How To Appraise New Construction Homes?

[J Grant]

Are the base model houses built out of cardboard? Because when I get the detailed upgrade breakouts for a subject it is shocking...400k base price, 600k upgraded price..and only a portion is visible "upgrades" such as marble vs tile or high end cabinets vs stock.

100k can easily consist of goobdely gook charges...outlets and insulation and grout choice and padding type for under carpet and door knobs and wiring and so on...down to doorbell chime choices if every minor component has to be upgraded to reach a decent level of quality, what exactly does the base model consist of? Particle board cabinets and cheap carpet with thin padding and low end bath fixtures and a string for a doorbell?

Nobody knows because by the time the sales office or "design center" gets finished with them, almost no buyer purchases the base model without upgrades or only a few upgrades. The line item list of costs of "upgrade" minutiae are pages long of mouse type.

 

[Chandler]

I typically don't have a problem, but I'm in an area with a lot of construction so maybe they are accustomed to helping. One thing I can tell you is that the agents hate pop-ins and phone calls. Start out with an email stating that you will need a couple closed sales and a pending and ask a good time to come in and pick up the information and get a key to inspect. Nothing worse than driving across town and finding a temp in the office that can't help.

 

[Deleted member 134708]

They need to give you an appraisal log or their sales log. Whatever they call it. .

You need to know the options so you can dollar for dollar adjust them. If sale 1 had $20k options and your subject has $5k options, need to adjust sale 1 down $15k.

This PDf example not very good one but happened to have in my dropbox for some reason. The "incentives" are on page 2 (not shown) some builders give $10k on everything and some give like $40k credits. I show the $10k or $40k as a concession and explain but don't adjust for it because it came out of the final sales price already. If you adjust, it's double dipping.

 

[Deleted member 134708]

Once again from @J Grant post, has a prejudice against new construction. Never met a new construction she liked. --- reenactment "all new construction is -- is add up the lines and that's the value..." (She claims appraisers do)

Me and most others:

Look at what market participants are paying for new. These upgrades are all apples to apples and a unit of measurement is applied to them via market place, aka builder and free buyer. These units of measurement happen to be called U.S. Currency.

We, most people will analyze all these measurements and come out with a reasonable value.

@J Grant

Before even sees the property already has prejudice and the sales office already has a line by line scam to feed her. But she is much smarter than the 50 buyers that bought at $400k. After all, she is an appraiser, these buyers -- free to buy anything in the world -- are too dumb to know what value is (which they collectively make up)

 

[J Grant]

Your post is moronic.

 

[Terrel L. Shields]

Like Chandler, we don't have much problem. And, frankly, we don't have any "sales office" to deal with save the rarest exception. That appears to be a function of government so limiting and controlling construction, only a large construction company can build out a new subdivision. These are the new construction sales found in the MLS for one town - Rogers, AR 1500-2500 SF, last 180 days. Rausch-Coleman is a builder and realtor, with Fred Rausch being a CG and former board member.

 

[KYLECODY]

Tract home bliss is common here. Most builders will give you the detailed print out for all the comps that show the base price, options, upgrades, date of contract, etc. and are nice about it.

Roughly half of the sales aren't listed on the MLS so you have to hit the sales office.

I too cringe at what people spend in the design center. $1,500 for a side entry door in the garage (doors are $100 and its about two hours work), nicer ceramic tile is roughly triple what you would pay if you ordered at Home Depot and paid an installer to do it for you, to wire extra outlets per room can be $150 per outlet (Yes, those $2 outlets). Then things like "adding a closet to the den and finishing the half wall" and calling it a bedroom can be $5,000. Its how the builders make their money.

I've bought two new construction deals and the design ladies hated me. I told them I would pick colors but wasn't doing upgrades. I can do whatever I want after the fact for roughly 1/3 of the cost. Your granite counters 6k, same "color" from a random contractor $2,500. .

I think there is tons of possible liability on new construction appraisals.

I happily turned one down the other day from Shea Homes. 2700 SF two story starting at $350k when all other builders of similar size were selling around $275k in that subdivision. Shea had no sales yet or pendings other than the subject...I'm sure someone will take it and just add 75k to the only similar sales and say its because Shea has a higher quality home..once a few close this way then its a freefall..Unless there are tons of new home sales, I loathe new construction.

 

[KYLECODY]

They need to give you an appraisal log or their sales log. Whatever they call it. .

You need to know the options so you can dollar for dollar adjust them. If sale 1 had $20k options and your subject has $5k options, need to adjust sale 1 down $15k.

This PDf example not very good one but happened to have in my dropbox for some reason. The "incentives" are on page 2 (not shown) some builders give $10k on everything and some give like $40k credits. I show the $10k or $40k as a concession and explain but don't adjust for it because it came out of the final sales price already. If you adjust, it's double dipping.

View attachment 29274

You adjust dollar for dollar on upgrades on new construction?? Is this what most people do? Is that how "the market" sees it?

Will a buyer definitely pay 30k more for a house with 30k more in upgrades? The big secret no one tells them is when they hit the resale market in a couple years both homes will sell very close to each other as long as they have common upgrades(granite, stainless steel, tile, etc.). A home is either nicely upgraded or not. Over a standard amount is overimproved and basically worthless on the resale market.

Theres a reason most builders have an addendum the buyers sign that states over a certain amount the upgrades need to be payed for up front as appraisers generally won't count them.

 

[Deleted member 134708]

For new construction yes. Sticks out like sore tongue. All the homes with $75k in upgrades v. Ones with $0 sell for $75k more. Enough of them sell for $75k more equals market participants see value there.

In a few years....who cares, not appraising for effective date of a few years down then road.

I'm reporting back to whoever hires me where market participants see value for new construction. If you don't agree. Take that up with market participants and not me. I only report results.

 

[J Grant]

Nottorov, keep giving your "advice", which will lead appraisers astray. I recall posts from you about being reviewed, if I recall correctly..ever wonder why?

All you are doing is dollar for dollar what builder charges, and if you use a resale comp you don't analyze it, you simply adjust up the difference to new to make a SC price. You are not just supposed to report results, you are supposed to analyze results. Best hope hope all those new homes you are "appraising", hold value because appraisals do tend to get looked at retrospectively.

Kyle Cody per post 18 explains it well. It's all about the market, and the market is not limited to line item charges of builders. How does the open market react to upgrades when house resells as a package. If a new home buyer pays 100k on line item upgrades, many of them vastly over priced as Kyle pointed out, and these homes are sell a year later, 2 years later, inr subdivision 5 years later, are buyers paying equivalent to 100k for the upgrades, or 80k, or are they paying 40k for the upgrades? THAT is the upgrade reaction in the open market . We anlayze open market reaction along with what new buyers pay at a builder office, and reconcile the two (along with cost approach and other market data. )

Factor in impact of builder concessions, incentives, "free" upgrade packages etc affects price as well as part of analysis.

Jeering at me won't change what is missing in your approach to new construction. I've done lots of new construction over the years and I have no problem opining a market value opinion that is Sales contract price as long as OTHER market support is there, besides the builder list of their own sales and what they line item charge buyers. It's not that new home buyers are stupid, they are not well informed or well advised when they over pay for lot premiums and upgrades. They are not well informed because all they look at is the list of the builder's own sales and pendings. They don't have an idea of how over inflated some of these charges are, or that they don't hold value in the open market.

Nobody sits down with the buyer at contrac signing, or in the design center when they are piling on line item charges, and informs the buyer the house they are paying 495k today will be worth 425k tomorrow should they choose to resell it tomorrow. (when that is the case of course). If a buyer happens to find out the rapid steep plunge of values in a community, their RE agent or sales agent tells them there was something "wrong" with those sales, or owner was desperate .

There was nothing wrong with the sale, it's the same house you are buying with same level of upgrades. Not every resale owner is desperate , they might decide to sell for any number of reasons. The market does not lie, whatever the seller's motivations who sells 6 months or a year or three years after purchase, the market will pay X price over a pattern of enough sales.

Again, it;s all in the market. If the house they buy today for 495k would, based on similar activity, resell tomorrow for 495k or 525k, we do the happy dance. If it resells for only 475k, that is reasonable C1 vs C2/halo new effect wearing off and imo could support a new home contract price of 495k. But it it would resell tomorrow for 430k, there is a serious loss of value, even though other new home buyers are lining up to pay 495k.