New construction "allowances"

[Dave Smith]

Dear Forumites:

More and more references are showing up for "allowances" in new construction contracts in my market area. Allowances are showing up for appliances, flooring, windows, plumbing fixtures, trim, doors, etc. I am used to having more specific information on the house details.

For instance, the 1004 form asks for the kinds or types of materials for the flooring, trim, doors, siding and what appliances are included. Other specifics are required on the form too. The "allowance" approach on the part of the builder doesn't tell me what I need to know.

How do you handle allowances? Your thoughts and comments will be very much appreciated.

Thank you,

 

[Farm Gal]

Dave:

In my area most of the 'allowances' wind up being values of minimum quality carpet, vinyl, electrical fixutes, etc. These are usually in homes with other already noted upgrades, in which you can safely assume the owners WILL be digging into thier pockets for the high dollar finishes instead of going with minimum quality.

I generally try to get information as to exactly what level/quality the new owners are going to be installing (often available by the time anyone orders the appriasal) ... if no info is forthcoming, despite my warning that this could impact value 8O I assume and state in "extraordinary assumption" that low end floor coverings (or whatever) will be installed.

If this causes all to scream in pain because the appriaisal 'comes in low' TOO BAD, so sad, give me the info and I'll change the appraisal! :twisted:

 

[Judy Whitehead (Florida)]

First I call the builder and explain that "allowances" do not give me enough information and if he cannot be more specific about the types of flooring, cabinetry, etc. then I try to talk with the customer. Sometimes the customer is actually going to spend more by using "allowances" and then purchasing the items themselves. If they can show a receipt or purchase contract, then I use those figures, along with the builder's allowance. Usually when I explain to the builder that "allowances" don't fill out the information on the form, they become more helpful. Sometimes the information is on the blueprints regarding flooring and cabinetry.

If all else fails, I then attempt Marshall and Swift and see what the allowances are for the quality of the construction, such as 1.53 per sq. ft. for Average Quality L.A. or 2.19 or 8.00 - or whatever and use their guidelines as to "what" will be expected to be in that type of quality of construction.

Remember when you do your final inspection, it must be constructed like you appraised it. Sometimes when I get to the final inspection, the customer has upgraded what I appraised, but I guess that is just to the lender's advantage.

 

[Restrain]

Allowances in my area are the STANDARD fixtures, appliances, etc. This means in a spec grade house, you get basic FHA carpet, lower-end appliances, etc. In other words, the BASIC house the builder constructs. You want a heavier pad, upgraded carpet, upgraded lighting, whatever, this is an upgrade over the 'allowance'. Just make your assumption as to the quality of the basic home and go with it. There's no use beating this horse as you're not going to get any better info.

 

[Dave Smith]

Post script to my original question.

In my market area all the houses are custom built. No FHA houses in the area at all. There are extremely few spec houses and they are almost always on the market for quite a while before selling so the speculator has them finished before the buyer shows up. I'm talking about $250,000 to $2,000,000 for values on the new construction around these here parts.

I try like the dickens to get all the info but it is getting harder and harder to get it. More and more phone calls to the builder and the home owner. Fees are going to have to takbe adjusted to take the extra work into account.

 

[Farm Gal]

Dave:
In our area it is exactly in those type of (custom higher end) houses that I am seeing the most of that 'allowance' nonsense... a review of the 'allowances' usually winds up at the far low end of the value spectrum for each individual item.. 8O

In other words: the builders are in effect selling the same house without the finish at a inflated price:evil: over what they would "normally" be expected to install!!! :roll:

Neat trick, and heck of a marketing ploy.

 

[Pamela Crowley (Florida)]

Oh, you BAD Appraiser! How dare you figure out what they're doing!

 

[Karl]

Cost is not value.

 

[Rick Neighbors]

Dave,

I made a new home specifications form that follows along with the 1004, in the same order, that has check boxes and fill in the blanks to list all the data I need to do the appraisal. I have given blank copies to several of my clients, and I tell them that I am happy to fax them to the contractor.

It has a second page that explains why I need the data and politely explains that until I know what I am appraising, I can not finish the appraisal.

If you use words to the effect " you wouldn't want me to determine the value based on laminated plastic countertops if you are going to use granite or marble, would you?" And if you make it as easy as possible to get the data that you need, such as a simple form with instructions and an explanation, I have found that most people are willing to cooperate. Or you can simply explain that the appraisal is on hold until you get the data back that you need to complete the assignment. It's your license.

Rick

 

[Pamela Crowley (Florida)]

Rick,

Would you be willing to share that form? I'd love to see it.