"As Is" for New Construction

[GCAR]

Good morning. I could use some feedback on a bid request I received. The Client is requesting an "As Is" and a "Subject To" opinion of value on a residential improvement that is "mid-construction". We have always prepared these types of reports "Subject to Completion" per plans and specs. with an HC. There is a new form (grid) in our appraisal software for "As Is" that can be added to a standard 1004; however, I have never used it. I am not sure how you could prepare a credible report using that form and making adjustments across the board for the cost to complete based on the construction budget. Anybody experienced a request like this before? Thanks in advance.

 

[alebrewer]

Both values are required for FRT's, hence the ask from your client. They (should) understand that valuing a partial improvement is very challenging. Sans any matched pairs of similar properties, depreciated cost is going to be your friend.

 

[Tim Hicks (Texas)]

I get that a lot on proposed construction. Much easier with a vacant lot.

 

[Dublin ohio]

. Sans any matched pairs of similar properties

Don't necessarily have to be similar to subject. You could possibly derive a reasonable percentage discount from a competing market sector or price point if sales are available.

 

[George Hatch]

This is an example of the cost approach being your friend. A real cost approach, not a word-vomit of the contractor's cost breakdown.

The cost services have previously published construction allocation tables which show which levels of completion represent the different levels of spending. A project where only the slab is completed might already be 40% complete in terms of the costs.

 

[alebrewer]

Certainly applying some kind of breakdown method would be much easier in today's world than pre-AI assistant.

 

[Tim Hicks (Texas)]

Both values are required for FRT's, hence the ask from your client. They (should) understand that valuing a partial improvement is very challenging. Sans any matched pairs of similar properties, depreciated cost is going to be your friend.

Is it really worth anything if it is not finished? Depreciated cost would not reflect the adverse reaction to having to complete the construction and recognize what may or may not have been completed correctly.

 

[alebrewer]

Depreciated cost would not reflect the adverse reaction to having to complete the construction and recognize what may or may not have been completed correctly.

Of course it would - if I were doing the analysis, I'd call it functional obsolescence - incurable most likely. In fact, that's all the 'depreciation' hit you'd probably take as it's new. IOW - the difference between the 'cost' of what's been done and the 'value' of what's been done is the incurable functional (assuming no external, that is).

 

[George Hatch]

I've never done it as depreciated cost. I've always used cost/sf up to the current stage of completion. If they're 40% complete then it's the (total cost/sf * 40%.)

You can figure out the discount between the "as is" and the "subject to" by looking at the flip transactions for the heavy fixers and partial construction. They paid one price for the acquisition, added their rehab costs, and resold at the higher price upon completion.

In our region, the common discount amounts to whatever is the (hard cost to cure * 2). $100k to finish will result in a $200k discount from "as completed" because the buyer has holding costs, financing costs, contingencies for the unknown and whatever is left over become their profit/loss factor.

If for an FRT the appraiser might be required to develop an opinion for the future value @ the time of completion:

How long will it take to complete and re-sell
What changes to the market conditions are forecasted up to that future date
What costs it will take to complete and resell, and
What the additional discount will apply between costs vs resale

 

[GCAR]

Good morning. I could use some feedback on a bid request I received. The Client is requesting an "As Is" and a "Subject To" opinion of value on a residential improvement that is "mid-construction". We have always prepared these types of reports "Subject to Completion" per plans and specs. with an HC. There is a new form (grid) in our appraisal software for "As Is" that can be added to a standard 1004; however, I have never used it. I am not sure how you could prepare a credible report using that form and making adjustments across the board for the cost to complete based on the construction budget. Anybody experienced a request like this before? Thanks in advance.

All good concepts here. Thank you for sharing your experience/advice.