Actual and Effective Age for new Contruction

[Mike Garrett RAA]

Received a request from a SAR to change an appraisal report. This was an appraisal on new construction. The improvements were not 95% complete at the time of my inspection. It wasn't really at the "buyer preference items" and needed trim, floor coverings, some fixtures, appliances, and landscaping.

I indicated "under construction" on page 1 of the 1004. I also indicated the age as 1 in the grid. Checked the box "subject to completion per the plans and specs" in the reconciliation section of the report and indicated the appraisal was conditioned upon a final inspection by the appraiser.

The SAR advised he could not issue the NOV unless I made changes including adding a plans certification. He also wanted me to change the report from subject to completion per the plans and specs to "subject to repairs and/or alterations, list all the unfinished items, and a cost to cure".

I balked saying that isn't what needed to be done and that what was needed to be done was "completion per the plans and specs". I then suggested we get a ruling from the VA regional office.

Here is what I was told by the #2 guy in Denver:

The VA considers "Under Construction" and "Proposed" to be the same and a Certification of Plans is required if either box is checked. He also indicated that indicating age as "0" for new construction is common but not done by all appraisers and that "0" or "1" is acceptable but that "0" is preferred. He also said I was correct in conditioning the appraisal on "completion per plans and specs" and not "subject to repairs/alterations".

So, I stand corrected and wanted to share this information with other VA appraisers. In checking with the other three (3) VA appraisers in my family and also a couple of others in this area I found all of them were doing as I did indicating actual and effective age as 1 rather than 0 if the improvements were substantially completed. I suggested to them we all get on the same page and do it the way the VA wants it.

Our county assessor indicates age as 1 for the year built. I was trained the same way and was taught depreciation starts when the foundation is poured. The VA had told underwriters the actual age doesn't start until the property is occupied and told me it was a warranty issue. I don't agree with that because I have seen many properties that were under construction for several years and the age has nothing to do with occupancy.

Regardless, VA is the client and those are their rules. Always remember the golden rule..."those who have the gold make the rules!".

 

[incognito]

Mike, regions are different. In the SE region, this DEFINITELY would be a house which was at what VA terms "the buyer preference stage", and no plans or specifications are needed. Relative to the SE region rules, I say the SAR is correct. Here, trim, appliances, flooring, landscaping, and finish plumbing and electric ARE buyer preference items. I have this in writing, and will post when I get back to the oofie this week.

 

[Don Clark]

Mike, regions are different. In the SE region, this DEFINITELY would be a house which was at what VA terms "the buyer preference stage", and no plans or specifications are needed. Relative to the SE region rules, I say the SAR is correct. Here, trim, appliances, flooring, landscaping, and finish plumbing and electric ARE buyer preference items. I have this in writing, and will post when I get back to the oofie this week.

Same in the Roanoke region as well. Unless the appraiser is appraising a property solely by Plans and Specs, which is very unusual these days, then the criteria is that a property has to be 95% complete which typically means that landscaping, carpeting, vinyl, appliances, and touch up painting are the only items to be completed and the property is subject to repair of those items. If it is by plans and specs then it is considered to be under construction until complete. As to actual age, if it has never been lived in, or used for some purpose considered occupancy, such as a sales office, then it would likely have an actual and effective age of 0. But, if it has been complete, sitting empty for a year or more, it's actual age would be when construction was complete and it's effective age would be the age it appears to be based on the same criteria that an appraiser would use for effective age in any property appraisal.

 

[Terrel L. Shields]

I always used zero for new construction unless it had been under construction for more than one year. But I worked under one person back then who was loath to every use "zero"...

 

[KenAZ]

In my region, that appraisal would also be subject to repairs. I did an appraisal in which the house was not quite up to the buyer preference. We no longer actually need plans for these (You can even use a model match model home now), but you need to include the specs and indicate in the addendum that the house measurements were obtained by the appraiser measurements.

 

[Sid Holderly]

Assessor's in different counties vary between using a start date of date of building permit and the date occupancy is granted. I generally use "0" on new construction. There are homes that have been under construction for 3,5,10 years without occupancy and they must be looked at differently.

 

[PropertyEconomics]

On the face of it "subject to repairs" makes absolutely no sense. Nothing needs to be
"repaired" it needs to be completed. There could be an arugment made that a repaired condition could be misleading when one is talking about completion of a house in accordance with the proposed plans and specifications.

Knowing a few appraisers who have been employed at the VA over the years Im not surprised .. but in my mind the condition is wrong.

As to age .. 0 or 1 .. what difference does it make .. I tend to lean toward 0 since it has not been completed or occupied and it is under construction (ie it has not sat for an extended period of time).

 

[JSmith43]

Sometimes those building materials are exposed a long time to the elements at the lumber yard, in transit &/or on site during rain, snow, whatever. Weather variables. We can't call it too close

I like the 1 year standard, since zero is theoretically, harder to defend, when discussing depreciation of components.

The golden rule concept is respected for what it is, but this seems like a subject to plans & specs situation to me. I think I would express the appraisers opinion that repairs aren't literally being made, merely the final completion items are being done, but the client uses the repairs check box for their accounting of situations 95% complete or more. Something like that

 

[Mike Garrett RAA]

The system is jacked up .... to say the least. If a property is incomplete it should not be subject to repairs...it should be subject to completion per the plans and specs.

How old is a baby when it is born? It is zero years old during the first year? Inquiring minds want to know?

 

[sputnam]

It's always been 'New', not 1. Well, then along came UAD...so, if you are playing in that game, it's '0'. There is a little bit of a disconnect, since...yep...public records (at least in all the jurisdictions I'm familiar with) is based on the year the permit is issued. So...public records would be misleading if you appraised a property that was under construction in January when the permit was issued in December. Some lenders want the age of the dwelling based on the date of the CO....but then you get improvements that were permitted in December, started in January, and then not completed for a year or more. Someone just shoot me.