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Incomplete Comparable already sold

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David Durham

Thread Starter
Sophomore Member
Joined
May 1, 2002
Professional Status
Certified Residential Appraiser
State
Michigan
A builder is building a house for a client. The builder bought the land (demolished an existing house) and is building a home for a client. The home is semi-custom based off basic floorplans that they offer. The house is CURRENTLY BEING BUILT (3/4 of the exterior framing is up). Public records show the sale as closed and the builder will also provide me with the HUD statement and plans. Can I use this a comparable? My gut tells me no - I will probably only discuss it and treat is as a pending sale and not grid it.

This is happening in a older sub with older / smaller homes. The same builder has one similar spec home that has sold via the MLS and two other completed homes that are being offered on the MLS. I am working on the purchase of a new construction (plans & specs) in the same sub by the same builder.

I will be using the two actives, the sold spec home and a couple other from outside the area in the report.

Thanks
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
The trouble is front end loans typically include the money necessary to hold the house over the building period. So if monthly payments for the mortgage are $2,000 over a 9 month projection, the price is usually jacked up $18K and that is considered as a cost of construction and used to pay the mortgage while the house is finished. You might find this in an interest section of a contract or the HUD. The price is, therefore, above or at the very top of the market.

I stay away from them as much as possible as in my opinion they are not the best indicators of value. I prefer resales when available, then back end loans. Front end loans when desparate as comps #4 or #5. Land sales plus a building contract, never.
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
If you are doing an appraisal for the secondary market, I would suggest you review the requirements for a relevant sale. As I remember they must be physically, functionally and locationally similar. Since the property you are appraising is a similar new construction, the fact that the comp was offered to the open market and in effect has a sale within the definition of Market Value, I think that you could assume that the sale meets the criteria of a relevant sale for use in the grid. Based on the limited number of similar sales in an older sub, it would be fine to use it as an indication of market levels. You would of course have to make some comments about the fact that the house is incomplete, no C of O is obviously yet issued and end financing with waiver of liens has not yet taken place. However, the transaction does in fact, demonstrate the markets reaction to this size/style house. If you determine that it meets the criteria for a comp, then that makes it a relevant transaction for use in the grid.

I don't think that I would hesitate to use it but I do think that in the end, I would make sure that there are at least 3 finished sales in the grid and this particular one would go in as a 4th comp for support. If it is a great comp, putting it in as a 4th supporting sale gives you license to consider it in your final opinion of value.
 
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