'Builder Upgrades' - Large Discrepancy Between MLS SP & Recorded SP

[Mile High Trout]

What are you doing with spec homes? You trying to use them as comps? Really unreliable since you have no idea what they did to the house, not to mention that the house price is probably higher because it suits the needs of that one buyer. Avoid them as much as you can. Use model homes and completed new construction, as well as previously owned newer homes. If you have to use them, you need to do a lot of research and verification!!!

You know I said the exact same thing, until I ran into this new breed of builder that seems to be sprouting up in strong markets. Often they're national brand builders who are putting forth full custom homes.

See that's what I think this issue could boil down to. The original poster needs to first define if these are just new construct tract homes and semi customs, or if they're full custom homes. Big difference, when it comes to this data game and how to manage it.

Phineas, it could be a scam, but remember it's not our job to police the industry. Client confidentiallity can hurt this way, but it is also a blessing in disguise. You don't need to police their methods. On the other hand, you're in a unique position to report facts, and facts about how data is reported. Obviously, you'll need to detail the differences in data figures within your report, for your own protection. But don't get all gung ho about reporting them or dealing with the county regarding better reporting methods. When it comes down to it, the county let's these things fly because of the current and future revenue new home developments create.

There will be relief as the secondary market takes hold, and traditional owner to seller closing occurs. Mass assessment will eventually catch up with true market figures. So it's like more of a soft offense and if you were to take a hard line position on this fee reporting issue, you'd have to immediately never shop at a major department store or some place like wall mart. They cop tax breaks all day long. Creative financing is not just limited to residential lending. LOL!

If you're dealing with full custom homes, those variances can be substantial. Look at base pricing, and then work the comps they give you. If it's not enough, make them give you more. Never comp pre builds or currently under construct builds on first page comps, although they're fine for second and third page. Try to go one out of area, but sometimes out of area is more trouble than it's worth. Some appraisers argue one way or the other on out of area, and out of area is the preferred approach if you can pull it off, on account of that being part of the FNMA standard guidelines I think. You can sometimes get away with subbing out of area for secondary market resell, but as you probably know, that may not be possible in the hayday of initial area build up.

Those full custom homes can spread hundreds of thousands difference based on suite of choices. I like to turn to picture listing data for secondary and hopefully the rare newer build MLS entry. Picture comparisons in conjunction with understanding where the money went with these extreme itemized material choices can go a long way towards finding a general range of comparison via quality of materials and size and room counts. Sometimes you're better off not adjusting if builders offer room swaps, etc, etc. It's all about how the builder drives price, and if the secondary market resells are there or not, driving the market as well. But if the builder is active, they're almost always driving the market.

These full custom home suburban neighborhoods are going to continue to offer unmanageable appraisal challenges into the future. Let's go forward 20 years after the builder is gone, and 1/3rd of the housing stock starts turning over or something like that. Nobody will really know which home had the extreme itemization or not. You'll end up with over and under valuation on a routine basis, and over time, people may not even know they are over or under valued. The home with 200k more feature will obviously be better and superior, but the principals of substitution in the free marketplace will take hold, and some equalization will occur for all units. A rising tide lifts all boats, even if they're tippy and are taking on water. Stick it with those itemized reports, and comp out how ever you can. Now and then a certain lender won't loan in those areas, but usually the lenders take a different approach to new construction if there is high demand. The builder demands, and people pay. That's the market. If people are buying, it's that simple.

 

[Mile High Trout]

I used to complain about how it was tough to manage the gold silver platinum upgrade package differences, with their minor itemization approach.

I had never appraised a full custom home area yet! LOL! I want gold silver platinum back! HA

 

[pawwly2]

Verify your sales.

 

[residentialguy]

You know I said the exact same thing

I look on the positive side of things.... you were once correct. :icon_lol:



just kiddin ya

If these are just model homes without many changes, then yeah they're more usable. But that's not the case with OP with $50k in upgrades.

 

[huntercharlie]

Is this not considered some sort of tax fraud / evasion? It is in one of the county's with relatively low property tax rates to boot.... And I understand that they are not reliable as comparables, however was taking a look at them because like I said they're the same builder / floor plan / etc and (of course) are the only closed sales in the subdivision in this size & price range.

While we will definitely include other / additional sales (and most likely one of these as an 'additional comparable') it seems like they should minimally be analyzed / mentioned (although not necessarily included as comps) considering their similarities ...the subject property is also a builder pre-sale, with what they claim are similar upgrades other higher / larger sales. I don't see how you could completely ignore (& not mention) them when they are the most similar sales and there are multiple, but what I really don't understand is how they can claim there are basically 2 different sales prices, and wanted to confirm that aspeCT prior to even mentioning them on the text addendum (which I think is warranted regardless of their use as comparables)

As far as excluding things from the HUD statement, that really seems borderline fraudulent to me..I was thinking that the county (and probably IRS) would definitely not be too happy - think about what happens when an individual 'omits' items at their own discretion from what they declare / state....especially considering the size of the subdivision and prices involved, the amount being excluded would add up rather quickly that the county is missing out on (yet there are public roads / county water / etc)

For the record when this aspect was brought up both the agents (that called back) immediately started down the 'I'll need to contact my attorney' - leading me to think they're well aware that it's not ethical / legal (but we will find out!) If these are the same as the closing attorneys are intentionally excluding $50K - $100K on the hid statement, I think it might be a bigger 'can of worms' than expected we've opened. .....will follow up via the appraisal board attorney on Monday but my curiosity is piqued!

I appreciate everyone's quick response haven't been on here in a while but there's obviously still a great deal of knowledge and experience around here....we will most definitely have to politely decline any future orders of this nature

Tax fraud? I don't know. The assessor typically values the property at the purchase price, however, they can assess a property higher if they feel it is warranted. Tax rate in California is 1% plus some miscellaneous, so if the buyer pays $50,000 in cash for upgrades, and not include it in the purchase price, they can save $500+ annually.

 

[Phineas]

OK well that makes sense, but my understanding was that there were federal laws about the HUD statement that basically required everything included in the total purchase price. I really appreciate everyone's replies - I just wanted to see what other folks have done when in this sort of situation...

You all are also right in that it's not our job to police the industry etc but rather report our findings which is what we'll do...which brings me to my final question - I think that we should use the recorded transfer price, and in the comments explain the discrepancy. If for no other reason than to cover ourselves in the future should this be reviewed years down the line (they're obviously going to check the recorded transfer prices rather than try to track down the HUD statements plus a builder upgrade / change order list (that was apparently paid for in cash).

This data being entered into the MLS this way will also skew any statistics / etc that come out of the subdivision...

And FYI these are base model (they have floorplan names) with substantial upgrades, not full on custom (architect designed etc) homes.

 

[residentialguy]

And FYI these are base model (they have floorplan names) with substantial upgrades, not full on custom (architect designed etc) homes.

Doesn't matter. 50k in upgrades. WTH does that mean??? What is the contributory value of that 50K that made that one buyer warm and fuzzy??? 50K walrus tusk toilet that has zero contributory value??? You don't know what the upgrades are....there are no photos, no descriptions...you might have hearsay by talking to the agent, but no data source.

Good luck in court placing weight on that. Make sure you pack a lunch. :new_all_coholic:

 

[CANative]

Tax fraud? I don't know. The assessor typically values the property at the purchase price, however, they can assess a property higher if they feel it is warranted. Tax rate in California is 1% plus some miscellaneous, so if the buyer pays $50,000 in cash for upgrades, and not include it in the purchase price, they can save $500+ annually.

The concept is referred to in Rule 2 Revenue and Taxation Code as "a rebuttable presumption." But they can and often do reject the sale price as market value. It might even take several years and then they issue a supplemental tax bill for escaped taxes.

 

[Mile High Trout]

I look on the positive side of things.... you were once correct. :icon_lol:



just kiddin ya

If these are just model homes without many changes, then yeah they're more usable. But that's not the case with OP with $50k in upgrades.

When I recently came across this issue I was staring down these unmanageable data spreads.

$400k to mid $500k base pricing.

End pricing with upgrades typically running mid $600k to $700k, with some over $1m.

Only the rare out of area salesperson reported finalized new construction sales on MLS. The secondary market (built by the previous builder in the same locale) was taking advantage of figures and boosting sales prices compared to new builds.

What's a 50% difference in reported price amongst friends?

 

[Mile High Trout]

OK well that makes sense, but my understanding was that there were federal laws about

You also made a comment on full custom, but that does not have to mean architect via builder talk and builder vocabulary. Builder vocabulary calls all semi customs full customs, if the owners get to itemize the insides. 2 different lingos.

The more important thing to understand is that federal laws don't apply to people with deep pockets. Sad but true, justice is no longer blind.