New Build

[J Grant]

Might want to change the batteries in your calculator...

thanks for catching it!

 

[CGinMN]

And your appraisal reality is based upon the sales of those dreams because it becomes market data. Go figure.

ICYMI...

I have a custom new build that is in an area of no new home sales.

You know my thoughts on the CA, so this shouldn't be surprising... If you have sales to analyze to develop a credible SCA, then why even develop the CA at all?

I agree if you have adequate sales it is never necessary to develop a CA. However, it could be useful... depreciated cost-based adjustments for the SCA would be one reason. IMO, analyzing sales is necessary for a CA, and sometimes analyzing costs is necessary for an SCA. I fall in the camp that there really is only one approach to value.

 

[alebrewer]

ICYMI...





I agree if you have adequate sales it is never necessary to develop a CA. However, it could be useful... depreciated cost-based adjustments for the SCA would be one reason. IMO, analyzing sales is necessary for a CA, and sometimes analyzing costs is necessary for an SCA. I fall in the camp that there really is only one approach to value.

Just messing with ya, man. I'll take my disdain of the CA to the grave with me, but I also understand it has practical use in the CG world. Was teaching a CE class one time and made a disparaging comment about the CA. Was quickly called out by a CG that worked for the state of Texas who asked - how do you propose valuing a state park via the SCA Mr. Ale Brewer dude? Didn't need to eat lunch that day - the crow I was forced to consume was sufficient.

 

[CGinMN]

How do you value a state park via the CA without valuing the land via SCA?

 

[alebrewer]

How do you value a state park via the CA without valuing the land via SCA?

Fact! But the land is only one component of the overall valuation. I think his point was that there were no viable state park 'sales' with which to develop an SCA for the properties and their improvements.

 

[CGinMN]

It's a good example of how the two approaches can be intertwined and inseparable. For this type of assignment, the CA and the SCA would look nearly identical and rely upon the same sets of data, maybe expressed in slightly different ways.

The whole point I'm trying to make, which should be clear by now, is don't forget about *accrued* depreciation, even for a brand new home.

 

[Red Flint]

don't forget about accused depreciation

I only accuse my depreciation if it is obsolescent.

Yes, one can submit a market value appraisal with only the Cost Approach, just explain why.

In this case, I would include the cost approach, and a sales comparison approach, then reconcile and explain why.

 

[Dublin ohio]

don't forget about accused depreciation,

What would the defense be for that "accusation".

 

[Tim Hicks (Texas)]

It is no longer a new build. It was completed in July and is now 3-4 months old. Are there no high end home sales within 50 miles for comparison?

 

[Terrel L. Shields]

The fundamental principle of appraising is cost does not always equal value

Market data is market data. Nothing in the CA is not market data just like income data are market and sales data are market. They are interlocked, and no textbook tries to divorce that relationship. No textbook says the cost approach is never appropriate... do you own a textbook? Or is FNMA the only "textbook" you consider valid?

hy are;t people building new custom homes on them...

Lack of demand in a small market. I've worked any number of small towns that has never had a subdivision develop there. They are simply small tract or lot sales, and the occasional new home built. In Oklahoma, many of the new homes can be subsidized by the Cherokee or other tribes. But no developer is working outside the major towns like Grove, Muskogee, Tahlequah, or Sallisaw. Even there these are not always being developed but might be months or years between new development.

Would need to go 50+ miles for new builds but would tract homes not custom builds.

South part of Illinois? Small market? A paucity of sales does not mean there is no demand, just low demand. I'd go those 50 miles if necessary. So, if you have done other (older) properties in the same market, is there a functional obsolescence or externality (market resistance?) to those properties? If not, then there probably isn't an external negative to a new property.

Dealing with non-AMC local lenders is great.

Exactly. There is zero reason not to weight the CA in new construction where sales data are sparse. But that's not the Fannie way. One must use Fanniespeak when they are involved - ditto FHA. But here I'd bet half of new construction custom built is financed by conventional non-conforming loans. After the construction is completed then the bank often sets up permanent financing with secondary market.

What happens if that loan gets sold to an investor who orders a review on the appraisal?

Nothing. If the investor doesn't like it, they can order a new appraisal.

If you have sales to analyze to develop a credible SCA, then why even develop the CA at all?

Isn't that the OPs problem? And why would you not develop a CA on new construction? It should support the SA and make the report more reliable.

I fall in the camp that there really is only one approach to value.

I would have given you a like until that statement. You are a Dilmore adherent? I disagree with him sharply. There simply are situations where the cost approach and income approach are far better supported with the available data. Dismissing them as not "market" data - that's absurd. While we are tasked by USPAP to be aware of and apply the basics of appraisal techniques and thought, it is amazing to me how many appraisers think there is only one approach. USPAP apparently disagrees.

Are there no high end home sales within 50 miles for comparison?

If there are sales, and I can extract the effective age, I can also adjust for that effective age. This will make 3 negative adjustments that are quite large perhaps, but if you 'show your work' then I'd think you have supported the adjustment - not "proven" it - nothing proves an adjustment. But a lack of data is not a reason to pull a number out of the air.

The New Approach to Real Estate Appraising​

by Gene Dilmore (Author) 1971