Anyone care to educate me on developing the As-Is value mid new construction?

[alebrewer]

Could be but if doing a new construction loan and conventional non-conforming loan, the FDIC requires 'as is'.

My understanding as well. For FRT's, when a 'subject to' value is requested, the appraiser also has to provide an 'as is' value.

 

[Terrel L. Shields]

, the appraiser also has to provide an 'as is' value.

When new construction and they actually give you P & S, then the land value is the "as is" value.

 

[alebrewer]

When new construction and they actually give you P & S, then the land value is the "as is" value.

Not the case in this scenario, tho...

 

[Terrel L. Shields]

We could compare it to prices of homes with deferred maintenance

That might be a stretch to me. I've seen a few houses go into foreclosure and not complete, but these are usually not sales, or the sale is REO-distressed. That is not an orderly disposal (in commercial work, there is a difference in the orderly sale of a property and a forced sale)

 

[George Hatch]

When using an HC I always add an "as is" in order to show the effect on value of that HC. I don't ask, I tell. I've never had anyone try to tell me not to do it.

 

[J Grant]

It makes sense that a well-informed buyer would expect a discount to buy a part-finished property. Investors are typically THE most well-informed buyers out there.

TS- That might be a stretch to me. I've seen a few houses go into foreclosure and not complete, but these are usually not sales, or the sale is REO-distressed. That is not an orderly disposal (in commercial work, there is a difference in the orderly sale of a property and a forced sale)

IDK what an orderly sale means, but I imagine a half-completed builder sale would be a distress type situation wrt seller motivation - that said, market value is market value - the most probable that the well-informed buyer should pay under the terms and conditions in the MV definition used in the appraisal.

A failure to identify the likely buyer for a subject imo is a big cause of misvaluation. In this case, it is a spec buyer- an investor, or contractor. A niche group that typically pays cash and is in it for profit, not in it as an owner-occupant.

 

[George Hatch]

That might be a stretch to me. I've seen a few houses go into foreclosure and not complete, but these are usually not sales, or the sale is REO-distressed. That is not an orderly disposal (in commercial work, there is a difference in the orderly sale of a property and a forced sale)

If that's the only way they sell - which it generally is - then that's what is typical for those properties, those buyers and those sellers. As is demonstrated by those sales, especially when they're marketed in the listing services and are adequately exposed to the market.

Definitions of Disposition Value and Liquidation Value generally include assumptions about arbitrary limitations on market exposure. Absent that element in a sale it's hard to say that sale fits that definition.

 

[Overimprovement]

I did a lot of these types of appraisals back in the day (after the big crash), and the discount (at that time and in my market) on the unfinished portion was much larger than I think most appraisers would have estimated, because of the risk of taking on a project that someone else started.

BINGO!

Imagine you are a builder, and further assume this is NOT a presale. You--the new builder--will have to warranty this new home. There is great risk in that.

We appraisers have been griping about PDCs, and rightly so, because we are in essence putting OUR license and E&O on the line on the finished report for a home we did not inspect. This half-done construction scenario is similar. The only market would be an investor or a builder, either of which is taking a great risk in the quality of the prior workmanship and materials. If the drywall is up, I cannot see the framing, foundation, electrical, plumbing, etc. Yet I would have to put my name as the builder on the completed house. Small builders make their living by reputation. I would want a BIG premium to do that. It is the bank which will be eating that discount.

 

[Surf Cat]

Yes I did the original and I put the as-is value as site value only with the statement, and I simplify it here, that incomplete construction would sell as distressed.

I don't understand. So you did the "subject to" plans and specs appraisals (I would assume you did two separate appraisals as they are condos and separate entities, not a duplex per se.) and you only concluded site value? You didn't conclude a hypothetical with the units as complete value?

 

[J Grant]

BINGO!

Imagine you are a builder, and further assume this is NOT a presale. You--the new builder--will have to warranty this new home. There is great risk in that.

We appraisers have been griping about PDCs, and rightly so, because we are in essence putting OUR license and E&O on the line on the finished report for a home we did not inspect. This half-done construction scenario is similar. The only market would be an investor or a builder, either of which is taking a great risk in the quality of the prior workmanship and materials. If the drywall is up, I cannot see the framing, foundation, electrical, plumbing, etc. Yet I would have to put my name as the builder on the completed house. Small builders make their living by reputation. I would want a BIG premium to do that. It is the bank which will be eating that discount.

Why can't they see it?
They might have access to inspect what was done, but they still take on a lot of risk. Their risk has nothing to do with ours in relying on a PDC -for too many reasons to count. Good try though!

An investor/contractor /spec home builder knows the drill that a C of O will be needed, code inspections at the end, etc. That is part of the reason they expect a significant discount. The average investor who does light repair and cosmetics to flip is probably not going to take this on.