Builder raises prices, no comps, no resales

[NachoPerito]

I do not place so much weight on pendings that I would use them to increase my value opinion above sold sales. At least I have never had to do that. I also would not use pendings to establish a market condition adjustment. To me pendings are just listings. Similar to an agent telling me that they have additional offers above contract price. Pendings still have to settle and just because the contract price is $x does not mean it will settle for that. Undue stimuli results in crazed buyers willing to pay anything regardless of past recent sales. This is speculation.

I also wouldn't use pending sales to establish a marketing conditions adjustment. Use big data for that.

 

[NachoPerito]

If:
-there are sales from 3 months ago at $440k
-I can be confident the market is going up 10% per year
-there are currently pending sales at $450k

Then:
I have confidence the 'market value' is $450k

 

[George Hatch]

If I had a neighborhood macro trend that's increasing and a market segment that's increasing and a sale/list ratio for my closed sales at 98% or 100% I'd have to develop a solid reason for not giving the pendings some weight. For instance, if a lot of pendings had been falling out and only some of them were closing that might be a reason; but as I say, I'd need to have something I could point to.

The other thing that we often overlook is that a pending that's scheduled to close in the next 2 weeks is going to mean something a little different than one that won't close for another 3 months. As in, 3 months further down the timeline in a changing market.

Another thing we sometimes overlook is the possibility that the geographic range for a market segment consisting of new homes can be very different than for existing homes.

 

[Tim Hicks (Texas)]

Ah, I remember these discussions in 2007-2008.

 

[Chandler]

PRICES PRICES PRICES, so many posts are ONLY about prices and NOTHING about the market value elements of comparison, is this a RE appraiser bulletin board or a sales agent board? Because it sure sounds like the perspective of a sales agent on a lot of these posts. Le'ts get the appraisal to "support " the price with the pending's!! Because buyers are willing to pay it DOH !! Well are they they willing to pay it only using OPM, ? or would any of them use own funds to close a gap ? What about addressing the fact the same builder model sold for less a few months ago. (is builder offering concessions ?)

Do the work, apply a time /market condition adjustment from the MARKET, not the builder 's own price jump. Research other comps both sold and pending, including resales, put all the comps from this builder and outside , make any appropriate adjustments and see what is the market value opinion is . It may be the same as, higher than , or lower than the CS price.

But if you shape the appraisal around hitting the SC price, it was a predetermined result.

I used to build homes, I managed all day to day operations. We never raised prices without reason to believe demand was high at the current base price, and we did this by looking at the traffic, conversion rate, comparable builder sales etc. Something to keep in mind with builder sales is that sometimes the comparable sale that closed last month, went under contract 6-7 months prior. If an appraiser does not look at what the market has done in that timeframe in addition to what the savvy builder has done with base prices, they aren't doing their job. Simply using sales from October/November and matching those final sales prices is moronic.

 

[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.

Thanks a ton for everybody's input! It's very helpful.

 

[J Grant]

If:
-there are sales from 3 months ago at $440k
-I can be confident the market is going up 10% per year
-there are currently pending sales at $450k

Then:
I have confidence the 'market value' is $450k

The MV (your opinion of it ) may turn out to be 450k. But it is just per above confined to those new home sales from 3 months ago ( from same builder? ) ..what about resales ? What are recently constructed, other houses selling for esp if exposed on MLS and not a new builder office?

Lots of good posts here including that a recent closed sales of a new home might have had its contract negotiated X months prior

The market value opinion in the appraisal is an equivalence of value to most probable price, ( at the MV definition terms ) which makes it much tougher to do develop than an opinion of price . An opinion of price is what RE agents, lenders, and builders give, even if they perceive it as market value or call it that. - their reasoning for it does not have to meet the standards an appraisal does.

 

[NachoPerito]

The MV (your opinion of it ) may turn out to be 450k. But it is just per above confined to those new home sales from 3 months ago ( from same builder? ) ..what about resales ? What are recently constructed, other houses selling for esp if exposed on MLS and not a new builder office?

Lots of good posts here including that a recent closed sales of a new home might have had its contract negotiated X months prior

The market value opinion in the appraisal is an equivalence of value to most probable price, ( at the MV definition terms ) which makes it much tougher to do develop than an opinion of price . An opinion of price is what RE agents, lenders, and builders give, even if they perceive it as market value or call it that. - their reasoning for it does not have to meet the standards an appraisal does.

yes, yes, yes, they are things that could change things. This forum is great at making basic problems overly complicated with 'what if' scenarios. I am just creating a solution from a basic premise.

We have a simple job: what will the house sell for. If it will sell for $450k on the open market to a typical buyer then that is what the appraised value should be. Forget that it is pending at $450k. Will it sell again at $450k? or will the builder have to lower it to $440k. If you are appraising the house for $440k then you are saying that it will sell for that if this one buyer goes away.

 

[J Grant]

yes, yes, yes, they are things that could change things. This forum is great at making basic problems overly complicated with 'what if' scenarios. I am just creating a solution from a basic premise.

We have a simple job: what will the house sell for. If it will sell for $450k on the open market to a typical buyer then that is what the appraised value should be. Forget that it is pending at $450k. Will it sell again at $450k? or will the builder have to lower it to $440k. If you are appraising the house for $440k then you are saying that it will sell for that if this one buyer goes away.

our job is not "what will the house sell for " ( unless you identify opinion of sale price as purpose of the appraisal)

The purpose of most appraisals is develop an opinion of market value , which may or may not be the same $ / as what it "sells for ",

The market value definition of price is not an appraisal opinion of value. The market value opinion is according to the terms and conditions of the MV definition to get to the equivalence of MV ( as developed by the appraisal ) and the $ most probable price ( at the MV definition terms )

 

[George Hatch]

The definition of MV includes an explicit assumption of the consummation of a sale as of that date and including additional assumptions about the conditions of that hypothetical sale.