Building a Barndominium: Part 2 – Appraiser’s Perspective
Barndominiums are catching on in popularity, and can be a solution for those looking to get multiple uses out of a structure. Originally called pole barn houses, the term “barndominium” or “barndo” caught on to describe a barn-like structure that was built for agricultural or hobby purposes and included an apartment or other dwelling space.
“It’s simplifying to put those two terms together – barn and condominium – to indicate living and farm use,” says Caleb Haywood, an appraiser for Carolina Farm Credit who works out of the Asheboro office. He says they are typically metal structures, but can also be other finishes such as wood, stone, or vinyl. “Many of the ones we see are steel,” he says. “They typically look like a barn structure and usually have two purposes such as an office with finished living space or barn space and living space in the same building.”
Barndominiums are available in kit package form, but if ordering a kit is not your preference, they can be constructed using plans you purchase or have drafted to tailor your own design. Because they are relatively new to the marketplace and to the world of lending, Caleb shares these important tips if you are considering building or purchasing one.
Consider your needs. If you’re someone who likes the idea of having everything in one space, one side for your four wheeler, tractor, hobby, or office, and the other side as your living space, this may be a great option for you.
Plan for the long term. It’s a specialized market for someone who wants to buy a barndominium. Don’t build one expecting a big market for resale. Caleb says that while the market is hot right now for everything, it’s best to think long term when it comes to specialized structures. “If this market doesn’t continue the next 3 to 5 years and you’ve built something expecting things to continue as they are now, you may be stuck with something you paid a premium for because construction costs are so high right now.”
Plan for a larger down payment than what is required for a standard, typical home. While a traditional mortgage may require 5 to 10 percent down for construction on a standard, typical house, barndominiums will likely require a larger percentage for the down payment because they are a specialized building. An estimated down payment is 25 to 40 percent is needed; the equity in the real estate collateral pledged can also serve toward the down payment.
Be prepared financially for extra costs. While this is good advice for every situation, it may be even more necessary when it comes to barndominiums. “Whenever we look at these from an appraisal standpoint, the costs to value is often much higher than the sales comparison approach to value. The reason is because there are not a ton of sales out there,” explains Caleb. “While people are building them, there are not a lot of sales validating prices that people are actually paying. Our appraisal value can be lower than the costs to build. In that case, you need to be prepared to have extra funds to finish the project. If you are basing your down payment on the costs to build and if our appraisal value is lower, then you are going to have to bring to closing not only the down payment but the extra to make up the difference.”
In short, building a specialized structure like a barndominium may require a down payment and also extra funds in hand to cover a portion of the project that the loan may not cover. While it varies, depending on the structure and the situation, a ballmark estimate of 10 percent may be required beyond the down payment.
Turn to the “go-to lender” for these types of structures. Carolina Farm Credit is likely to have more comparable sales data than your standard bank or appraisal company on these specialized structures. While the numbers are still limited, and each structure is quite different from another, there are more going up on farm land and at the edges of small towns, the areas that Farm Credit serves.
Run a cost analysis. While barndominiums have entered the realm of trendy and desirable, it pays to do a cost analysis on an all-purpose type of structure versus a separate dwelling and separate barn. When it comes to design and costs, they range from simple and relative reasonable, to elaborate and expensive. Depending on your plans and needs, for example, that range may be a simple pole barn structure with a finished living space to an elaborate equine barn and stables with incredible living space. It makes sense to run a comparison on different types of structures to make sure you’re spending and investing wisely in a specialized structure.
In part 1, Carolina Farm Credit customer-member Mike Fadel shares things to consider based on his recent experience in building a barndominium.
By Leah Chester-Davis