Hypothetical Condition or not

[George Hatch]

I've performed a fair number of SFR appraisals involving proposed construction which were FRTs, and which in recent years have required a Prospective Value upon completion at a future date, in addition to the "as is". I've also reviewed many such appraisals performed by other appraisers. These aren't subdivision homes where the lender is doing permanent financing for a home buyer, but construction loans where the borrower is a developer.

Nobody wants to do a future value, including me. But, that's what the lenders are required to get so it is what it is. I always add a subject to/current value in order to get to the future value but that isn't actually required by the banking regulators. "Subject to/Current Date" is a more readily supportable value conclusion that isn't dependent upon any fortune telling, so that's why I always include it.

 

[Surf Cat]

I've performed a fair number of SFR appraisals involving proposed construction which were FRTs, and which in recent years have required a Prospective Value upon completion at a future date, in addition to the "as is".

I've never within the scope of a proposed construction assignment been asked to provide a prospective value. I'm actually curious as to how to go about doing that properly.

Having said that, I've been asked to give an as is value of the improvements prior to the construction along with the proposed Construction. Then, been sent out for a 1004D for both completion and appraisal update.

 

[Charles West]

Last time the form was updated was 2005.

Yep, I am losing it.

 

[George Hatch]

Like I said, when the borrower is a developer and the lender is holding the loan in their own portfolio it can come under federal banking regs and criteria.

As for the future value, we're basically taking the recent trend and extrapolating to a projected completion date. The way I do it is to first present 3 different scenarios with different assumptions for conservative, neutral or agressive value trends and then reconcile to the one I think is most likely. That way, if a reader thinks my conclusion is unreasonable then they at least have other scenarios to consider along with the rationale that goes with each. But that's just how I do it. That approach isn't a requirement as such.

 

[J Grant]

Like I said, when the borrower is a developer and the lender is holding the loan in their own portfolio it can come under federal banking regs and criteria.

As for the future value, we're basically taking the recent trend and extrapolating to a projected completion date. The way I do it is to first present 3 different scenarios with different assumptions for conservative, neutral or agressive value trends and then reconcile to the one I think is most likely. That way, if a reader thinks my conclusion is unreasonable then they at least have other scenarios to consider along with the rationale that goes with each. But that's just how I do it. That approach isn't a requirement as such.

That is a whole different animal than an individual house assignment that happens to be new construction -

I bet the OP, who went MIA as so many do,, is confused wrt the valuation date.

 

[George Hatch]

The majority of assignments I've done involving Prospective Value have been individual SFRs. Not partially completed subdivision homes. I've done them on other property types as well, including condo and small subdivision projects, but the requirement sometimes comes into play with spec homes, too.

 

[J Grant]

The majority of assignments I've done involving Prospective Value have been individual SFRs. Not partially completed subdivision homes. I've done them on other property types as well, including condo and small subdivision projects, but the requirement sometimes comes into play with spec homes, too.

Then you have a different set of clients -or as you said, the borrower is the developer.

I have done numerous new home appraisals and never have been asked for one, or known any other appraiser who has for an individual lender or client. I do see in the past few years clients ordering the appraisal when th house is a week or two out from completion, or complete - they used to order them when it was just dirt and plans.

 

[Terrel L. Shields]

whom is asking a basic hypothetical condition question

Not real basic when you have a member of the AQB addressing hundreds of appraisers in a meeting and explaining why there is a difference in an HC for a proposed construction as if already built (contrary to what exists) and a prospective appraisal where the future date of appraisal assumes that the project is completed and built as of that future date. That is not hypothetical, but an EA that it will exist as of that future date of appraisal. The problem there is to predict what the market conditions will be that six months-year later.

 

[George Hatch]

Not real basic when you have a member of the AQB addressing hundreds of appraisers in a meeting and explaining why there is a difference in an HC for a proposed construction as if already built (contrary to what exists) and a prospective appraisal where the future date of appraisal assumes that the project is completed and built as of that future date. That is not hypothetical, but an EA that it will exist as of that future date of appraisal. The problem there is to predict what the market conditions will be that six months-year later.

I hold the minority opinion on that scenario. With an existing use you have reason to believe that it exists in the future. But with a proposed use it's all hypothetical. This is particularly true when considering that we know for a fact that some proposed projects never do get built, or if they do then that completion date is nowhere near the date that was originally proposed.

In my view FV of proposed construction is 100% hypothetical and 0% (I think so but I can't be sure) EA. But as I say, my opinion was voted off the island so I just stick with the party line.

 

[J Grant]

The prediction of a future value is as of future date X as a prospective value is an assignment condition.

The HC that the improvements be subject to completion is another assignment condition, whether a current eff date or future eff date value.