Builder raises prices, no comps, no resales

[avery1]

Would love some feedback on this. I'm appraising a new house built by Lennar in a new community. They build one ranch style model and the subject is the 11th one they've built over the past 14 months. Contract price is $450K. The highest closed sale to this point is $440K and most have been $425K-$435K. They have two more under contract at $450K and $453K. These both are at the framing stage and haven't closed. This is a very new development, not a single resale yet. The builder says that the higher prices are due to price increases due to rising materials cost, rising water tap fees and strong demand. Assuming all upgrade packages are equal, how do I argue that the most likely sales price for this home is $10K-15K higher than any of the other model match homes the builder has closed to this point? Just because the builder's costs have increased doesn't mean the home is worth more, at least not in my opinion. This is one of the most maddening aspects of appraising new construction. The builder is changing the price because they can, because these houses are just widgets to them. Why would I say that a home is worth $450K today when these guys sold the EXACT SAME HOME two months ago for $10K less? Because plywood and 2X4's cost more now?

Thoughts? Feelings?

Thanks.

 

[J Grant]

Would love some feedback on this. I'm appraising a new house built by Lennar in a new community. They build one ranch style model and the subject is the 11th one they've built over the past 14 months. Contract price is $450K. The highest closed sale to this point is $440K and most have been $425K-$435K. They have two more under contract at $450K and $453K. These both are at the framing stage and haven't closed. This is a very new development, not a single resale yet. The builder says that the higher prices are due to price increases due to rising materials cost, rising water tap fees and strong demand. Assuming all upgrade packages are equal, how do I argue that the most likely sales price for this home is $10K-15K higher than any of the other model match homes the builder has closed to this point? Just because the builder's costs have increased doesn't mean the home is worth more, at least not in my opinion. This is one of the most maddening aspects of appraising new construction. The builder is changing the price because they can, because these houses are just widgets to them. Why would I say that a home is worth $450K today when these guys sold the EXACT SAME HOME two months ago for $10K less? Because plywood and 2X4's cost more now?

Thoughts? Feelings?

Thanks.

It is not your job to argue the sales price is 450k, it is your job to deliver a market value opinion, which may or may not match the sale price. Though the SC price and demand is a factor, the past recent price in subject development is also a factor. You need to find other comps in a new competing development and one, preferably 2 recently built resales of similar houses that sold on MLS... and when it is all done , all comps are on grid and adjusted, then you see what your MVO is and can explain where it is in relation to the SC price

 

[Chandler]

Would love some feedback on this. I'm appraising a new house built by Lennar in a new community. They build one ranch style model and the subject is the 11th one they've built over the past 14 months. Contract price is $450K. The highest closed sale to this point is $440K and most have been $425K-$435K. They have two more under contract at $450K and $453K. These both are at the framing stage and haven't closed. This is a very new development, not a single resale yet. The builder says that the higher prices are due to price increases due to rising materials cost, rising water tap fees and strong demand. Assuming all upgrade packages are equal, how do I argue that the most likely sales price for this home is $10K-15K higher than any of the other model match homes the builder has closed to this point? Just because the builder's costs have increased doesn't mean the home is worth more, at least not in my opinion. This is one of the most maddening aspects of appraising new construction. The builder is changing the price because they can, because these houses are just widgets to them. Why would I say that a home is worth $450K today when these guys sold the EXACT SAME HOME two months ago for $10K less? Because plywood and 2X4's cost more now?

Thoughts? Feelings?

Thanks.

I would look at area resales (not necessarily similar to the subject since there are none you said) and see if the market has really increased 2.5% over the past 3 months versus the 3 months prior to that. If it shows area prices have increased at that rate, in addition to the builder raising the base price, that may be enough evidence to do a positive time of sale adjustment.

 

[Terrel L. Shields]

Assuming all upgrade packages are equal, how do I argue that the most likely sales price for this home is $10K-15K higher than any of the other model match homes the builder has closed to this point?

Considering the pricing pressure I have seen lately, the likelihood is that prices are rising that much. After all, when did they contract for the materials for that last sale? Likely several months ago. So they've seen prices go up, demand strong. Based on the other pendings...looks to me like you can support a higher price than anything that has sold. Just bracket the listed homes with the subject and it is likely a go. The highest sale is not a top to a market. You have to take the sale to it logical adjusted value and see where it goes. To me, right now, what I see is an increase of 8% since March in our market- probably the most rapid increase in prices I have seen since I've been in business. 30 years coming the new year. And as long as interest rates stay this low, I don't see the end point yet. When job numbers go to 5% and gasoline to $4 a gallon, then I will rethink that. But that's not soon.

 

[J Grant]

Would love some feedback on this. I'm appraising a new house built by Lennar in a new community. They build one ranch style model and the subject is the 11th one they've built over the past 14 months. Contract price is $450K. The highest closed sale to this point is $440K and most have been $425K-$435K. They have two more under contract at $450K and $453K. These both are at the framing stage and haven't closed. This is a very new development, not a single resale yet. The builder says that the higher prices are due to price increases due to rising materials cost, rising water tap fees and strong demand. Assuming all upgrade packages are equal, how do I argue that the most likely sales price for this home is $10K-15K higher than any of the other model match homes the builder has closed to this point? Just because the builder's costs have increased doesn't mean the home is worth more, at least not in my opinion. This is one of the most maddening aspects of appraising new construction. The builder is changing the price because they can, because these houses are just widgets to them. Why would I say that a home is worth $450K today when these guys sold the EXACT SAME HOME two months ago for $10K less? Because plywood and 2X4's cost more now?

Clearly you can argue the most likely sales price for the home is 10-15k higher... however we are providing a market value opinion , not a price opinions.

So in the appraisal, with grid of recent sold same model matches, other outside sales and make any adjustment for market appreciation ( assuming there is one?, and if the OMV is less than SC price, then you explain there was a recent builder price increase which ended up with a MVO that was below the SC price. ( the buyer can pay the difference so it is not our job to spare them that ). On the other hand, if if your OMV matches or exceeds the SC price then builder price increase supports it.

IS the builder offering concessions?

You need other comps outside this community even though not exactly the same the resales/other sales/listings will frame the value of these new houses....that is true in every new home appraisal and more so here.

 

[glenn walker]

In most areas there is very little inventory and more buyers than sellers, i would look at the resale market even if those sales are not comparable to the subject the market trend is usually the driving force in an-immidiate or genral market area. My guess is if your area is like ours , a 2% to 5% increase has happened over the last 3 to 4 months, and check the increasing box and make a time adjustment .

 

[Joe Flacco]

I am kind of seeing prices jumping again late in the year with fewer transactions. Prices jumped in the summer typical of peak demand season and now seems like prices are taking another leg up late in the year with fewer transactions. I am kind of thinking something like next years peak demand season gains are being pulled forward a bit.

With new construction it has been change in land values that typically move new construction prices but right now we have both land values increasing and construction costs increasing resulting in sharp change in new construction pricing. Typically the change in new construction prices have been less than change in neighborhood median prices due to the impact on pricing being mostly due to change in land values only but right now the end of the year new construction prices seem to be jumping sharply from a year ago.

 

[Joe Flacco]

I was talking to a builder a couple weeks ago and he was saying that builders that went under contract to build on owners lot early and mid summer are probably going to lose money on those projects.

 

[Ariba]

I was talking to a builder a couple weeks ago and he was saying that builders that went under contract to build on owners lot early and mid summer are probably going to lose money on those projects.

It is not your job to argue the sales price is 450k, it is your job to deliver a market value opinion, which may or may not match the sale price.

Personally I take anything a builder says with a grain of salt. Developers are not very forthcoming when it comes to sales data and concessions as they consider their sales activities and inventory proprietary information. Find a resale and/or sale from a competitive builder.

 

[NachoPerito]

It looks to me that $450k appears justified and you have 2 pending sales to prove it. The reasons they gave you are bogus. They are selling at $450k because people are willing to pay it. It is normal to raise the prices in a plat. They saw there was good demand for the first few homes so they raised prices. You can do a time adjustment if your market increases. it is one of the easiest adjustments to make.