As-is Value On New Construction

[JoshDavis]

So I have a client that just recently has started asking for an as-is value on new construction properties. These are not construction loans. They are just your standard builder building new homes in a new neighborhood.

The lender is citing FIRREA saying that its requires an as-is value on all appraisals.

This is the first I've heard of something like this. I've always gone out when the home is close to being finished, written up the report subject to the home being completed, then gone out and done the final inspection when it's done.

Has anyone else had to deal with this?

 

[gregb]

Your client is correct in asking for an "as-is" value on new construction.

 

[Dublin ohio]

Are the appraisals for purchases or are they for builder financing purposes.

 

[Jerry Bone Jr]

So I have a client that just recently has started asking for an as-is value on new construction properties. These are not construction loans. They are just your standard builder building new homes in a new neighborhood.
The lender is citing FIRREA saying that its requires an as-is value on all appraisals.
This is the first I've heard of something like this. I've always gone out when the home is close to being finished, written up the report subject to the home being completed, then gone out and done the final inspection when it's done.
Has anyone else had to deal with this?

Yes, provide an "as is" value and completion time.

 

[JoshDavis]

Are the appraisals for purchases or are they for builder financing purposes.

Purchases. The appraisals are being completed for the buyer's lender

 

[Dublin ohio]

Purchases. The appraisals are being completed for the buyer's lender

Does not make sense. What purpose does and "as is" value serve for a purchase of a new home under construction. What happens when the property is complete. Are they going to order a new appraisal. if so. Fine. Give them an "as is" value. A pita. But can be done. Problem will be that market data for incomplete construction may be very limited or possibly non existent. Might have to rely on cost approach. They will not like that

 

[JoshDavis]

Does not make sense. What purpose does and "as is" value serve for a purchase of a new home under construction. What happens when the property is complete. Are they going to order a new appraisal. if so. Fine. Give them an "as is" value. A pita. But can be done. Problem will be that market data for incomplete construction may be very limited or possibly non existent. Might have to rely on cost approach. They will not like that

That's my point exactly. It makes absolutely no sense. I've been doing this for 11 years and with dozens of lenders/clients. They are the first to ever ask for this.

They want an "as-is" value in the report that is being completed "subject to". It serves no purpose and to me is misleading to someone reading the report.

 

[Dublin ohio]

They want an "as-is" value in the report that is being completed "subject to".

So they want an "as is" value and a "subject to completion" value?

 

[Michigan CG]

If you have a partially finished home and they want an as-is value for a home that is say 75% finished then they had better be prepared to pay double the typical fee as the value of a home in that condition would NOT BE the final value minus cost to finish. Remember, an appraisal assumes a hypothetical sale. What would someone pay for a partially completed home? It would certainly not just be the cost to finish it. This would involve EI/EP and a lot of analysis.

 

[Mr Rex]

From the FDIC: https://www.FDIC.gov/regulations/laws/rules/5000-4800.html

The estimate of market value should consider the real property's actual physical condition, use, and zoning as of the effective date of the appraiser's opinion of value. For a transaction financing construction or renovation of a building, an institution would generally request an appraiser to provide the property's current market value in its "as is" condition, and, as applicable, its prospective market value upon completion and/or prospective market value upon stabilization.24 Prospective market value opinions should be based upon current and reasonably expected market conditions. When an appraisal includes prospective market value opinions, there should be a point of reference to the market conditions and time frame on which the appraiser based the analysis.25 An institution should understand the real property's "as is" market value and should consider the prospective market value that corresponds to the credit decision and the phase of the project being funded, if applicable.