Where Do Appraisers Come Up With Stuff Like This?

[J Grant]

At the time of the meeting of the minds, no house exists J.

That's why it is a construction loan not a primary mortgage.

8. I have not used comparable sales that were the result of combining a land sale with the contract purchase price of a home that has been built or will be built on the land.

Just because the loan gets converted to a primary mortgage at the end of the construction does not negate that the sale was the result of combing the land with construction contract - as that is when the price was determined, which funded the construction loan, and gets finalized in the appraisal at the end of the construction contract for the primary mortgage. The sale was the result of combining land and construction of a home that has been built.
Gheeze..

If the sale you refer to was one where a buyer owns a lot or buys a lot and then contracts to build, that is not an acceptable comp per cert 8 and buyer may elect to build with a construction loan. Is this the kind of sale or transaction you are talking about? (yes or no).

The other transaction which is acceptable as a comp on URAR grid is a sale from builder office of a house and lot together, the house may or may not exist at time of sale. The buyer applies for a mortgage and appraisal is made subject to completion (unless house is already complete.) This is not a construction loan converted to a primary mortgage at the end. This is a primary mortgage on day of application .

 

[timd354]

I hit "like" for this post, because it illustrates so well the point of my prior post.

The reasoning for your "like" in the prior post flew right over the head of at least one of those who does not understand cert. 8.

 

[timd354]

Cert 8 refers to a buyer buys a vacant site SEPARATE from the improvement, a person buys a site, then at some point in time they contract to build a home on the site.

In builder sales, buyers walk in and buy model house on a base lot as one package; whether the house is built yet, mid construction, or not yet started construction.

One wouldn't think that the concept of cert. 8 would be hard to understand, but for some it apparently is.

 

[Meandering]

One wouldn't think that the concept of cert. 8 would be hard to understand, but for some it apparently is.

To answer your questions;
1. No.
2. Did you check that these were not sales of land and then contracts to build, with refi's to completed primary mortgages after completion before you required these (comps) from the OA? Did you find anything in Fannie's guideline that allowed for custom built homes to represent market value sales and not just spec homes?

and 3. What is your official decision concerning cert 8, the use of custom homes that have not been exposed to the market as market value comps, in regard to misleading and USPAP?

Thanks.

 

[Michigan CG]

Oh my...............

 

[DWiley]

Surely they did not buy a completed home, if they sold while under construction. They bought a contract.

The home I live in now was purchased while under construction. We bought the home and the site together. We did not buy a "contract," we purchased a home and the site it sits upon, and we did so in a single transaction. There was no conversion of a construction loan; there was no construction loan. Our purchase contract, like the supporting appraisal, was subject to the completion of the home. So, our purchase was not a "created sale" as addressed by Cert 8.

Many homes are purchased this way, and I see no reason why my purchase of my home could not have been used by appraisers as a comparable. The fact that it happened to be under construction when we signed the contract is not germane.

As for market exposure, there is nothing preventing a builder from exposing a home that is under construction to the market. Whether there was adequate exposure is something to be considered an analyzed, just as with any other potential comparable.

 

[bnmappraisal]

The home I live in now was purchased while under construction. We bought the home and the site together. We did not buy a "contract," we purchased a home and the site it sits upon, and we did so in a single transaction. There was no conversion of a construction loan; there was no construction loan. Our purchase contract, like the supporting appraisal, was subject to the completion of the home. So, our purchase was not a "created sale" as addressed by Cert 8.

Many homes are purchased this way, and I see no reason why my purchase of my home could not have been used by appraisers as a comparable. The fact that it happened to be under construction when we signed the contract is not germane.

I tend to agree, this isn't against Cert 8. IMO, (and I'm not a lawyer) I'd like to think the avg/typical appraiser isn't saying "site val" = 50k and "cost to construct" = 200k therefore OMV = 250k

I agree with DWiley in that (per his comment) "we did not buy a 'contract,' we purchased a home and the site it sits upon..." That, IMO, is not contradicting Cert 8.

 

[Eli]

The home I live in now was purchased while under construction. We bought the home and the site together. We did not buy a "contract," we purchased a home and the site it sits upon, and we did so in a single transaction. There was no conversion of a construction loan; there was no construction loan. Our purchase contract, like the supporting appraisal, was subject to the completion of the home. So, our purchase was not a "created sale" as addressed by Cert 8.

Many homes are purchased this way, and I see no reason why my purchase of my home could not have been used by appraisers as a comparable. The fact that it happened to be under construction when we signed the contract is not germane.

As for market exposure, there is nothing preventing a builder from exposing a home that is under construction to the market. Whether there was adequate exposure is something to be considered an analyzed, just as with any other potential comparable.

That's right. Marion is seeing it as being two different transactions which is real in some cases I am sure. Look, on new construction, my best advice to an appraiser is be careful and know the general costs in your metropolitan statistical area. Realize that cost of construction are usually higher in rural areas than urban areas because of logical reasons. 'Distance has a bunch to do with it sometimes. Costs of utility hookups or installations do too.

Just don't let a single or double builder mess with you on the cost approach. I generally don't see that from builders though unless it is relative to concessions. They pretty much have a cost plus model and they stick to it unless something crazy is going on with the individual subject property.

The way to check those crazy concessions is to check with realtors. The realtor will tell you in a minute or they will lose their realtor's license in a heartbeat. Check in competing subdivisons with a different builder or developer or realtor too. Motivations are crucial in the definition of market value. Builders or developers are usually on the cost plus model. Jump to a competing developer, builder, and/or realtor and it will get clear when the stuff aint' right.

 

[Eli]

When the property is appraised "subject to", it is as of the effective date if it is a current opinion of market value as of the effective date. That does not mean the subject will have the same market value opinion when the proposed improvements are completed.

 

[Eli]

If we use a comp where the comp is developed when a buyer has purchased a vacant lot and has contracted for the subject to be built and we use "contract cost of the proposed improvements" combined with the purchase price of the vacant lot as an indicating factor to the value of the subject, that would not be good in the sales comparison approach to value. I would probably consider it as an indication of estimated cost in the cost approach, but not my only source of estimated cost and definitely not my only indication of value in the cost approach. It just doesn't fit the mold of any approach to value, although it could be an indicator of both land value as if vacant and/or replacement/reproduction costs.