Builder Presale A Valid Comparable For Appraisal?

[Doug in NC]

I've always avoided using "Presales" as comparable properties because I don't believe they are valid typical market sales for a market value appraisal. These properties are usually pretty easy to identify in the MLS because they indicate zero or sometimes one day of marketing time (although oftentimes the builder rep will say outright that they are presales in the listing) before they were sold. While these types of sales may be typical for some new developments, you can't say they received adequate market exposure before they sold. What do other appraisers think about this?

 

[Meandering]

I don't care what the reps say.

The pre-sale is not a closed sale until the construction is complete, the CO is issued, and the buyer ACCEPTS the property as completed, along with any price changes along the way. Otherwise, it's just a promissory note that is not recorded in the public records.

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[bnmappraisal]

you can't say they received adequate market exposure before they sold

I guess one would have to define "adequate"

Many larger builders have all kinds of marketing going on for their new developments (signs, flags, internet, etc) so just b/c it didn't list through MLS using a sales agent doesn't mean it wasn't adequately exposed to the market

 

[Meandering]

I guess one would have to define "adequate"

Many larger builders have all kinds of marketing going on for their new developments (signs, flags, internet, etc) so just b/c it didn't list through MLS using a sales agent doesn't mean it wasn't adequately exposed to the market

That's true,
but it's still just a contract and promissory note towards a future sale of real estate, not a sale of real estate.

They are only good for projecting future market prices beyond the effective date of your current valuation of a property.

When the market crashed, here in '08, we say many pre-sales that did not complete construction, some builders that went to jail, some buyers that had their funding pulled, lots of belly up pre-sales. Because, they were not sales of real estate.

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[Doug in NC]

I guess one would have to define "adequate"

Many larger builders have all kinds of marketing going on for their new developments (signs, flags, internet, etc) so just b/c it didn't list through MLS using a sales agent doesn't mean it wasn't adequately exposed to the market

That's true but presales are typically paid for through change orders (added onto the base price) on an item for item basis. The end product may have hundreds of individual specific specifications, exclusive only to that house and that buyer. Very hard to say such a unique property was exposed to the market because its property characteristics and pricing were agreed to by only one buyer and no others.

 

[bnmappraisal]

So I guess I'm confused (wouldn't be a first, but it is a Friday before a holiday ...)

Are you talking about a proposed construction that has not CLOSED or are you talking about a new construction that has closed and the agent uploaded info into the MLS ???

Maybe it's a locational thing? I often see new construction, closed sales uploaded "for statistical purposes" of which I then will call the list agent (builder's agent) and verify all the info, including that it was marketed (again, usually through internet, sales office etc) to the open market

My comment in post 3 was more about the marketing - exposed to open market

 

[chad hampton]

Talking to builders reps have become pretty much a waste of time. I've had so many of them offer "sales" to use, only to drive to take a photo and it's still being framed.

No, I would never use a pre-sale as a comp 1-3.

 

[J Grant]

what is a "pre sale" ? A closed sale that was sold through the builder? Or a pending sale through builder office ? (I've used both, but I always add in resale comps exposed to MLS and market outside the builder )

 

[Doug in NC]

So I guess I'm confused (wouldn't be a first, but it is a Friday before a holiday ...)

Are you talking about a proposed construction that has not CLOSED or are you talking about a new construction that has closed and the agent uploaded info into the MLS ???

Maybe it's a locational thing? I often see new construction, closed sales uploaded "for statistical purposes" of which I then will call the list agent (builder's agent) and verify all the info, including that it was marketed (again, usually through internet, sales office etc) to the open market

My comment in post 3 was more about the marketing - exposed to open market

I'm talking about sales that are agreed to usually at the builder's sales model (no MLS listing at this point), THEN that sale is listed in the MLS once closed so that appraisers will use it as a comparable for appraisals in that development.

 

[J Grant]

I'm talking about sales that are agreed to usually at the builder's sales model (no MLS listing at this point), THEN that sale is listed in the MLS once closed so that appraisers will use it as a comparable for appraisals in that development.

That is very common practice with builders, so yes, I would use them- as I said, I like to supplement builder sales with sales that were sold on MLS, ( putting it on MLS as a token as you describe does not count , usually the ones "really" sold on MLS are resales or new homes that were built as spec or a buyer defaulted on in contract.