Microsoft Word - Appraising Log Homes Brochure

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LogHomesCounciloftheNationalAssociationofHomeBuilders

AppraisingLog

Homes

noverviewoftheloghomeindustryandloghomeappraisal

RevisionsbytheLogHomesCouncil

2008

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AppraisingLogHomes

OriginallyPublishedby:JimCooper

Revisionby:LogHomesCouncil,2008

Contents

Introduction ........................................................................................................................ 2

Home Market..................................................................................................................... 3

Appraising Log Homes .................................................................................................... 4

Types of Log Homes ........................................................................................................ 6

Log Systems ..................................................................................................................... 7

Maintenance .................................................................................................................... 10

Shrinkage and Settlement ............................................................................................ 10

Energy Efficiency ............................................................................................................ 11

Summary ......................................................................................................................... 11

Marshall& Swift ............................................................................................................... 12

Introduction

While log homes appeal to many home buyers, determining their value presents a

challenge for appraisers and lenders. Log homes comprise a specialized segment of the

housing market, making valuation and comparisons with other types of housing difficult.

Because many appraisers and lenders have limited experience with log construction, they

turn to comparable value properties to establish value. But, a comparable value approach

can be misleading unless the appraiser understands how to select comparables.

In cases where the appraiser or lender is uncertain, the final appraisal may be over

conservative. As a result, the potential home buyer may be unable to meet mortgage or

construction loan requirements. Not only do homeowners lose an opportunity to own the

type of house they desire, the lender loses a potential loan, the log manufacturer loses a

potential sale, and the local construction industry loses job and material sales

opportunities.

This booklet is designed to familiarize you, the appraiser or lender, with log homes

included styles, construction and cost variables, market trends and points of comparison

with other types of housing. It is designed to help you accurately establish the value of

log homes.

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HomeMarket

Many people are drawn to log homes, and the appeal of log homes has fueled the

development of a modern log home industry. Over 400 manufacturers, ranging from

small sawmill operations to sophisticated, full service housing companies, serve this

growing market.

Log Homes have been a part of America’s housing heritage since colonial days.

Abundant forests and the availability of large trees made log shelters an easy solution to

housing demand. Because early log homes or cabins were often used as temporary

structures or interim residences, they were often hastily constructed, poorly sealed and ill-

maintained. Working with minimal tools and primitive knowledge, almost anyone could

build serviceable shelter that would last the few years necessary until a “proper” house

could be built. Later, from the vantage point of that “proper” house, many who started

life in a log cabin looked back with nostalgia on the rustic structure.

Today, few people start life in a log home (although there are probably more today who

can claim a log home heritage than at any time in the last few generations). The appeal

of logs has become one of nostalgia for simpler times, a more “natural” lifestyle, and

perhaps breathing room after a day spent battling modern technology. Log home living

today is not just about housing, it’s about lifestyle. This has important implications for

valuing the structure and its marketability.

The log home market of today can trace its beginnings to the late 1960s or early 1970s

when a “back-to-the-land” ethic inspired many to look toward self sufficient lifestyles.

Until then, log cabins occupied the niche of “vacation homes,” seasonal dwellings,

constructed inexpensively with only basic amenities. Suddenly, more people were

looking for a permanent residence they could construct (or at least participate in

construction) themselves. As log homes shifted from seasonal to permanent dwellings,

they increased in size and were filled with the same amenities as conventional homes.

Several characteristics of log home enthusiasts contribute to the overall high quality and

value of log homes. First, log homes are usually built as someone’s dream home.

Second, log home shoppers usually spend considerable time researching the product

before they buy. It is not uncommon for a log home purchaser to spend several years and

amass large amounts of information before actually purchasing a home. Third,

occasionally log homeowners become involved in supervising or actually participating in

construction of their home. The homeowner is sometimes responsible for the actual

design of the house. As a result, the quality of the home may reflect the owner’s design,

management, or construction skills (or lack thereof). Since most homeowners take great

pride in their homes and spend considerable time preparing to build, quality tends to be

higher than in conventionally built homes.

A final characteristic of log home enthusiasts is their dedication to owning a log home.

Most are not interested in another type of housing and will purchase a conventional home

only if circumstances prevent them from owning a log structure. They are prepared to

pay the same or more for their log home dream. A study by the National Association of

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Home Builders confirmed this by finding no difference in re-sale value of log homes

when compared to other types of housing.

AppraisingLogHomes

Appraisers and lenders face two types of log home appraisal: (1) appraisal of a home to

be constructed, (2) appraisal of an existing home. Appraising a log home guided only by

blueprints is difficult, especially for someone not familiar with log construction. Existing

log homes are easier to appraise because there is a tangible product to evaluate. Other

variables, however, are introduced, such as quality of construction.

The comparable value approach is made difficult because of wide variation in style and

design. Also, some of the features in a log home appeal to log home buyers, but not

necessarily the mass home buying market.

These don’t actually lower the value of the home (they may in fact increase it), they

simply change its market position. Not everyone likes the rough hewn look of certain

types of log homes, but those that do are prepared to pay as much, or more, for a

conventional home of similar design.

Traditionally, appraisers and lenders based comparisons on homes of similar construction

and design. This often made it impossible to appraise a log home simply because no

similar home existed in the market area. Fannie Mae addressed this problem in

Announcement 91-28 which stated “We have no requirement that one or more of the

comparable sales must be of the same design and appeal as the property being appraised

… If recent comparable sales of the same design and appeal as the property that is being

appraised are not available, but the appraiser is able to determine sound adjustments for

the differences between the comparables that are available and subject property and to

demonstrate the marketability of the property-based on older comparable sales,

comparables sales in competing neighborhoods, the existence of similar properties in the

market area, and other reliable market data – the mortgage is acceptable to Fannie Mae.”

Fannie Mae’s guideline leaves more flexibility in choosing comparables, but the

appraiser or lender is still left with the challenge of choosing realistic comps. Because

log homes are usually sold and delivered as packages, there has been a natural tendency

to label them as a type of prefabricated home for which cost comparison data is more

readily available. There is some prefabrication involved in log home construction,

including pre-cutting and pre-drilling logs. As with custom conventional construction, a

bulk of the log home materials must be assembled on the site. However, the uniqueness

of log homes can often call for skills beyond those of conventional carpentry, making a

finished log home truly a work of custom craftsmanship. Given the intricacies in

construction, a log home can be compared to any custom home.

When comparing log homes with conventional (“stick-built”) homes it is important to

recognize that log homes are usually highly customized both in design and materials.

They often include features considered upgrades in other types of housing.

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These include:

• Open beamed ceilings

• Cathedral ceilings

• Solid wood wall coverings

• Solid wood siding

• Custom wood stairs and railings

• Custom wood trim

• Custom or solid wood interior doors

• Solid wood floors

• Custom wood cabinetry

• Masonry fireplaces

• Energy efficient windows

• Cedar shake, metal or slate roofs

• Set on large, often secluded lots

• Porches and decks

When comparing a log home to a similar sized custom conventional home that does not

include these features, the value contributed to a conventional home can be added to give

a more realistic picture of the value of the log home.

Because of their custom features, log homes are often more expensive to construct than

basic tract-built stick homes. This can be seen by comparing the construction process as

in the following table:

Stage Conventional Log

Excavation Typical Typical

Foundation Typical Typical

Structural shell Typical Higher labor costs for log

erection; timbered roofs

Interior framing Typical Higher cost due to

construction details required

in framing to accommodate

log shape and settling

Mechanical systems Typical Typical to higher cost

depending on system

Roofing Typical Typical to higher cost

depending on owner

preference

Trim Typical Typical to higher cost if

custom trim is used; custom

cabinetry, stairs and rails

common

Painting, varnishing Typical Typical to higher, usually

more stained and varnished

areas, may be done by

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homeowner

Exterior Typical Higher cost to trim and seal

because of logs

TypesofLogHomes

AND-CRAFTED

These are one-of-a-kind homes built by a log home specialist known as a hand-crafter.

Working with raw logs, which he has either purchased or cut himself, the hand-crafter

prepares logs individually using powered or manually operated hand tools. Corner joints

are measured, marked, and cut individually. Logs are cut to length and numbered.

Usually, the shell of the house is pre-assembled without seals or fasteners at the hand

crafter’s logyard, individual pieces are number, and the shell disassembled for shipment

to its final destination. There it is re-assembled and finished.

Handcrafted homes are usually distinguished by the large logs used and the chinking (1”

or larger bands of white or colored grout) that fills and seals spaces between logs. Hand-

crafters often include other custom features such as hand-cut timber framed trusses,

stairs, and railings. Sometimes hand crafters embellish timber components with

decorative carving.

Hand crafters may be responsible for erection of the log structure only or they may finish

the house entirely. The quality of the structure is dependent on the skills of the hand

crafter and the design chosen by the home buyer.

The cost of a hand-crafted log home ranges from moderately to substantially more

expensive when compared to a conventionally framed home. A great deal more hand

work, requiring time and specialized skill, goes into the construction of a hand-crafted

log house.

ANUFACTURED OR MACHINE MILLED

Manufactured log homes are based on logs that have been shaped with milling

machinery. The manufacturing process varies from simply removing bark to milling the

log into a variety of profiles that may include interlocking tongues and grooves, corner

notches and slots from splines. Some manufacturing processes include manual

operations similar to handcrafting.

Log home manufacturers sell their product as “packages” or “kits.” Minimally, a kit

consists of logs, fasteners and sealants that form the log wall system. Many

manufacturers also include other components of the house structure, including windows,

doors, shingles, dimensional lumber, porch and deck material, stairs and trim. Often

manufacturers offer their packages in several levels of completeness.

Log home manufacturers are often further distinguished according to whether they offer

pre-cut or random length logs in their packages. Pre-cut logs are cut to length and

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numbered according to a master “cut sheet” that is used to guide assembly of the wall

system. Random length logs are supplied in bundles that have not been cut to a specific

length. Measuring and cutting is done by the carpenters or erection crew on the job site.

Milled logs are offered in a variety of profiles depending on customer preference and

manufacturer capability. Some profiles result in log walls that are not even recognizable

as solid log at a distance. For example, “clapboard” styled milled logs are sometimes

used in subdivisions with covenants that restrict exterior appearance of the homes.

Clapboard logs give the appearance of wood siding.

By mechanizing some of the processes involved in shaping logs and making joints,

manufactured log systems offer potential cost advantages over hand-crafted homes. The

greater uniformity possible using machine shaped logs can also reduce labor costs on the

job site by reducing construction time and skill level of workers. However, high quality

still requires the guidance of someone skilled in log construction.

LogSystems

CORNER SYSTEMS

Corner systems vary in complexity and many manufacturers offer more than one style of

corner. Corner type can affect final house cost by affecting both the labor and time

required to construct log walls. Subtle variations in corners result from different

manufacturers’ methods of dealing with fastening and sealing corners. However, most

log home corners fall into four basic categories.

Butt & Pass

Butt & Pass corners are the simplest and most widely used in log homes. Using

this system, one log of a corner pair butts against the other log of the pair. The

second log usually passes beyond the corner to overhang outside the corner of the

house. Butt & pass logs alternate in successive log courses, creating a distinct

pattern of alternating overhanging logs on the corner. The pattern is a desirable

feature of many log home buyers because it instantly identifies the house as a log

home.

Butt & pass corners are often modified to create a stronger or better sealed joint.

For example, notches may be cut in the pass log into which fits a tongue cut in the

end of the butt log (mortis & tennon). While these may increase strength or

weather tightness of the corner, a basic butt and pass joint is still strong enough

and can be made tight enough to handle the stresses imposed by the log system.

Dovetail

Dovetail joints require precision cutting machinery or a skilled hand-crafter. The

joints are designed so that settling and normal log movement act to strengthen

rather than loosen the joint. In a dovetail, the two logs that form the corners are

each notched in a modified “V.” The “V” holds the corner together and any

movement in the log or settling tends to drive the logs tighter together. Dovetail

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joints are characteristic of many handcrafted houses and are reminiscent of the

early log homes built throughout the Appalachian Mountains.

Saddle-notch

Saddle notches often secure corners in a variety of log profiles. The basic joint is

made by cutting a notch into one or both logs of a corner pair. One log fits into

the notch in the other or, if both logs are notched, the two are interlocked. Like

dovetails, saddle notches are cut using precision machinery or in the case of hand-

crafters, by hand. Saddle notches simplify corner construction and may reduce

labor costs. Like butt and pass corners, saddle-notched corners produce a

distinctive appearance. A fully notched corner can have solid, rather than

alternating overhangs on both sides of each corner. Overhangs may be cut in

decorative patterns.

Post & Sill

Post & sill construction is distinguished by the presence of vertical posts at

corners and periodically along walls. Actually not just a corner system, it

represents a different method of log wall assembly. Usually posts are slotted

allowing insertion of a tongue milled into the end of the log. As a result, post and

sill houses are similar to timber frame homes. As logs settle, they simply slide

down the slots in the posts. The frame does not settle.

LOG TYPE

A variety of wood species are used for the logs that make up a log home. Manufacturers

and prospective log home owners invest much energy in defending one species or

another. In fact, the preservatives, modern sealants and insect repellents that are part of

modern log homes make differences in wood species less significant to the structural

integrity of the house. Specific woods, however, have characteristics that may appeal to

a particular buyer or offer a particular look. For example, oak has a very rich grain that

appeals to some people; cedar offers a distinctive color and aroma that attracts others.

Selection of wood species affects the finished house costs. Pine and oak are usually less

expensive than cedar. Cypress also carries a higher price tag.

In addition to solid log wall systems, an increasing number of manufacturers are offering

“super-insulated” log systems. These originated as a means of meeting stringent energy

code requirements in some areas. Super insulated systems consist of half-logs or log

siding covering a core of insulated framing or structural insulated panels, both inside and

out. The appearance is identical to a solid log house with manufacturers even including

full log corners to maintain a traditional log home “look.” Interior construction is

simplified because such homes do not require special features to control log settling.

These homes offer a broader market appeal by combining many of the most desirable

features of a log home with some of the positive features of a conventional home.

FASTENERS

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Logs can be secured in the wall using a variety of fasteners. Three of the most common

fasteners include spikes, lag screws, and through-bolts. Some manufacturers pre-drill the

logs for the fasteners used to ensure proper placement, spacing, and vertical alignment.

All three factors can affect the settlement of the log wall system and the integrity of its

weather tight seals. Each log home manufacturer should provide details on the proper

utilization of fasteners in their log wall system.

SEALING SYSTEMS

Each manufacturer includes a sealing system designed to prevent air and water

infiltration at joints. A variety of materials are used and new sealants frequently appear

on the market. Sealants may be solid foam or compressible material such as butyl rubber,

liquid foam, and caulk. Some systems use splines and adhesives instead of, or in addition

to, foam and caulk sealants. Solid foams are supplied in rolls or sheets and are designed

to be compressed between logs. They may be adhesive although some are not. Liquid

foams are supplied in cans or bottles and are injected into holes or grooves. They are

designed to expand, sealing spaces around them. Caulk is designed to be injected into

joints and is often used to seal log home exteriors and interiors. Depending on a variety

of factors, reapplying caulk may be a part of routine maintenance of a log home. It is

important to properly maintain a log home to prolong its life and beauty.

ROOF SYSTEMS

A variety of roof systems are used in log homes. The specific roof system used in a

home depends on owner preference, budget, and availability from the manufacturer.

Many manufacturers offer more than one roof system. The type of roof system affects

both the cost of the finished home and its perceived value.

Conventional

Conventional roofs are made from dimensional lumber assembled just as in

conventionally framed houses. Roof framing material consists of either

dimensional lumber rafters or pre-fabricated trusses. The framing is covered by

plywood sheathing, felt paper, and shingles. The roof is insulated using

fiberglass, foam batts, or blown-in-fibers. Roof ventilation is required just as for

conventional houses. Because materials and construction are similar, the cost of a

conventional roof is no different than in a conventional home. This is usually the

least expensive roofing option for a log home.

Built-Up

Built-up roofs offer wooden (usually) ceiling coverings and exposed beams, both

features sought after by many log home customers. A built-up roof is built by

erecting a framework of timber rafters. Purlins, timbers set horizontally,

paralleling the ridge line, may also be used. Solid wood decking, usually of

tongue and groove pine or cedar, is secured to the top of the roof framework.

Rigid insulation is placed over the decking and covered with a layer of sheathing.

Some systems add a layer of sleepers before the sheathing or use two layers of

sheathing separated by sleepers to create an airspace for ventilation.

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Because they use large timbers and tongue and groove decking and require more

labor to construct, built-up roofs can cost several times as much as conventionally

framed roofs. The look created, however, adds significantly to the lodge-like

atmosphere many buyers are seeking which can add significantly to the value of

the home.

ROOF COVERINGS

Roof coverings used on log homes are similar to those used in conventional homes.

Fiberglass or composition shingles are the basic coverings offered by most manufacturers

(when they include roof coverings in their package). Other popular coverings include

cedar shakes, slate and metal. These add significantly to the cost of a home, just as they

would with conventional construction.

RIM

Log homes usually have more trim, particularly on the exterior, than conventional homes.

The quality of trim and its installation can affect the perceived quality of a completed log

home. Because log home packages, styles, and owner preferences vary, there is no

standard for trim. Also, since home owners often install trim themselves, it may reflect

their abilities rather than the quality of the structure itself. It is important to not judge all

log homes by the quality of trim work found in some.

Log home trim varies from plain dimensional lumber (usually pine or cedar), to the same

pre-fabricated trim used in conventional housing, to custom made trim from a variety of

woods. Trim may be supplied ready to install or may arrive from the manufacturer as

dimensional lumber to be cut and shaped on the job site. Log home interior trim is often

stained and varnished rather than painted, a feature that would add considerably to the

value of a conventional home.

Maintenance

While not a factor in appraising a log home to be constructed, maintenance plays a role in

evaluating existing houses. Like conventional homes, log homes require periodic

maintenance. As with conventional housing, neglecting maintenance affects the

appearance and perceived value of the home. Log home manufacturers and builders

stress the importance of maintaining a water resistant wood preservative on the exterior

log surfaces with UV protection or inhibitors. Failure to do so may result in a gray

weathered appearance that some people find attractive but many do not. While this may

affect the perceived value of the house, the condition is not usually serious and is easily

remedied by simply pressure washing or bleaching the exterior and applying a sealant.

While the condition may look serious, it is usually no more serious than a conventional

home in need of re-painting.

ShrinkageandSettlement

Settlement occurs in all types of houses, but the nature of log construction can make them

susceptible to greater settlement than other systems. How settlement is handled by

manufacturers, carpenters, and homeowners can all affect the quality of a log home.

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Shrinkage (the dimensional change) of logs occurs as they acclimate to the inside

environment of the home. The amount of shrinkage per log (and ultimately the whole

wall system) may differ due to a variety of factors.

Settlement results primarily from the shrinkage and/or compaction of logs after

construction of a home. Shrinkage affects logs differently, depending on the average

moisture content of the logs and the construction system used. Usually, logs settle as

they shrink, slightly reducing the overall height of a log wall.

Because log systems vary widely, there is no standard for treatment of

shrinkage/settlement that applies to all. The Log Homes Council of the National

Association of Home Builders specifies that its members must either utilize a non-settling

log system or have some method for accommodating settlement, but leaves the

engineering details to the individual manufacturers.

Each Log Home Council Member manufacture has defined specifics on how they address

the settlement issue with their “settling” or “non-settling log system.”

EnergyEfficiency

Log homes have a deserved reputation for energy efficiency. Tests performed by the

federal government found a log structure to perform as well or better than other types of

construction, including an R-11 insulated 2x4 framed wall structure, even though the

nominal R-value of the log wall was less than nine.

Experts attribute the energy efficiency of log homes to thermal mass of the solid wood

walls. In addition, a well-sealed and maintained log home does not exhibit the energy

loss due to convection or air infiltration that is characteristic of framed wall construction.

Although log homes have inherent energy efficiency, this can be offset by poor

construction or maintenance. Log home manufacturers provide specific construction

details and maintenance guidelines to ensure that homeowners realize the full benefit of

log construction. If these guidelines are not followed, the result may be high utility bills.

Summary

Just as with frame construction, log homes show wide variation in design, style and

quality. Determining the value of a log home involves analyzing these characteristics,

not only in relation to the conventional housing market, but as they relate to the log home

market, too. Since log home buyers represent a unique market segment, they often desire

qualities not sought by conventional home buyers. For many, the more a log home

approaches a conventional one (drywall interior partitions and ceiling, painted trim) the

less interested they are. In addition, many of the features sought by log home buyers

would be considered expensive upgrades in a conventional house. For example,

cathedral ceilings, hardwood floors, solid wood, custom cabinetry, exposed beam

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ceilings, fireplaces, wood wall and ceiling coverings, stained and varnished trim, porches

and decks are considered “standard” amenities in many log homes.

The nature of the construction process also contributes to the high quality of log homes.

Despite the pre-packaging of materials, there is very little pre-fabrication in a log home.

Even with milled, pre-cut logs, assembly is usually labor intensive, requiring craftsman-

like skill. The result is a unique, highly customized home that carries a cost typical of

custom craftsmanship.

Log home buyers also contribute to the value of their home. Log homes are rarely built

as “spec” or tract homes. Most construction originates as “dream” homes for log home

buyers. Thus the home often receives far more attention from their original owners.

Most log home owners spend an extended period researching their home. One to three

years spent selecting a log home is not uncommon. Home buyers are usually well versed

in construction technology and log home characteristics. The home owner usually directs

the design of the home and monitors construction carefully. Most log home owners are

very attentive to maintenance.

As a result of the materials used in log homes and the methods used in their assembly, log

homes usually cost more to build than conventional homes. Although manufactured log

homes began as an inexpensive housing alternative, with advertising aimed at the “do-it-

yourself-and-save” market, the market has changed. Log home buyers expect higher

quality form a log home than from a conventional home, with additional amenities. They

occasionally participate in construction and may act as their own contractor. As a result,

log homes are truly custom homes, with appeal to a growing, specialized market.

Marshall&Swift

For those new to the residential building market, Marshall& Swift is one of the

authorities serving the appraisal industry. Marshall& Swift prides itself on providing

appraisers with the necessary cost data to complete evaluations of residential properties

across the country. It has served the industry for more than 75 years.

Seeing the unique fit the log homes market has within the residential industry, Marshall&

Swift turned to the Log Homes Council in 1997 to learn how to more accurately capture

the value of log homes in appraisals. The LHC assisted in developing “The Log Home

Appraisal Training Guide” which was designed to be a companion text to the Residential

Cost Handbook, a standard publication for Marshall& Swift.

The Log Homes Council encourages anyone interested in log home appraisal to utilize

this resource to learn more about the designs, components, and customization of today’s

modern log homes. Topics in the Marshall & Swift Guide are similar to those contained

in this document (energy efficiency, sealing systems, maintenance, etc.). Most sought-

after is the guide’s analysis on appraisals of conventional versus log homes.

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About the Author

Jim Cooper is an experienced log home builder who has also written a book on log home

construction for the novice, Log Homes Made Easy / Contracting and Building Your Own

Log Home. Jim also writes articles about log home construction and design for leading

consumer magazines devoted to log homes and log home lifestyles.

About the Log Homes Council

The Log Homes Council is part of the Building Systems Councils, an umbrella

organization of the National Association of Home Builders. Members of the Log Homes

Council are log systems manufacturers. The Council is dedicated to promoting

excellence in log wall construction by contributing to the standards and codes that affect

the quality of log homes built in the United States. Members of the Log Homes Council

produce model code complying building, and are committed to professional and fair

business practices.