Contract For Lot Only

[PhiloFarnsworth]

This is a new one on me. New construction, conventional loan for purchase. I have been supplied with plans and specs and a cost sheet for a home selling for $358,000. There supplied a signed contract for $89,000, apparently for the cost of the lot only. (within the contract, a $332,000 first mortgage is noted in the mortgage contingency section) The main contract is between the borrower and the owner of the land who is other than the builder. In addition, there is a signed agreement to build the subject property, the plans and specs and the balance of the cost, between the buyer and builder.
Question:
How should this be handled on the 1004? What should be given as the contract price?
Is there a specific way that such agreements should be explained or is what I have given above sufficient?

 

[Terrel L. Shields]

There supplied a signed contract for $89,000, apparently for the cost of the lot only

Ask, if indeed, that is the lot cost. Nice. You know what it is worth without a house. Have your client explain why the contract is what it is and if you are going to have t modify the stupid report after the fact when they actually draw up a contract that reflects the total property value. Charge accordingly.

 

[TXTea]

I deal with this all the time. So what you have is effectively two contracts: one for land and one for construction. The contract section on pg 1 of the URAR is reserved for only those contracts that involve title transfer. So you would fill out that section as it applies to the lot contract only. You can note somewhere in there that the building contract is separate and summarized in the report addendum. Since you have both the lot contract and building construction contract, you can successfully complete the Cost Approach as a reproduction cost which of course assists in determining feasibility as it relates to the Sales Comparison Approach. Good assignment. Good luck.

 

[residentialguy]

This sounds like a land sale and the buyer hired a builder to build. Sounds like a construction loan. You need to clarify how they want this done because the house is not a sale, unless the builder is the landowner.

 

[Mark K]

This is typical of new, custom construction in this area.

Borrower buys lot from land developer or other owner then contracts with builder for construction of new home.

I typically receive a copy of the purchase agreement for the lot and a copy of the building contract, plans and specs for the new construction.

I appraise the new house. I disclose the lot transfer (or pending) in the property history section. In a later section I discuss the contract to build including the price and refer to the plans and specs included in the addenda.

I don't think F/F makes loans on proposed construction and these loans are typically made as interim financing and the lender is familiar with this type of appraisal. The lender may have you complete an appraisal update at const. completion for permanent financing. At least that's the way it works in this area.

I like these because I get paid for the original report, often for the construction inspections and a final insp. plus an update for perm financing at completion.

 

[hastalavista]

This sounds like a land sale and the buyer hired a builder to build. Sounds like a construction loan. You need to clarify how they want this done because the house is not a sale, unless the builder is the landowner.

(my bold)
I agree.
And if a construction loan, the lender may require a prospective value for the as-complete house (prospective being a date in the future using an EA rather than as-of the inspection date using an HC).