Is Build-to-suit Considered A Sale?

[Stephen J. Vertin MAI]

Ok now Howard messed that one up

Let me clarify, the scope of work is to determine the market value of a property. Our subject is new custom construction purchase from the builder (who also owned the land). Is the purchase considered a sale, yadda, yadda?

Since I have a commercial background, I used the words build-to-suit generically. It may have been better to say "new construction", or something similar. The intent is not to limit input to commercial appraisers only. Determining if propose construction or custom built properties under these conditions effects their industry as well.

Howard is absolutely correct. The definition of comparable sale is any property that can be adjusted to indicate the value of a subject property. You can adjust for anything regardless of what some state boards think. There are no limitations in creditable authoritative text. Commonly when limitation exists it is assignment specific, not an overall rule. However, in defense of this line of reasoning, most of us know the fewer and lower the magnitude of adjustments the better the comparable.

Now that has been established, it is reasoned if I were selecting comparable sales, I would first examine whether the comparable met the definition of a market value transaction (since that is the interest appraised) under the logic of fewer adjustments. Of course, this can be modified if no such transactions exist. But given many sales in our hypothetical market (meet the definition of market value) it may not be the best decision to select comparable sales falling outside of these parameters.

 

[residentialguy]

Let me clarify, the scope of work is to determine the market value of a property. Our subject is new custom construction purchase from the builder (who also owned the land). Is the purchase considered a sale

Yes. It is an arm's length transaction and is fine with Fannie Mae to use

 

[J Grant]

[QUOTE="Stephen J. Vertin MAI,

Let me clarify, the scope of work is to determine the market value of a property. Our subject is new custom construction purchase from the builder (who also owned the land). Is the purchase considered a sale, yadda, yadda?

One of the arguments against using custom or spec homes contract to build on lt as comps is that the total (house and land total price, as a package, was not exposed to open market.

But if a a builder sells the lot and proposed construction house to buyer it is considered one package price sale transaction ( and can be a sale comp if builder offered it on open market, given that any specific buyer might customize )et.

Back to your specific question about prior sale history of your subject- it it was purchased as a package of new/proposed house together with lot from builder, the total is the prior sale. However if your buyer paid for the lot as a separate transaction and in addition contracts with builder to construct , only the land portion was the sale (imo), If there was a recorded closed transaction of the subject or lot it sits on within the past X years relevant to assignment results, it had a prior sale.

However if the subject just has a pending contract to purchase/build from the builder it is a pending contract, not a prior sale .

 

[Stephen J. Vertin MAI]

"One of the arguments against using custom or spec homes contract to build on lt as comps is that the total (house and land total price, as a package, was not exposed to open market."

Now that was a good reply and was one of my first thoughts but the Appraisal Institute’s Concept of Exposure Time paper Guide Note 14 clearly indicate exposure time is be based on market data extracted from comparable properties. The paper then outlines several methods and sources of applied market data thought creditable in estimating exposure time. Since all proposed development has similar exposure time, the actual exposure time for these transactions is market derived.

 

[residentialguy]

Now that was a good reply and was one of my first thoughts but the Appraisal Institute’s Concept of Exposure Time paper Guide Note 14 clearly indicate exposure time is be based on market data extracted from comparable properties

I disagree with JG, as well. New construction is a different market and exposure needs to line up with that kind of market. Market data for new construction build is consistent with that market.

 

[J Grant]

I disagree with JG, as well. New construction is a different market and exposure needs to line up with that kind of market. Market data for new construction build is consistent with that market.

I was NOT referencing simple new construction ( such as new construction house and lot sold together.(which is exposed to open market, though the sales methods may be a niche or segment of the market )

I WAS referencing a land sale, and then the owner contracting to build on it.( which is not exposed to open market )

 

[J Grant]

"One of the arguments against using custom or spec homes contract to build on lt as comps is that the total (house and land total price, as a package, was not exposed to open market."

Now that was a good reply and was one of my first thoughts but the Appraisal Institute’s Concept of Exposure Time paper Guide Note 14 clearly indicate exposure time is be based on market data extracted from comparable properties. The paper then outlines several methods and sources of applied market data thought creditable in estimating exposure time. Since all proposed development has similar exposure time, the actual exposure time for these transactions is market derived.

My above (which was the argument I made applies to contract to build homes on a lot where lot is sold separealey ( cert on the fannie form prohibits using them as comps, if for other users it would be up to appraiser, but these build on lot already owned are not exposed to open market as a package sale ( house and lot sold as one transaction)

New homes sold from builder whether proposed or existing, when sold as a package with the lot included is considered exposed to open market ( and thus viable as comps ) I tried to differentiate between the two on my post 32, perhaps not clearly enough.

 

[J Grant]

Stephen I l not sure exactly what you are referring to regarding your subject history regarding if qualifies as a prior sale . Which of the below 3 choices is it ( or is it an additional choice) Thank you !

1) There was a prior sale of subject as a new home with the lot included as one sale transaction from builder to a buyer

2) There was a prior sale of a lot of the subject to buyer and now a contract to build for the lot owner

3) There is a pending contract of sale of subject lot and proposed house from a builder

 

[residentialguy]

3) There is a pending contract of sale of subject lot and proposed house from a builder

That's how I took his last clarification.