Cost approach on over-improved new construction

[Roundtheclock]

Hello,

I am completing an appraisal on a new build of a single-family residence. The borrowers are improving raw land. The costs that they have presented do not appear to be supported in the market (sales comparison approach). The construction method they are using is not typical in the market area. Most homes are stick-built and they are building modern modular. Costs to improve raw land are extremely nuanced. Should the cost approach be completed to reflect their construction estimates?

 

[Terrel L. Shields]

Why not? You have 3 elements.

Land
Site improvements - septic/well or utilities, driveway, sidewalks, any outbuildings, landscaping etc. These can amount to a substantial expense
Then the Dwelling.

Cost of such dwelling, it it exceeds the RCN of the comps can then be counted as functional obsolescence. Over-built (super-adequate)

 

[TerryRohrer]

Unless their higher cost, atypical construction methods can be demonstrated to result in a premium price compared to conventional construction, your conclusion should not include that premium. The first decision to make is whether your cost estimate is for replacement cost or for reproduction cost. If replacement, then be careful about deductions for functional/over improvement based on the cost of their methods.

 

[Terrel L. Shields]

If replacement, then be careful about deductions for functional/over improvement based on the cost of their methods.

Personally, I've never seen a modular home that cost more than a similar non-modular home (I hesitate to say "stick built" since the modulars I am familiar with are all "stick built" but panelized construction.

 

[TerryRohrer]

Personally, I've never seen a modular home that cost more than a similar non-modular home (I hesitate to say "stick built" since the modulars I am familiar with are all "stick built" but panelized construction.

Yeah, when I read “modern modular” I envisioned truckloads of panels delivered for assembly on-site, more akin to site built , or SIPs. If typical modular I don’t see any measurable difference either.

 

[Dublin ohio]

Modular homes (those built with "modules") typically cost 10-20% less than conventionally built homes. Not sure what a "modern modular" is.

 

[Dublin ohio]

Yeah, when I read “modern modular” I envisioned truckloads of panels delivered for assembly on-site, more akin to site built , or SIPs. If typical modular I don’t see any measurable difference either.

Panelized homes have been around for decades in different forms. Not a "modern" concept. It is either a modular home made from pre constructed modules or a panelized home. Not the same.

 

[TerryRohrer]

When everybody works out what the OP is talking about, then my post can be reread and will still be applicable.

 

[Dublin ohio]

When everybody works out what the OP is talking about, then my post can be reread and will still be applicable.

What the OP is talking about being the operative statement. As is with many questions. Clear information is lacking

 

[Sadie]

Hello,

I am completing an appraisal on a new build of a single-family residence. The borrowers are improving raw land. The costs that they have presented do not appear to be supported in the market (sales comparison approach). The construction method they are using is not typical in the market area. Most homes are stick-built and they are building modern modular. Costs to improve raw land are extremely nuanced. Should the cost approach be completed to reflect their construction estimates?

If the subject is an over-improvement you make an adjustment in the cost approach for external obsolescence.