High Quality, New Construction Appraisal

[timd354]

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.

What can you do? Not a thing except hope for the best. That's just the way it is.

 

[George Hatch]

First things first.

- We don't value properties based on what we think buyers *should* do when faced with these various choices; we value properties based on how we're seeing the buyers actually acting. Nobody cares what we think on the individual level - including us; all that matters is what we can prove. And that is going to be data driven. Meaning, all we have to work with is the relevant comparables in your market area. We can't make something out of nothing, nor would it be meaningful to anyone if we did.

- The market for single family homes stands distinct from all other property types because - unlike the buyers for industrial buildings and apartment properties and retail centers - the SFR buyers often operate on their passions and feelings rather than on their calculations and reasoning. The emotional response is a dominant element in that market and appraisers need to take that into consideration.

- The cost is OFTEN not the value in a home improvement scenario - some improvements are more marketable and profitable than others. This is why most appraisers never put most weight on the Cost Approach - because in real life the buyers don't put most weight on the cost.

- Appraisers also never use sales price as a search parameter. Price is the answer we seek, so it makes no sense to load price into the question. Instead, what we seek are properties with the most similar attributes. If you have a 3000sf house then that's what we're looking for, not whatever your target value is.

- The dominant attributes in most markets is home size, condition and lot area. Quality and other features of the property often tend to be secondary. The exception to this is when you have a home of markedly inferior quality than it's neighbors - that's the one where the buyers make the big distinction.

- By the time we get to a general real estate market where the units in a 50-yr old apartment projects are being converted to individual condominiums and resold as "luxury" quality because they have some tile floors and granite counters and nicer cabinets the reality is that most buyers can't discern the difference between a level 3 and level 2 construction quality. "Luxury" finishes have relatively little effect on overall costs when compared to the major components of construction. An average quality home with the 4" concrete slab and the 8ft ceilings is not a great candidate for the level 2 quality upgrade on the finishes because it doesn't have the heavy 2x6 or 2x10 framing and the 10-12 ft interior ceilings and the heavy tile roof and the like.

- You can put a monkey in a silver suit but that doesn't make him an astronaut.

- The most profitable addition/remodel project will result in a property with features that are bracketed the other homes in it's immediate neighborhood. They won't be the best homes on the block and they won't be the worst. Getting out in front and leading the market is almost always a losing proposition when compared to staying within that existing range.

 

[Noreen]

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.

Well I am licensed in MA and you have to understand, COST DOES NOT EQUAL VALUE. It's a tough concept when you are the one paying the bills. It's very important for you to look into YOUR town/city in say this previous year for sales in your anticipated price range and see if it will fall in line (living square footage will be very important in this process) and also what is currently in process being built to gain insight of what are the factors that will influence your home's value through the appraiser's eyes. Presenting homes that the builder has worked on will not help your cause if they are not in your town and within one year typically. Best of Luck.

 

[Joe Flacco]

First things first.

- We don't value properties based on what we think buyers *should* do when faced with these various choices; we value properties based on how we're seeing the buyers actually acting. Nobody cares what we think on the individual level - including us; all that matters is what we can prove. And that is going to be data driven. Meaning, all we have to work with is the relevant comparables in your market area. We can't make something out of nothing, nor would it be meaningful to anyone if we did.

- The market for single family homes stands distinct from all other property types because - unlike the buyers for industrial buildings and apartment properties and retail centers - the SFR buyers often operate on their passions and feelings rather than on their calculations and reasoning. The emotional response is a dominant element in that market and appraisers need to take that into consideration.

- The cost is OFTEN not the value in a home improvement scenario - some improvements are more marketable and profitable than others. This is why most appraisers never put most weight on the Cost Approach - because in real life the buyers don't put most weight on the cost.

- Appraisers also never use sales price as a search parameter. Price is the answer we seek, so it makes no sense to load price into the question. Instead, what we seek are properties with the most similar attributes. If you have a 3000sf house then that's what we're looking for, not whatever your target value is.

- The dominant attributes in most markets is home size, condition and lot area. Quality and other features of the property often tend to be secondary. The exception to this is when you have a home of markedly inferior quality than it's neighbors - that's the one where the buyers make the big distinction.

- By the time we get to a general real estate market where the units in a 50-yr old apartment projects are being converted to individual condominiums and resold as "luxury" quality because they have some tile floors and granite counters and nicer cabinets the reality is that most buyers can't discern the difference between a level 3 and level 2 construction quality. "Luxury" finishes have relatively little effect on overall costs when compared to the major components of construction. An average quality home with the 4" concrete slab and the 8ft ceilings is not a great candidate for the level 2 quality upgrade on the finishes because it doesn't have the heavy 2x6 or 2x10 framing and the 10-12 ft interior ceilings and the heavy tile roof and the like.

- You can put a monkey in a silver suit but that doesn't make him an astronaut.

- The most profitable addition/remodel project will result in a property with features that are bracketed the other homes in it's immediate neighborhood. They won't be the best homes on the block and they won't be the worst. Getting out in front and leading the market is almost always a losing proposition when compared to staying within that existing range.

You are wrong on many levels. The idea that market participants don't understand, notice or care about the difference between $175 per SF construction and $275 per SF construction is absurd.

 

[JTip]

You may want to reevaluate the cost/class ratings you applied on that website.

Why do you think your house is 'semi-luxury'? In the scale of things, $1M price point would be light at a Class 2.

 

[J Grant]

Some buyers care very much about luxury/quality and are willing to pay the $ to get it. Other buyers may care /notice, but not want to pay much more for the difference.

Other buyers may not care or notice, but the buyers who don't care are usually not in the market for a luxury home. An appraiser should understand the property type, market area, typical buyer motivation for that type of property.

The OP should understand by now cost may not equal sale value. Resale value can be equivalent to, more than, or less than cost to build and lot

 

[George Hatch]

You are wrong on many levels. The idea that market participants don't understand, notice or care about the difference between $175 per SF construction and $275 per SF construction is absurd.

As I said, everything else being equal the house that stands out most and demonstrates the biggest difference in price is the underimprovement, not the overimprovement.

For context, we're talking about infill development and remodeling situations in a mixed neighborhood where these properties compete against each other, not conforming subdivision situations where every home is priced the same.

 

[Joe Flacco]

As I said, everything else being equal the house that stands out most and demonstrates the biggest difference in price is the underimprovement, not the overimprovement.

For context, we're talking about infill development and remodeling situations in a mixed neighborhood where these properties compete against each other, not conforming subdivision situations where every home is priced the same.

Yes. I know we are talking about infill. The jump from level 3 to level 2 is large. The difference is going to be as large and noticeable as the difference with the lower quality improvement. We are not talking about upgrading cabinets and floors.

 

[George Hatch]

You basically are when it's a remodeling and addition project. The core of the home (original foundation, framing, plumbing stub-ins, roof trusses, floorplan, etc) remain the same. The public zone rooms aren't getting bigger and neither are the remaining private zone rooms. Or their respective bath count and closets.

 

[Joe Flacco]

You basically are when it's a remodeling project.

Going from 1,000 SF to 3,000 SF is construction. It's not remodeling or updating.