How To Appraise New Construction Homes?

[Deleted member 134708]

@J Grant

My thing about valuing new construction off existing homes is this, say new construction for 2,800 GLA homes going for ~$500k, multiple builders. Existing going for ~$450k. You value this new construction at $480k. I'm 100% fine with that, but here is the rub: find me a builder willing to sell me a replacement 2,800 GLA model new construction for $480k and I'm 100% with you, the problem is all new construction going for $500k, there is no market at $480k for a 2,800 GLA new. If you cannot find me a replacement new for $480k, then your appraisal at $480k is not accurate.


I totaled a car once. They have mini appraisal software and have a tiny sales grid like we do for homes. They appraised my car for $15k and going to write check for that. They do adjustment for miles, yr etc like we do. The problem was, I went on Autotrader and local dealers and could not find a replacement car (same yr/miles/color for $15k, they were all about $20k. So I told the insurance company, find me a replacement car for $15k and I'll agree, they couldn't. They ended up adjusting to $20k.

Apple stock is trading for $98 a share. You appraise AAPL's balance sheet and think its value is $75. That's perfectly fine, I would like to purchase some at $75, find me some at that price. You cannot delivery on your opinion, why? Because there is no willing seller at that price, you cannot replace my AAPl stock for $75, its value is $98.

 

[bart nathan]

I would like to see how someone supports their adjustments for upgrades who doesn't use dollar for dollar adjustments for new construction built by tract builders. In new construction cost of upgrades is what the market is willing to pay and is easily supported with any builders sheet.

There is usually is new home premium buyers are willing to pay because they select what upgrades they want. Resales of the same model will most likely sell for less which is typical in my market. Just did one this week that was new construction pre-built and sold for 15k less than a model match with the same amount of upgrades because the buyer did not get to make selections of what they wanted.

Now if its not in a tract and it was a owner built home with their selected upgrades that would be a different story.

 

[Peter LeQuire]

"Builder's upgrades" -

My favorite "upgrade" I figured out when I questioned a builder's sales agent about the "upgrade storage package". I looked at the "package" which consisted of drop stairs rather than a scuttle for garage attic access, and 6 sheets of 1/2" OSB fastened to the bottom chord of the roof trusses. Material cost could not have exceeded $300; the builder's price was over $1,200 (asbestos I recall).

 

[NC Appraising]

I would like to see how someone supports their adjustments for upgrades who doesn't use dollar for dollar adjustments for new construction built by tract builders. In new construction cost of upgrades is what the market is willing to pay and is easily supported with any builders sheet.

There is usually is new home premium buyers are willing to pay because they select what upgrades they want. Resales of the same model will most likely sell for less which is typical in my market. Just did one this week that was new construction pre-built and sold for 15k less than a model match with the same amount of upgrades because the buyer did not get to make selections of what they wanted.

Now if its not in a tract and it was a owner built home with their selected upgrades that would be a different story.

Did you just post that? Every single upgrade equals 100% of market value? I have never read any appraisal books or theories that supports that. Also, as a home builder you are 100% incorrect. If you actually got your hands on a signed contract, you will see that the builder gave X buyer a discount or an incentive and the other buyer did not get anything. It is called negotiation. Some have their own agents some do not. So if you make $ for $ adjustments all of the time, how can that be? One buyer negotiated a better price, more free upgrades etc.

A fully finished and market exposed spec home IS NOT the best indicator of market value?
Thanks for posting this. This is the very reason I started this thread. New construction appraisals are a scam the way you do it.

In your world, the appraisal could never come in low and what the builder charges is always MV because "the buyer" can go into the show room and pick out every upgrade because the upgrades were exposed to the market. See how ridiculous that sounds?

****This is why you are wrong*****
What about the 2007 market and now in the 2016 market? In some areas the demand is so strong and the supply is so tight that new construction homes are selling below re-sale, due to the time lag in new construction. So if you are only using "pre-sale" that went under contract 6-9 months ago (even though they closed 1 month ago) and not taking into consideration re-sales that went under contract 1 month ago, you are under valuing the new construction homes.

Have you ever heard of a new home buyer willing to pay OVER the builders contract price for a pre-sale home? Or multiple offers for a vacant pre-sale home? NO!! Builders do not always price their homes/upgrades correctly.


Again, why even order an appraisal? What is the purpose for new construction?

 

[Deleted member 134708]

This is why it is imperative you see the builder logs. Say your subject community is Pulte and they use $10k "incentive/concession credit" on every house. So mark $10k as concession, explain but don't adjust. Now say upgrades the buyer bought was $15k. With other Pulte homes it's easy, you will see all have $10k incentive and $x upgrades. After analyzing 20 sales, turns out market pays $ 4 $ for upgrades.

You go get some competing builder comps, Shea homes, and they have a totally different system, they gave a buyer $20k credit to design center on paper and the buyer bought an additional $15k. So Shea shows $20k incentive, and $35k upgrades, but that $35k is really only $15k buyer out of pocket as the $20k was just made up out thin air. So these 2 sales would have net $15k upgrades so $0 adjustment, and incentives/concessions would be $10k and $20k but $0 adjustment as it's already reflected in the final sales price......$400k base, -$10k incentives = $390k + $15k options = $405k buyer pays.

(more than willing to be flexible on this exercise as I'd have to see how Pulte v. Shea accounting of items)

I've seen many, many new construction appraisals were at the bottom they have a line-item for "upgrades" across the board says "similar" #1, that is false, #2 they do it because they are lazy, not trying to be fraudulent. It's too hard for them to get the correct data from the sales office so they just make things up instead.

Like @bart nathan said, I'd love to see appraiser explain why it's not $ 4 $ when the data will show every time it is. I have tons of appraisal logs that prove it. You would just have an opinion, I would have an accounting record of 25 sales proving market participants pay $ 4 $.

 

[NC Appraising]

This is why it is imperative you see the builder logs. Say your subject community is Pulte and they use $10k "incentive/concession credit" on every house. So mark $10k as concession, explain but don't adjust. Now say upgrades the buyer bought was $15k. With other Pulte homes it's easy, you will see all have $10k incentive and $x upgrades. After analyzing 20 sales, turns out market pays $ 4 $ for upgrades.

You go get some competing builder comps, Shea homes, and they have a totally different system, they gave a buyer $20k credit to design center on paper and the buyer bought an additional $15k. So Shea shows $20k incentive, and $35k upgrades, but that $35k is really only $15k buyer out of pocket as the $20k was just made up out thin air. So these 2 sales would have net $15k upgrades so $0 adjustment, and incentives/concessions would be $10k and $20k but $0 adjustment as it's already reflected in the final sales price......$400k base, -$10k incentives = $390k + $15k options = $405k buyer pays.

(more than willing to be flexible on this exercise as I'd have to see how Pulte v. Shea accounting of items)

I've seen many, many new construction appraisals were at the bottom they have a line-item for "upgrades" across the board says "similar" #1, that is false, #2 they do it because they are lazy, not trying to be fraudulent. It's too hard for them to get the correct data from the sales office so they just make things up instead.

Like @bart nathan said, I'd love to see appraiser explain why it's not $ 4 $ when the data will show every time it is. I have tons of appraisal logs that prove it. You would just have an opinion, I would have an accounting record of 25 sales proving market participants pay $ 4 $.

You still have not answered my question: Using your theory of appraisal practice, how can an appraiser ever come in lower or higher than the contract price for new construction?

So you adjust for $1,000 upgrade? ...market (one particular buyer) is paying it, so you better adjust for it. LOL.

 

[Deleted member 134708]

8

New construction appraisals are a scam the way you do it.

In your world, the appraisal could never come in low and what the builder charges is always MV because "the buyer" can go into the show room and pick out every upgrade because the upgrades were exposed to the market. See how ridiculous that sounds?

Not at all what he said. He never ever talked about appraising a subject to the contract price. Only stated how to correctly analyze and account new construction comparable. If the subject is in contract for $500k with $15k upgrades, and 4 other new sold for $480k with $20k in upgrades, then the contract price of $500k is $15k over MV. MV is $485k shown by 4 closed sales.

(real world the 4 sales would show $ 4 $ on upgrades, sale 1 $480k/$20k, sale 2 $475k/$15k, sale 3 $485k/$25k Sale 4 $490k/$30k)

 

[Deleted member 134708]

I didn't take this negatively FYI, understand it's just commentary.

So you adjust for $1,000 upgrade? ...market (one particular buyer) is paying it, so you better adjust for it. LOL.

"one particular buyer" after another, pretty soon adds up to a real marketplace.

I don't judge what is too small or too large, I just analyze and report it. All my real world cases have 100% undeniable data that proves sale 1 $1,248 differential/adjustment, sale 2 $2,480 differential/adjustment, sale 3 $5,890 differential/adjustment on and on.

 

[KYLECODY]

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.

Ouch..

So..You have a subject and 3 model match sales. All have a base price of 200k with the only difference being upgrades. Your three comparables (same builder, same floorplan, same location, recent closed sales, same base price, same incentives) sold for $225k, 240k and 242k. Your subject is "really" upgraded and under contract at $250k as they spent 50k on options...So you adjust the first comp up $25k, the second up 10k and the third up 8k due to dollar for dollar upgrades and you magically come in at $250k across the board on the bottom of the grid and call it 250k as "market participants are willing to pay this?"

 

[NC Appraising]

8


Not at all what he said. He never ever talked about appraising a subject to the contract price. Only stated how to correctly analyze and account new construction comparable. If the subject is in contract for $500k with $15k upgrades, and 4 other new sold for $480k with $20k in upgrades, then the contract price of $500k is $15k over MV. MV is $485k shown by 4 closed sales.

(real world the 4 sales would show $ 4 $ on upgrades, sale 1 $480k/$20k, sale 2 $475k/$15k, sale 3 $485k/$25k Sale 4 $490k/$30k)

You still have not answered my question: Using your theory of appraisal practice, how can an appraiser ever come in lower or higher than the contract price for new construction? They can't. They can put every stupid upgrade available and you would use that home as a comparable.

So why order an appraisal if every upgrade equals 100% of market value?