Market Conditions Adjustments While Under Construction?

[J Grant]

Yes, I've been talking about the buyers of the comps. I respectfully disagree with the opinion in your last sentence.

Time value of money to an individual borrower is Not a method I've ever heard of for ay appraisers apply market conditions adjustments to comp sales.

Either market prices are declining or appreciating enough to warrant a time adjustment made to to a past date contract price of a sold comp, or not.

 

[DWiley]

In residential appraisal, the value of the home to be constructed is typically opined as of a current date, under the hypothetical condition that the home is now complete. Your comments are more in line with a prospective value rather than a current value. Regardless of which is used (current or prospective), market condition adjustments should be based on the contract date, calculating to the effective date.

 

[Basically Rectangular]

Hey all,
I've been making myself dizzy trying to reconcile this, and looked through the earlier posts for an answer, with no luck. So, I'll just consult all of you appraisal wizards.
I'm doing a refi appraisal for an executive home that just got its CO last week. There's only a small punch list left and they can move in. This is a one-off home in an established neighborhood (1970's homes), built after a larger lot was split. My comps, however, are all development homes on virgin land. These are developments of 20-50 new homes in each development. My issue is this: the comps all contracted early in the construction process and closed 6-8 months later when they were move-in ready. You can probably guess where this is going. Should market conditions adjustments (in this market they can be shown to be 0.75 to 1.0% monthly over the past 12 months, from multiple sources) be applied to these new homes while they are under construction? Or only from when they were complete? Or some time in between? I have a hard time justifying the extra 5-6% value they would get by applying the adjustment from the time the builder broke ground. Your thoughts?

While the technical true answer is contract date, I find it hard to prove the contract date and price without analyzing the contract itself, which is unlikely in the case of comparables. I just did a purchase for a new construction tract built home where the contract was dated 11 months ago and had been changed and amended multiple times. The final price was about 70K less than on the original date. Since there is no licensed agent representing either party, once the sale closes the information is sent to someone in an office at another location that is supposed to enter the info into the MLS. Funny how I only found 2 comps from the development that were in the MLS and about 8 others in tax records that had never been entered. Bottom line is do you trust whoever is entering the contract information into wherever you are able to view it from? Imagine using the home that I just referenced as a comparable and pondering a market condition adjustment if the data entered represents the initial contract date (almost 1 year prior) with the final sale amount (almost 70K less) than original contract price.

At least settled price at closing is a fact, contract price is speculative unless you can review the contract (in my opinion).

 

[J Grant]

Why do you need to know the initial contract price ? You just need to know the initial contract date to apply a time/market condition adjustment. A new construction home first contract price can change as a borrower adds or takes away options/upgrades . The closed price is the price they paid for the house. If a sale looks hinky, don't use it as a comp.

Add a couple of recent resales free of all builder influence, games, and dated contracts .Time adjustments can be over used or misleading if not careful For example, If the market was lower a year ago, appreciated from the year back date over the next 7 months, then stabilized at 7 months, the time adjustment would go up to 7 months, and stop there. The time adjustment would not continue up till today ...because the market was stable from 7 months ago till today. Takes a bit more explaining but that is what happened in the market.

 

[QWERTY Pi]

OP said “refi”, not recertification. (although Id be nervous receiving a refi. order immediately after a close, that furrows my brow). Glad Im retired!

Objectively, state the subject’s recent Purchase Contract Date, noting Sale Price $X (mention concessions, and post closing upgrades, if any). Then simply explain in reconciliation after proving through recent comparable sales data the subject’s market is on uptick (w/in past 7 months). Extract neighborhood appreciation data for support, ofc. Where’s the need for a time adjustment? Did I miss something?