insulation, but no benefit was given in relation to the comps! As a profession we should advocate for providing more infromation and greater disclosure. For example, requiring a HERS rating at time of sale and a description of what it means. And having a section for LEED, Passive House, or other certifications. I believe that Architects and perhaps the AIA are working on this front, but they're efforts don't make it to this forum. 

    Then there's architectural quality & character. Mr. Rawlings makes the valid point that cheap housing of average size is rewarded at the lender's table at the expense of higher qualtiy homes. There is the 'Cost Approach' as an alternate to the 'Comparison Approach', but that section tends to get short shrift as well. Advocacy at all levels, with all the allies  we can find - high quality builders & product manufacturers - is the only way to make a difference that I can see.

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    Christopher Vlcek AIA
    Littlewolf Architecture
    Great Barrington MA
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    Original Message
    26.09.14 CRAN Symposium Final


  • 13.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-11-2011 07:52 AM
    Personally, I feel the consumer loan for the purchase and the business loan to start a spec house should be treated different as they already are. A bank has an obligation to itself not to lend more money than a project is worth and how better to gauge the performance of a company's prospective project than to look at what their last one sold for. Why are these banks lending money based on the average of a Community of Competitors? The fluid market value of real estate is why the appraiser has to appraise each project. If the price of the land is really the only thing that should be fluid in the real estate sense, then the cost of the building should remain relatively consistent. Market fluctuations for materials and labor are always passed down to the consumer and if concrete goes up, then you mark up the house to reflect that. It should be simple to separate the cost of land from structure, as the 'Cost Approach' already does this, although I've rarely seen the 'Cost Approach' used to arrive at the final number.

    One of my main points of this discussion is that Architects have a tendency to use exotic materials and items. We tend to add cost by adding nicer things. In order to design a good spec house for profit, one must learn to arrange the same list of parts in a better way. As I mentioned before, adding items at 1/4 of the value is a great way to drain your budget while thinking you're improving your worth. As you marginally increase value, you exponentially raise construction cost.

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    Eric Rawlings AIA
    Owner
    Rawlings Design, Inc.
    Decatur GA
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    Original Message
    26.09.14 CRAN Symposium Final


  • 14.  RE:Why Most Architects Don't Understand the Value of Market Value

    Posted 07-05-2011 08:04 AM
    There is only one way to value a house in the market place. An appraiser gives the bank a certified document describing exactly what the property is worth at market and is typically good for 30 days. The owner has to come up with the difference between the agreed sales price and the appraised value. In the past, the appraisals were being abused in order to match the agreed sales price. I watched it happen to my projects and I never once saw a bank lend more than the appraised value to anyone.

    In the bank's mind, the main risk is lending too much money for what they think the property is worth and what they think the buyer can afford. The banks and appraisers are adhering closer to their failed system of averaging the success of a community of competitors. Very few people are willing to start off underwater right now, so we Architects who only design end user houses automatically get the least value per sf for all of our projects, because our houses can never sell as NEW! Only a NEW spec house can claim the highest value per sf from an appraiser. The million dollar house I sold went to market when the average house was $480K in my neighborhood. It was huge victory for me, because no spec builder, no agent, no one in the biz thought it was possible and I'm pretty sure no one has done it since. It certainly wouldn't happen getting USED pricing from the appraiser for a USED end user house.

    I think most Architects have no idea of why houses sell because most of us don't see our projects enter the market place until the end user sells it. This can take decades if you made your client really happy and did your job. We know what our quirky clients ask for, but we don't understand what the market place is asking for. The majority of Americans want to buy a new house and don't have the time or money to wait on construction. The spec model is a design problem like any other. I think Architects are too chicken to compete with spec builders in a game where Beauty is just one program requirement that is generally less important than Functionality and Cost. We want Beauty first and we think Functionality only means energy efficiency. Cost is number one and that's in direct conflict with Beauty, so we avoid the judgement of the market place while maintaining a fantasy in our minds that we know what people want. If we knew what people want, then why are spec houses 82% of all new single family houses and we aren't designing many of them? Why are spec builders making more money? Why are we so few and they so many?

    The only way you can value a design in the market place is to track a sales history of the company who created a better arrangement of the same parts. You can make a more complicated check list for the appraiser to value the components and some builder will duplicate the check list, but not the design and still get the same credit. I watched this happen too as my projects would sell higher. The builder box guys would use the same check list and cram it into the same box and get credit from the appraiser so they could use MY sale as a comp for their value! It's quite socialist when a community of competitors are not judged as individual companies, instead the weak ride the coattails of the strong when you average the community's effort and not recognize the strong. You can't ask the appraiser to judge beauty or the design, so tell me how to better express the will of the free market when it comes to design if the appraiser can't use the sales history of the individual creators? Until Architects start focusing on sales history, the market will never believe design makes the difference. We have to prove it!

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    Eric Rawlings AIA
    Owner
    Rawlings Design, Inc.
    Decatur GA
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    Original Message
    26.09.14 CRAN Symposium Final