New construction 50% complete as-is value

[mp2277]

Any bank regulated by FDIC, OCC, et al, must abide by the IAG. It is required to have both as is and as complete values. Therefore, one could put down the site value as the "as is" value and the bank don't care. They just want to CYA if the bank examiner wants to see an as is value and an as complete value during construction. Therefore, once the property is complete, the as is value is meaningless and a permanent loan is made.

And then there is always the random review and the request to support adjustments and conclusions. I don't trust the office types who "just need a number"

 

[Terrel L. Shields]

then there is always the random review and the request to support adjustments and conclusions.

Not for a bank - FF or FHA perhaps.

 

[Zoe]

I understand the methodology and reasoning there but I am still very leery of the market approach there. If an investor is going to take on that project they are going to have a profit motive and where do we find that in the estimated cost to cure? I'd leave this to the more adventurous types unless my liquor cabinet was looking bare LOL

It would not matter whether a homeowner bought it, bank bought it or investor bought it. Makes no difference.


Entrepreneurial incentive would need to be added for the deduction from "as if complete" vs "as is".

I would deduct cost to cure plus entrepreneurial incentive estimate from my "as if complete" opinion. I would also want plans and specs.

Somebody has plans and specs somewhere.

 

[Zoe]

This seems like on the verge of a liquidation assignment to me. I may be totally off base.

 

[Zoe]

H&B use analysis could tell you whether it even needs completed for MV opinion.

As far as I know, MV opinion appraisal is only value definition that requires H&B use analysis.

 

[nachocheesefries]

Working on a new construction assignment, with as-is and as completed values. the subject is approx. 52% completed. Of course no comps/sales of partially completed houses. Should I base the as-is value on adjusted cost approach ?
Recommendations??

Is it Cadence bank? They have someone over there that has misinterpreted some regulation and think this is a FNMA requirement on all appraisals...even new construction that are being completed 'subject to'. I do not do new constructions for them over this requirement. They encouraged me to employ some 'departure rule' to comply with USPAP so that I could puke out an as-is value in a simple addenda. Its a little murky.

IMO, lots of liability for this and not enough compensation to actually do a good job on it. They just want you to throw something in the report. Great client for years (my oldest client), but I'll pass.

 

[Terrel L. Shields]

'departure rule'

Oh gee - a mite behind the times. The "as is" values are required solely for regulated banks as far as I know. FHA & F/F does not apply.

 

[Zoe]

Oh gee - a mite behind the times. The "as is" values are required solely for regulated banks as far as I know. FHA & F/F does not apply.

Idk here. It is almost like bank is considering foreclosure or already has it in OREO.

FHA would do construction loan per plans and specs. Bank would also. VA would also. But fannie would not buy construction loan on long term until it was finished.

 

[Zoe]

What happens there with Fannie is bank does short term construction loan on conventional, FHA or VA. When completed, they convert the short term loan to long term financing and fannie will buy it then.

But there are several stipulations then. It matters whether it is owner occupied or not and many other factors on Fannie.

 

[Zoe]

Working on a new construction assignment, with as-is and as completed values. the subject is approx. 52% completed. Of course no comps/sales of partially completed houses. Should I base the as-is value on adjusted cost approach ?
Recommendations??

Trust me your easiest route is do well supported MV opinion as if completed per plans and specs and deduct cost to complete plus entrepreneurial incentive for an "as is" opinion of MV as of effective date.

You can use your books for cost source estimates or other sources for cost to complete. You can get a good estimate for entrepreneurial incentive to add to cost estimates from different sources.