CONSTRUCTION APPRAISAL

[JANA LEDDY]

I DON'T DO BUT A FEW RESIDENTIAL CONSTRUCTION APPRAISALS. I USE THE 1004 FOR THIS, AND NOTE"PROPOSED" WHERE IT APPLIES. BUT I'M WONDERING IF THERE IS A BETTER FORM SPECIFICALLY FOR RESIDENTIAL, SINGLE FAMILY CONSTRUCTION? I JUST DISCOVERED THIS SITE..THANKS FOR ANY HELP WITH THIS....JL

 

[Wally Jones]

Jana,

Welcome Home! Lotta good information in here from some very experienced, helpful folks. Visit often.

The 1004 is the best form for proposed construction. Be sure and make comments in other, appropriate areas of the report, too, about the subject being proposed.

8)

 

[Mike Garrett RAA]

Ditto...the 1004 is the BEST form for new construction.

 

[Mountain Man]

Gotta agree, the URAR is the best for new construction as you need to consider both market and cost. The 2055 doesn't have the cost approach in it, which could create more work than doing it on the URAR, as the 2055 would be a limited-restricted; OR you would have to do the cost approach to keep in your files, and report it in the comments line (sounds like more work than using the URAR to me :wink: )

I understand your dilemma, my brother only does commercial. When he had to do a residential for the state, he was lost. 8O 8O 8O
I helped him out, and told him that he could keep the gubment work. 8)
If you only do a few a residentials per year, maybe you could partner up with someone to help you out with the good ol' canned neighborhood statements and market data.

 

[Restrain]

Use the 1004 - that's what it's designed for. If you need additional space, that's what addendum pages are for. You're not writing a narrative; keep it short and sweet. As Sergeant Friday used to say, "just the facts".

 

[bradellis]

Jana,

Everyone is right about the 1004- that is why there is a box for you to check that says, "subject to completion per plans and specs".

Do not forget to invoke a hypothetical condition. If the home is proposed it does not yet exist; therefore, valuing it places you in a position where you KNOW it does not yet exist, but valuing it as if it DID exist is contrary to fact. So the hypothetical is a must.

As an additional option, I also use an extraordinary assumption that the completed home will actually be what has been proposed. Anyone who does these know that the end product is usually something at least a bit different from what had been proposed- sometimes, just interior features (like granite counters instead of formica) and sometimes it ends up vastly different- larger/samller, more/less bedrooms, etc.

Good luck.

Brad Ellis, IFA, RAA

 

[Steve Owen]

Jana, everyone here is correct, use the 1004. Here are some comments you might want to use (feel free to edit as appropriate):

Near the bottom of page one:

Under construction; maintenance needs not expected to become evident for several months; no deferred maintenance. If subject is completed according to plans and specifications, no functional obsolescence is expected. No external obsolescence noted. Appraisal is subject to competent completion of construction according to plans and final inspection.

In the analysis of past sales grid comment section on page two:

No unusual contingencies noted in current contract for sale of subject.The subject is new construction, therefore, there were no previous sales.

In the Comment Addendum:

COMMENT ON HYPOTHETICAL CONDITION OF VALUE REPORTED:

The appraisal assignment is prepared under the hypothetical condition of completion according to plans and specifications. As of the date of appraisal, the property was ???Amount complete. ???Indication of impact of hypothetical condition on value/value "AS IS" on date of appraisal or reason why such opinion of value could not be developed???

And:

ESTIMATED COMPLETION DATE OF SUBJECT PROPERTY:

Based on information from the client, the estimated completion date of the subject property is ??? .

They will probably want an FHLMC 442 upon completion. I normally do this as a recertification using comments something like this:

The Appraiser's Opinion of Value, as of ???AppraisalDate??? , Remains as Appraised at $ ??? .

If you use new improved properties (especially if from the same sub-division) for comps, they will probably want to know the names of the builders of those comps. I usually put those comments beneath the sales comparison grid if there is room or in the comment addendum if there isn't.

Good luck, and welcome to the forum.

 

[Jo Ann Meyer Stratton]

Steve:
The term "Recertification of Value" is obsolete and so is the opinion of value letter. See page 100 of the 2002 USPAP, part of Statement 7 or page 90 of 2001 USPAP. The 2003 USPAP will make Update of an Appraisal obsolete and be a referance to a previous assignment instead. As I have before, I am willing to email my "Update of an Appraisal" sample letters to any one that might be interested. jmstratton@aznex.net

Typically a lender wants to make sure the value has not changed since the original effective date of the opinion of value. That means looking and photographing the subject on a new date, looking and considering recent properties that have sold, are pending or currently listed. All that means the effective date of the opinion of value has changed, therefore an Update to an Appraisal is completed. Which can be done in various ways, either a letter with attached current photos and current market activity, or a new 2055 with a new date or a completely new 1004 with a new date. Lenders are very out of date with their terms and will call for a "recert" when what they actually want is an Update. No matter what the appraiser does, the appraiser is completing an appraisal but there are various ways of reporting the results.

 

[Ben Vukicevich SRA]

Steve,

Save yourself some work on the URAR, if the loan is going to FNMA/FHLMC/FHA/VA. You don't need to report the "as-is" value for the subject if it is under construction or proposed.

Ben

 

[bradellis]

Jo Ann,

Hiya, kiddo. You are quite right about the terms- we'll no longer have to teach clients the diffference.

But in construction, that is one area where the recert actually comes into play. While a client often will want an update to make sure the value is still there, sometimes they just want a recert like when they hve done a construction to perm. Mostly is is just so they can keep their files OK for any examiner.

Brad Ellis, IFA, RAA