How To Appraise New Construction Homes?

[NC Appraising]

http://www.sfgate.com/business/article/KB-Home-sued-over-appraisals-3221683.php

At Live Oak, the KB Home development process was to build a half-dozen model homes at different prices and then allow customers to choose their lot and their home model and have it "built to order."

Bolden availed herself of the extra services offered by KB Home. She used their in-house real estate agents and mortgage brokerage (KB Homes Sales and KB Home Mortgage Co.), and the in-house lender (a joint venture with Countrywide Financial called Countrywide KB Home Loans), which arranged for the appraisal through Countrywide's appraisal company, Landsafe, which contracted with an appraiser.

Bolden moved in to her completed home in early February 2006. The purchase price was the same as the original contracted price: $475,000.

 

[Deleted member 134708]

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.

Post #37 is how.

 

[Deleted member 134708]

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?"

Give me 2 more same builder sales, 2 pending same builder and 2 competing and I'll more than happily answer your question. Not scared to give an opinion. I subscribe to 1 data point a trend does not make.

 

[J Grant]

An appraiser can use similar method of adjusting they use for any house when they choose not to adjust $ for $ builder line item upgrade charges.

The categories can be upgrades, part upgrades, lux upgrades, limtd upgrades, and none. Get market data what resales pay after extraction for similar level of upgrades.

 

[Deleted member 134708]

An appraiser can use similar method of adjusting they use for any house when they choose not to adjust $ for $ builder line item upgrade charges.

The categories can be upgrades, part upgrades, lux upgrades, limtd upgrades, and none. Get market data what resales pay after extraction for similar level of upgrades.

Elaborate please.

Existing home data sets are wide and of great opinion. New has very precise data and all data 100% known. Cost, time, materials, where, when. 100% is known. Existing, lot of guess work.

See post #37 of mine and all others.

Without a shred of doubt in my mind. You appraise new construction as if existing. I'm fine with that, don't care. What I do care is that you don't admit it.

I'm 100% willing to show you 1 of my new constructions if you show me yours. I'll post 1st if you agree.

 

[J Grant]

" The adjustments for upgrades are contributory value. The adjustments are are not dollar for dollar builder premiums though builder premiums analyzed and considered as support. Comp 3 adjusted for inferior upgrades of ceramic tile vs marble, lower quality bath vanities and carpet ."

Comments from a new construction appraisal I did recently.
If comp 1 has builder upgrade package of $84,900, and comp 2 has builder upgrade package of $72, 455, I consider them equivalent ( upgrades). If comp 3 has upgrades of $37,888, that's an inferior level so I'll call comp 3 part upgrades.

I consider comps 1 and 2 to have similar upgrade level as subject, (subject for example $81,000 in upgrades). Comp 3 is inferior finish, might adjust comp 3 up 40k, for example, if I am also finding 40k as the aproximate differential between part upgrades and upgrades in resale market ( house on this appraisal was 800k range)

I have no idea how to paste part of an appraisal here...Would I make a PDF file and copy it? In any event, above is how I do it. I have on occasion adjusted dollar for dollar but most times I adjust new homes the same way I adjust existing homes, because market reacts in sale price to contributory value of total upgrades as a package.

I've also listed the exact builder charge on left and then the contributory value estimate on the right, but most times try to keep it simpler .

 

[Deleted member 134708]

"I consider" , "I consider" "I"

My point to the "I"

As an appraiser you need to remove the "I." Let the market consider and report their results.

$84k and $72k aren't the same. If you don't consider them different. I'll gladly trade you $72k for $84k. Ohh, you won't?

You are treating new construction as if it is existing. You have the 2nd piece to the puzzle with new. No need to guess and say similar. You have factual numbers in front of you (unless to lazy to get)

Analyze the exact data down to the $1 with new. Existing you cannot.

State you appraise new like existing and I'll leave you alone.

 

[KYLECODY]

Have you seen the addendum that builders make borrowers sign that says the buyers need to pay a percentage up front for upgrades over a certain amount as appraisers often won't consider them in the appraisal???

Guess the major builders just pulled that out of thin air because its not necessary? The sales reps must grin from ear to ear when you walk in.

Once something is upgraded nicely, continuing on with upgrades is an overimprovement. No contributory value past a certain point. Cost does NOT equal value.

So that 35k pool that was rolled into the sales price and mortgage?? Let me guess, its worth 35k? Not the 15kish that pools generally get in my area?

I could of saved myself much anxiety on some of those builder deals I came in under contract on if I would of just adjusted for upgrades on a dollar for dollar basis?

You're basically doing the cost approach on the sales grid.

 

[Deleted member 134708]

@KYLECODY

No to whole post.


So far, you decenters are proving you are smarter than the market. Your opinion of market participants is they are inferior and not know what they do.

I stand by this 1,000x's over and can read this thread over and over to see it.

I, do not think the marketplace is smarter than me. I think it's the market. I analyze and report.

 

[KYLECODY]

@KYLECODY

No to whole post.


So far, you decenters are proving you are smarter than the market. Your opinion of market participants is they are inferior and not know what they do.

I stand by this 1,000x's over and can read this thread over and over to see it.

I, do not think the marketplace is smarter than me. I think it's the market. I analyze and report.

Decenters??? Huh? No to all of it, huh? You say that those that disagree with you are saying we are saying that we are smarter than the market...then your last line you say I do not think the marketplace is smarter than me...which means you are saying you are smarter than the market.. just like your "decenters"? You're not logical.

Explain how you would value the pool I mentioned for new construction that cost 35k and was rolled into the mortgage? Tell me how you would handle that on the sales grid..and then also on the Cost Approach.


Also, so a model match to your subject you are going to use as a comp paid 20k extra for a "lot premium" because they back a small 10 foot sliver of greenbelt before the next fence. Will you go ahead and automatically subtract 20k from that comp under location?