Builder Presale A Valid Comparable For Appraisal?

[Doug in NC]

W

That is very common practice with builders, so yes, I would use them- as I said, I like to supplement builder sales with sales that were sold on MLS, ( putting it on MLS as a token as you describe does not count , usually the ones "really" sold on MLS are resales or new homes that were built as spec or a buyer defaulted on in contract.

I think I agree with you. Builders frequently place presales in the MLS expecting appraisers to use them in appraisals for that development. In my 25 years of experience, I have always found the presales to be somewhat inflated because they encompass many upgrades that may not be found in the standard house, and many of those upgrades might not translate into value in more typical sales. I would consider adding a presale in as a 4th comp if I had no other sales from my subject neighborhood, but I just don't view them as reliable market indicators in comps 1-3.

 

[J Grant]

If your subject is upgraded, wouldn't an upgraded builder model be more similar than a basic model with no upgrades ? Of course if subject has no upgrades than the basic model is more similar.

I presume "pre sales" are a local term since we don't call them that here. Here builders typically offer a model house with a base lot, and then buyers can add upgrades and /or lot premiums. I see houses offered that way on new home websites nationwide so it must be common. A builder listing a property already in contact , or after it closes on MLS is to let RE agents know about the product as well as for appraisers can find it as a possible comp.

 

[Mr Rex]

I'm talking about sales that are agreed to usually at the builder's sales model (no MLS listing at this point), THEN that sale is listed in the MLS once closed so that appraisers will use it as a comparable for appraisals in that development.

There was an article in one of the Appraisal Boards quarterly newsletters that covered this subject. I'd suggest researching it thoroughly and if you can't find it call the board for direction to the article. MLS listing is not a requirement for exposure.

 

[Meandering]

I'm talking about sales that are agreed to usually at the builder's sales model (no MLS listing at this point), THEN that sale is listed in the MLS once closed so that appraisers will use it as a comparable for appraisals in that development.

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They are not sales of real estate until the deed is recorded

Otherwise they are simply contracts. Or promises.

If you have buyers taking title prior to the completion of construction... I belive your URAR signature certifies you have not combined the sale of the land with a contract to build. Becareful. Pa law requires a sale of real estate to be recorded in the public record, else it is not a sale, by state law.

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[Elliott]

Pre-sale ranks right next to the subject as a 4th Comp, which I never use, IMO. If you ain't got anything better then I guess it might be a comp, but why isn't there better sales?

 

[Riick]

Pre-Sale, as in sold early at a low price,
or just a pending sale.
Pendings count as just that, pending.
Until Title transfers to the new owner, it's not a Sale.

 

[J Grant]

http://www.builderonline.com/builder-100/marketing-sales/five-tips-for-pre-selling_o

I did a quick search-seems the term "pre sale" can have different meanings- the above ( early/first sales phase, pre development ) or the below, a more generic use as just a new house from a builder sold before construction on it is started with buyer choosing the lot, upgrades .

http://activerain.com/blogsview/4503940/10-differences-between-presale-homes-and-custom-built-homes

If a house is lower priced because it was purchased in very early phase of building, it can still be a comp but realize what the lower price is due to. After the glitzy sales center is open, model houses avail to tour and development started prices typically go up. Buyers pick their lots and options, that is one of the attractions of buying new. RE agents bring buyers around and get a commission from builder for doing so.

Even though each house is not listed on MLS, builder ads, the development office , website, RE agents are the from of market exposure.

One of the reasons to use as comps additional sales not sold through builder is because the builder sales prices are added up cash register style due to options/upgrades/lot premiums on the contract line by line as cost charges to buyers. They can be used as comps but realize how the price is arrived at. I am lucky here as builders provide break down sheets for comps of model base price, base lot price, then upgrade total and lot premium or pool etc.

Interesting that some of the lowest prices in a new subdivision is usually the first/early stage, or the late /last stage when builder wants to unload any unsold models or spec houses or homes buyers backed out before closing.

 

[Mike Kennedy]

JG "Interesting that some of the lowest prices in a new subdivision is usually the first/early stage,"
= "Teaser" Contracted offerings or closed but often sold to family members, friends, etc. to "set the Market" - Beware!!

JG "or the late /last stage when builder wants to unload any unsold models or spec houses or homes buyers backed out before closing.
= IMO exactly why placing reliance on UN-CLOSED properties is playing with fire. Retrospective research after closing by 1 new owners 2. review Appraisers 3. State Boards MAY indicate a lack of due diligence when utilized as prior-to-closed status in appraisal(s).

"You Da Man" still lives.

 

[Deleted member 130081]

Verify your sales. Usually a bit more work with new construction. The term pre-sale is meaningless to what we do. Closed, pending or active is what we do. You figure it out, you label the term.

 

[Terrel L. Shields]

many pre-sales that did not complete construction, s

One builder I told to run in 2007 informed me he had 12 under construction and 10 of them "pre-sold". In the end he closed on 2 after renegotiating the price. Six weeks later he filed bankruptcy. Lost his home within a year.