By Chris Knoppe, Ohio Rehab Loans

When trying to answer the challenging question (especially in today’s market) of “How much is this house worth?” investors need to take the house design and layout into consideration.  This probably seems obvious to many people, and almost everyone probably knows this in the back of their mind, but it’s amazing how often this attribute gets overlooked.  It’s common for one to look for “comparable sales” or “comps” in close proximity to the subject property in order to derive an estimated value, but there is usually a lot of grey area when defining what is “comparable.”  Simple screening methods look for comps with similar square footage of living area.  The number of bedrooms and bathrooms is also usually taken into consideration.  That is a good starting point, but value can differ greatly even within this criteria.  One way to narrow down an estimated value is to consider a house’s design.  This is a big factor in value for two reasons: 1) certain designs are more expensive to build than others, and 2) certain designs are more desirable to potential home buyers.  I’ll define the 4 most common home designs and then explain some pros and cons and of each how they differ in value.

Ranch: Only 1 living level above ground.  May or may not have a basement.

2-Story: Has 2 full living levels above ground, 1 on top of the other with a full staircase connecting the upper level to the lower.  May or may not have a basement.

Split Level: Has at least three levels of living area, each staggered in height and connected to next highest level with a partial staircase.  Generally do not have a full basement because the lowest level is partial living area and partial unfinished mechanical storage.    

Bi-Level: Has 1 level completely above ground and a lower level that is partially above ground.  Never has a basement in addition to the lower level. 

Across the board, houses with basement and garages are going to be more valuable because houses with these attributes are more expensive to build and they also are more appealing to potential home buyers.  Also, “living area” is generally above ground (and fully underground basements are not considered in living area square footage).  Now let’s discuss the difference in construction costs for these four designs:

Ranch: The most expensive to build per square foot because all living area sits on the house foundation rather than more cost effectively building multiple levels on top of one another. The roof also covers all the living area.  Twice as much foundation & roof for the same amount of living area = more expensive to build.

2-Story: The next most expensive to build, especially if it has a full underground basement. 

Split Level: Very cost effective because the amount of foundation is minimized versus the amount of living area you get from the several levels of the home. 

Bi-Level: On a square footage basis, this model is the cheapest to construct if the lower level (which is only partially above ground) is considered living area square footage.  If only the upper level square footage is considered living area, then the cost is comparable to a ranch. 

Most investors are not home builders, so they probably don’t care about how much it costs to build a house, so now let’s discuss how each design affects market value. 

Ranch: Preferred by many home buyers (especially the aging population) because it does not have stairs.  Like its construction cost, this model will have a higher market value on a per square foot basis versus any other type of design.    

2-Story: This model is esthetically pleasing, offers good living space, and usually has a basement that is not included in the living area square footage. These factors typically account for the second highest market valued per square foot.  

Split Level: Offers maximum living space for the overall size of the house, but some of that living space is partially below ground and there is no full basement.  This design valued behind the 2-Story per square foot.

Bi-Level: Because the lower level (mostly underground) is typically included in living area square footage, and there is no other basement level, this design has the lowest value per square foot.  If only using the upper level square footage, the value is comparable to a ranch with the same (upper level) square footage that also has a basement.   

In Summary, when you are shopping for potential investment houses, be aware of these different designs and how they affect the value of your investment and your potential for equity/profit.  Be sure that you are using truly “comparable” sales and not simply going by the square footage.

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Please note that this column reflects the opinion of Chris Knoppe.  Comments or questions can be directed to Chris.Knoppe@OhioRehabLoans.com. For more information about Ohio Rehab Loans visit www.OhioRehabLoans.com or call 614-433-0570 ext 101.