Fannie Guidance on Use of Builder Sales

[Sunshine in VA]

You can laugh all you want, but JG and NC are correct. There is no FNMA requirement that you should only use one sale. NC showed proof of what he said. Did the person that talked to you show you proof?

It's important when talking to FNMA or HUD to ask them to point out where that is stated in the requirements. Often you find that it is just their opinion and not a requirement.

He was responding to my request to breakdown the guideline shown in prior post.

 

[residentialguy]

Please read post 64...repeat, if necessary

 

[Sunshine in VA]

More from Fannie:

The first sale can and absolutely should be one of the sales of a property by the subject builder. This sale would reflect the builder's inventory. The second sale should be from outside the immediate development. That second sale should reflect that there is market acceptance for this type of property outside of the immediate development. If the development is unique and does not compare to other projects this would be an indication of a possible over improvement or limited marketability for the subject style properties.The selection of the third sale is what the bolded area is providing guidance on. The third sale can be from either inside or outside of the project. It is preferable that the sale be located within the project but should not be from the builder/developer of the subject property. A resale from within the subject project is a very good method of demonstrating marketability of the subject property outside of the influence of the builder. Another possibility would be to provide a sale from a competing builder which also helps reflect a broader market acceptance. The intent of the guidance as it relates to the comparable sales selection in a new development is to limit or isolate any atypical influence a particular builder may have on a market. If a builder were providing an atypical incentive to buyers this may be push a buyer to purchase from that builder, but if that incentive cannot be passed to the next buyer of that home or if that incentive does not have broad market acceptance, then the buyer of that home will not be able to sell the property with the same market acceptance as other homes in the area.

 

[residentialguy]

Please give me the link to this FNMA doc that you're quoting from or a recent doc supporting such talk.

 

[NC Appraising]

Excellent clarification, NC!

THANKS!!


I will admit, that I had to read it several times due to my ADD and I read fast any way.

The part about "soley releying on the builder sales data" I guess can be taken the wrong way? It is referring to if the appraiser has only the builder to confirm the comp data and nothing to do with using all of the same builder sales, only how to confirm the data.




FWIW,

I wish Fannie, Freddie and FHA would come out with something on using PRE-SALES AND BUILD TO SUIT HOMES in laymen terms. Builders and agents are just putting their cherry picked pre-sales on the MLS and letting the DOM run up as if it was a true market exposed sale and appraisers fall for it everytime. As I stated before, appraisers may comply with Fannie guidelines on using competing builders sales, but many/most always puts most weight on the pre-sales or built to suit homes, which in my opinion is no differant than custom built homes where the owner owns the lot and builds a custom home.


Using pre-sales and putting most weight on them defeats the purpose of a market value appraisal.

- How can the appraiser ever determine the actual return on the builder upgrades? Or a real market derived adjustment? They can't. Their adjustments are for actual price or cost of the upgrades to one particular buyer and not the market.

- Why does not the builder just give the UW the price list for the lot, model and upgrades and lend on that? It is the same thing the appraiser is doing by using all builder pre-sales and putting most weight on the builder pre-sales. I guess that is why re-sales, with proper adjustments are the best indicators of MV.


In 90% of the new construction homes that I see, the pre-sales (none exposed ) are always higher than the builder spec home. But some appraiser out there is hitting the contract price everytime by using these cherry pircked builder pre-sales.

 

[Sunshine in VA]

Please give me the link to this FNMA doc that you're quoting from or a recent doc supporting such talk.

XI, 406.02: Selection of Comparable Sales (06/30/02)
For properties in new subdivisions or for units in new (or recently converted) condominium or PUD projects, the appraiser must compare the subject property to other properties in its general market area as well as to properties
within the subject subdivision or project. This comparison should help demonstrate market acceptance of new developments and the properties within them. Generally, the appraiser should select one comparable sale from the subject subdivision or project and one comparable sale from outside the subject subdivision or project. The third comparable sale can be from inside or outside of the subject subdivision or project, as long as the appraiser
considers it to be a good indicator of value for the subject property. In selecting the comparables, the appraiser should keep in mind that sales or resales from within the subject subdivision or project are preferable to sales from outside the subdivision or project as long as the developer or builder of the subject property is not involved in the transactions.

Read that it states one from within, one from outside, and a third in or out as long as the subject's developer or builder is not involved in the transaction (i.e., seller)

 

[residentialguy]

In 90% of the new construction homes that I see, the pre-sales (none exposed ) are always higher than the builder spec home. But some appraiser out there is hitting the contract price everytime by using these cherry pircked builder pre-sales.

I'm working on one right now...it's a bear. The sale price is $500k. They have a spec base model (used as a model) selling for $330k. I hate these things sometimes.

 

[residentialguy]

XI, 406.02: Selection of Comparable Sales (06/30/02)
For properties in new subdivisions or for units in new (or recently converted) condominium or PUD projects, the appraiser must compare the subject property to other properties in its general market area as well as to properties
within the subject subdivision or project. This comparison should help demonstrate market acceptance of new developments and the properties within them. Generally, the appraiser should select one comparable sale from the subject subdivision or project and one comparable sale from outside the subject subdivision or project. The third comparable sale can be from inside or outside of the subject subdivision or project, as long as the appraiser
considers it to be a good indicator of value for the subject property. In selecting the comparables, the appraiser should keep in mind that sales or resales from within the subject subdivision or project are preferable to sales from outside the subdivision or project as long as the developer or builder of the subject property is not involved in the transactions.

Read that it states one from within, one from outside, and a third in or out as long as the subject's developer or builder is not involved in the transaction (i.e., seller)

Agreed, but it doesn't limit it to just one....those are minimums, not maximums. If that was the case, you could only use 3 sales. I'm probably going to use over 6 sales in the builder new construction that I'm working on right now.

 

[NC Appraising]

Sunshine,

I just wanted to say thanks for actually calling and knowing how to look up FNMA guidelines. I just wished that appraisers would pick up and know FNMA guidelines like they know FHA guidelines. But I guess that is why Fannie is ordering all of these Retro reviews....... Some areas are grey, but this is what this forum is for.

 

[TJSum]

THANKS!!


I will admit, that I had to read it several times due to my ADD and I read fast any way.

The part about "soley releying on the builder sales data" I guess can be taken the wrong way? It is referring to if the appraiser has only the builder to confirm the comp data and nothing to do with using all of the same builder sales, only how to confirm the data.




FWIW,

I wish Fannie, Freddie and FHA would come out with something on using PRE-SALES AND BUILD TO SUIT HOMES in laymen terms. Builders and agents are just putting their cherry picked pre-sales on the MLS and letting the DOM run up as if it was a true market exposed sale and appraisers fall for it everytime. As I stated before, appraisers may comply with Fannie guidelines on using competing builders sales, but many/most always puts most weight on the pre-sales or built to suit homes, which in my opinion is no differant than custom built homes where the owner owns the lot and builds a custom home.


Using pre-sales and putting most weight on them defeats the purpose of a market value appraisal.

- How can the appraiser ever determine the actual return on the builder upgrades? Or a real market derived adjustment? They can't. Their adjustments are for actual price or cost of the upgrades to one particular buyer and not the market.

- Why does not the builder just give the UW the price list for the lot, model and upgrades and lend on that? It is the same thing the appraiser is doing by using all builder pre-sales and putting most weight on the builder pre-sales. I guess that is why re-sales, with proper adjustments are the best indicators of MV.


In 90% of the new construction homes that I see, the pre-sales (none exposed ) are always higher than the builder spec home. But some appraiser out there is hitting the contract price everytime by using these cherry pircked builder pre-sales.

Why not have a policy of requiring all builders to enter all of their sales on a national database. If there are privacy concerns, it could be limited to those holding an appraisal license, real estate license, etc. Transparency is needed with new construction in order to flush out the games being played.

What good is one builder sale? What does that prove? Any appraiser should be able to go to a database and determine their own comparables most similar to the subject instead of relying on the builder's sales rep to provide that one cherry picked comp.

When doing new construction, I typically use 2-3 builder sales and also 2-3 outside data, so that the value is fully supported with both inside and outside data, not just one cherry picked comp of each. But with what Sunshine's contact is stating, that would qualify for a buyback because more than one builder sale was used. ??? m2: