High Quality, New Construction Appraisal

[J Grant]

I would rather have a 3000 SF higher quality home than a 4500 SF average quality home. Those smaller home floor plans are pretty popular. Lose the living room but have the large kitchen / family room area.

IF they are not popular in the posters' area, it doesn't matter if they are popular elsewhere . He is referencing a huge size disparity, aka a market for 5000-6000 sf house of adequate quality vs a 3000 sf house of superb quality. It is possible there is a buyer out there that might appreciate the quality. What would the market exposure time to find that one buyer mean- 2 years, 3 years....or never, no sale till price reduced? That is the unknown.

One theoretical / possible buyer does not create enough demand for market value, However, a smaller but sustainable demand can be seen in a niche product, but there needs to be some small level of sales activity to indicate it. A superb quality smaller house might be a "niche" product., or might be a super adequacy. That is up to the appraiser to determine from the market research.

 

[smorabito]

IF they are not popular in the posters' area, it doesn't matter if they are popular elsewhere . He is referencing a huge size disparity, aka a market for 5000-6000 sf house of adequate quality vs a 3000 sf house of superb quality. It is possible there is a buyer out there that might appreciate the quality. What would the market exposure time to find that one buyer mean- 2 years, 3 years....or never, no sale till price reduced? That is the unknown.

One theoretical / possible buyer does not create enough demand for market value, However, a smaller but sustainable demand can be seen in a niche product, but there needs to be some small level of sales activity to indicate it. A superb quality smaller house might be a "niche" product., or might be a super adequacy. That is up to the appraiser to determine from the market research.

I'm not suggesting there is ZERO activity on this kind of improvement, its just not commonplace. What I'm trying to figure out is if a) if what I'm trying to do is just hard or it its actually impossible and b) the appraisal is going to make it or break it. I'm only going to get a couple attempts at this. What can I do to help ensure the appraiser doesn't just do a lazy sales comparison?? Should I let the appraiser know about the other high-sale properties the builder has worked on? Should I include pictures of the type of detail that is common in my area and will be part of the house?

I'm not looking at a crazy level of quality here. I'm not adding diamonds to the moulding. I'm simply going from Class 3 to Class 2 (from building-cost.net).

You guys are the appraisers. What would help you all to prove this is not an overpriced cheap build and actually a higher quality product that really does have a market (however small)?? If you've done construction loans, I really appreciate the feedback.

 

[Joe Flacco]

Letting the appraiser know about the other similar quality products from the builder is a good idea. The best thing you can do is tell your lender that you would like them to engage a appraiser that is competent and experienced with custom proposed construction. It might cost more but if your bank can get that right then the appraiser will fully consider the quality difference based on the plans and specifications provided.

 

[Joe Flacco]

I am guessing that your bank specializes in proposed construction. If so, then they probably use appraisers that value custom construction on a regular basis.

 

[J Grant]

. Provide appraiser with plans and specs, phone # of builder. An appraiser well understands quality ( or should). You really won't know the appraised value until you pay for a lender's appraisal. Paying for your own appraisal imo is a waste of $ because a private appraiser you engage may not opine the same $ amount as the bank's appraiser.

One thing you can do is ask your lender if they assign appraisal directly, or if they are using an AMC to assign. If they do, request they not bid out the job "cheap"-some AMC's send out bids for a lower fee/faster delivery appraiser ( regardless of what borrower paid),. and it's a coin toss if that lower charging r rushed delivery appraiser is the better qualified for the assignment.

 

[J Grant]

I'm not suggesting there is ZERO activity on this kind of improvement, its just not commonplace. What I'm trying to figure out is if a) if what I'm trying to do is just hard or it its actually impossible and b) the appraisal is going to make it or break it. I'm only going to get a couple attempts at this. What can I do to help ensure the appraiser doesn't just do a lazy sales comparison?? Should I let the appraiser know about the other high-sale properties the builder has worked on? Should I include pictures of the type of detail that is common in my area and will be part of the house?

I'm not looking at a crazy level of quality here. I'm not adding diamonds to the moulding. I'm simply going from Class 3 to Class 2 (from building-cost.net).

You guys are the appraisers. What would help you all to prove this is not an overpriced cheap build and actually a higher quality product that really does have a market (however small)?? If you've done construction loans, I really appreciate the feedback.

A sales approach is not "lazy", it is required for lending appraisals, and moreover is a fundamental for determining market value. No matter how hard you push for it, the results wont' be based mainly on the cost approach.

 

[smorabito]

Think of it from a TYPICAL buyer's standpoint. If one was going to spend $1.2 million on a home would one pick a larger 4,500sf home or a smaller 2,500sf home with some better finishes. In my market, they'll likely opt for the larger home with lesser quality finishes. The smaller home with higher end finishes would likely be an over-improvement relative to others of similar size and the cost of those higher end finishes may not be recouped in a resale. There is a point of diminished return on investment; cost does not always equal what the market is willing to pay. Principal of substitution: maximum value of a property usually is established by the cost of acquiring an equivalent substitute property that has the same use, functional utility, design, and income.

Thanks for the reply. This makes sense. As a general rule, the market seems to be asking for the larger - good quality homes. There is a very small market (not zero) for smaller very-good quality homes. How do I help ensure the appraiser understands this. Looking at lot size, and s.f. will lead to failure. What kind of info can I give the appraiser to help clarify all of this?

I am not building a palace in a rural/delapitated area. I just don't want a home depot house. Every builder and architect I've talked with has said $300/s.f.

 

[Deleted member 77547]

What would prove that there is a market for what you're proposing is that there are other smaller, similar high quality homes that have been rehabbed and resold. One sale doesn't make a market. Perhaps you may be dealing with an untested market.

An appraiser with any kind of experience In your situation will know the difference between a higher quality product vs. a builder's base project. But the principal of substitution still applies.

 

[smorabito]

ask your lender if they assign appraisal directly, or if they are using an AMC to assign

The lenders won't assign it directly - they told me it goes to a pool. My concern is I get a rookie appraiser who doesn't understand the project. The lenders are not going to allow multiple appraisers to "try again" because I've already asked.

If I assume a rookie get's the job, what can I do to make this real easy for them? How does an appraiser see that the $800k new house that sold down the street is not very-good construction and only good.

 

[J Grant]

Ask if the assignment goes into a pool at an AMC ( appraisal management company they use), or if it goes into a pool of their own panel of appraisers. If the lender is using an AMC , the AMC will often bid a job out to a cheaper fee , and while one hopes it does not go to a rookie appraiser, it is a possibility.

But even a rookie appraiser took extensive course work, passed state exams to get licensed, spent two plus years training. They will understand the difference between good and very good construction., superior quality vs ordinary.

Just fwiw, a borrower being overly pushy with an appraiser might lead to an appraiser withdrawing from an assignment if they start feeling unduly pressured.