This is a picture of a Portland Home that has a flyer that reads, “Just Listed!” and “4 Bedrooms!” This suggests that the fourth bedroom is benefit to the home value.
There is a one question survey at the end of this blog post that will be helpful to Portland home appraisers. Please join in.
When performing home appraisals in Portland, it is often necessary to compare a four bedroom home to a three bedroom home. However, if both homes are the same, except for bedroom count, will the four bedroom home sell for more than the three bedroom home? This could be a difficult question to answer.
To maximize value, a home must have the correct ratio of bedroom space to living space. This ratio shifts over time with changes in market preference and location. A small home with too many bedrooms will reduce value, and yet a larger home with too few bedrooms also dilutes value.
When considering one or two bedroom improvements in homes of a size and location that generally attracts three bedroom buyers, the value difference is typically more identifiable in the appraiser’s paired sales comparable data. In this case, many buyers need three bedrooms to fit their lifestyle and may not consider a one or two bedroom home as a reasonable alternative. Adding an extra bedroom to these one or two bedroom homes might not be feasible because in some homes it is necessary to shrink the size of all the rooms to make space necessary for second or third bedroom. This is why appraisers might recognize a significant difference in the sales price between one, two, and three bedroom homes when it is not as easy to recognize in four or more bedrooms.
To determine if four bedrooms are generally more valuable than three bedrooms in Portland homes, I searched RMLS Areas 141, 142, 143, and 148 for sales of three and four bedroom homes built after year 2000 with between 2,201 and 3,200 sf of total area, and having a site size of between 5,000 and 9,999 sf. Data from the past ten years was analyzed. The search isolates newer improvements because it is desirable to have a sample of data that will be similar in most ways, except for the three and four bedrooms. Newer properties tend to have fewer functional design problems than older properties and are generally in similar condition.
One drawback of this sample is that the RMLS does not allow for grouping home sales by the total number of rooms. This must be done manually. Often, the only difference between a three bedroom and a four bedroom home is that one has a den and one has a bedroom. For this reason, my expectation was to find almost no statistical difference between the medians of the sets when grouped by overall GLA. The following is a table and graph of my results.
Table of data showing difference between median and average sales prices of three and four bedroom homes in Portland grouped by size.
Bar chart showing median and average sales prices of homes in Portland with three bedrooms compared to four bedrooms grouped by size.
To my surprise, this data shows that prices are significantly lower for a four bedroom home than three bedroom home in Portland. These results cannot be applied as an adjustment to comparable home sales because there are likely other factors causing this reduced price. My theory is that four bedroom homes tend to be built with larger families in mind and therefore may include fewer high quality amenities than three bedroom homes. According to Census Data, Oregon families of five or more (tending to desire four bedrooms) make seven percent or less in income than a four person family, and tend to have more expenses. This means that buyers of four bedroom homes may have less money to spend on a home. It is also likely that four bedroom homes are clustered more densely in lower cost developments. My study, looking at all of Portland, does not account for location and quality difference.
In general I conclude that a four bedroom home is not worth more than a three bedroom home in Portland. However, more study is necessary to determine if there is actually a value related difference between four bedrooms and three bedrooms when all other factors are the same. Your feedback can help Portland home appraisers and other real estate professionals.
One Question Survey:
Appraiser or Real Estate Agent: Please post your opinion in the comments if you generally believe (or not) that a dollar adjustment between three and four bedroom homes is necessary when all other factors are equal.
Home Buyer or Home Owner: Please comment if you would be willing to pay more for a fourth bedroom if the size of the home and all other factors remain the same.
As an appraiser, I’m eager to find out what you think.
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