Anyone care to educate me on how to develop the As-Is value of a 2 Unit Condo mid construction?
The foundation, framing, roof, windows and rough pluming are in.
I got a call asking me to do this, and my response was that I haven't done it before but am open to educate myself on it.
He's sending over the equation he's seen other appraiser use and a few reports that others have done in the same situation for me to review.
What is the value of anything that isn’t complete? It's more complex than finished value minus cost to complete, profit, etc. Assuming it’s a marketable floor plan, location, design, etc., who would buy it “as is”? The logical buyer is a builder/investor who would take it through completion. Assuming there is an active investor market for it, establish the market for the finished product, the time to complete, and market it, etc., to project a closing date.
Along with the cost to finish, holding costs during completion and sale, selling costs, profit, etc., the investor will expect a return on their expenditure and a return on the investment dollars, plus a premium for the risks inherent in taking over an unfinished home. Basically, you must back into this. I contacted multiple small custom home builders to get their ideas on the risk factor (what type of annualized return would be required). Most responded with percentages that were within a reasonable range.
From that, I create a matrix with multiple columns (one for each builder) showing the anticipated selling price upon completion. The anticipated selling price represents the investor's total exposure. Next, you must consider the months to complete, marketing time, etc. Let's say you have 12 months of completing, marketing time, etc., until closing. The investor is going to want their annualized rate against their total investment.
If the investor wants 12% annualized, and it will take 1 year to finish the home and close the sale, the completed sale price represents 112% of the investor’s total investment. If the completed price is $500,000, then ($500,000/1.12 = $446,428) total investment. From that, deduct the cost to complete to get the indicated “as is” value to the investor. By placing this in a matrix (like a sales grid), you can show the potential sale price, less each investor's required return, less the cost to complete, to get to the “as is” for each investor (again, like a sales grid). You can then reconcile the indicators as a range of X to Z, selecting the most reasonable one.
I also check with agents; they have investors who look for opportunities. The key is to present logic along with verified investors (builders, agents, etc.) you talked to.
