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New construction appraisal - builder's closing costs

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Bamba

Junior Member
Joined
Sep 12, 2007
Professional Status
Certified Residential Appraiser
State
Pennsylvania
I am doing an appraisal for a new construction subject to completion per plans and specs for a home in a new development (355K sale price). I am using two comps from the development and two from the outside of the development and it doesn't seem that value will be an issue.

I am concerned of the amount of closing costs that builder is paying for my subject...36K...compared to the amount of CC paid on my comps...10K on two and 0 on the other two...I usually adjust dollar for dollar seller's concessions on my comps but I am at a loss here because of the amount of CC paid for subject...what would you guys do? (my other two

And also...my appraisal will be subject to completion per plans and specs...no problem here...but what happens when I'll do the final, if the home will be different than my original appraisal (bigger/smaller, different upgrades than specs etc)...will I request a new appraisal and mark No for completion according to plans and specs?

Any help will be appreciated guys!...Thanks a lot!
 

bart nathan

Member
Joined
Jun 9, 2005
Professional Status
Certified Residential Appraiser
State
California
355sp - 36cc = the real sales price of 319K.

Make sure you find out if the builder provided kick backs on the comps they gave you.
 

Webbed Feet

Elite Member
Joined
Feb 11, 2005
Professional Status
Certified Residential Appraiser
State
Canada
I am doing an appraisal for a new construction subject to completion per plans and specs for a home in a new development (355K sale price). I am using two comps from the development and two from the outside of the development and it doesn't seem that value will be an issue.

I am concerned of the amount of closing costs that builder is paying for my subject...36K...compared to the amount of CC paid on my comps...10K on two and 0 on the other two...I usually adjust dollar for dollar seller's concessions on my comps but I am at a loss here because of the amount of CC paid for subject...what would you guys do? (my other two

Bamba,

I mirror Mr. Nathan's post. I would back up and VERY carefully research the sales concessions of those comparable again! Beyond that, we do not concern ourselves with subject concessions, we only report those and use them as a handy point in fact if we need to explain why the contract price is right out of La La Land.

And also...my appraisal will be subject to completion per plans and specs...no problem here...but what happens when I'll do the final, if the home will be different than my original appraisal (bigger/smaller, different upgrades than specs etc)...will I request a new appraisal and mark No for completion according to plans and specs?

Any help will be appreciated guys!...Thanks a lot!

As to your above question, if upon completion and completion certificate request you find something completely different was built from what you were told..... Ahhhhh I have to ask, why are you asking this now? What's up? ... I feel like you are not saying something.

Obviously, if the builder does not build what you were told would be built, your prior appraisal of a hypothetical improvement, that was never in fact built, becomes a useless piece of garbage for all involved.

Webbed.
 

Laurie E

Sophomore Member
Joined
Jul 16, 2007
Professional Status
Certified Residential Appraiser
State
Oregon
Not sure I understand your questions fully but I'll give this a whirl.

If you've verified the concessions of your comparables (I assume you have) then it matters not what the dollar amount is of the concession the builder is paying for the subject's transaction as far as the sales comparison approach is concerned.

However, you are required to analyze the current contract and it seems to me most lenders will choke over a $36,000 contribution. It just can't all be attributable to closing costs (who would pay $36K to get a loan?) Perhaps appliances or quality upgrades are being included as an incentive? Downpayment assistance maybe?

I'm afraid you'll have to rephrase your second question.
 

Bamba

Junior Member
Joined
Sep 12, 2007
Professional Status
Certified Residential Appraiser
State
Pennsylvania
Bamba,

I mirror Mr. Nathan's post. I would back up and VERY carefully research the sales concessions of those comparable again! Beyond that, we do not concern ourselves with subject concessions, we only report those and use them as a handy point in fact if we need to explain why the contract price is right out of La La Land.

The sales concessions on the other two comps from the development I got them from the builder's office. Comps were never listed in the MLS...one has 10K CC, the other doesn't have any...the other two are from the outside of the development and the same goes there...one with 10K, one with none.
I just spoke with the sales rep again and he said it is UP to 36K in CC but they won't know for sure how much untile they go to settlement. They hold this 36K in an escrow account and use them either to make the mortgage payments on their existing home until the new one will be built (if builder delays the delivery of their home), towards upgrades or CC...

I know I shouldn't concern myself and play detective and see what's going on with CC but when I see 10% paid in CC, I become a little defensive...


As to your above question, if upon completion and completion certificate request you find something completely different was built from what you were told..... Ahhhhh I have to ask, why are you asking this now? What's up? ... I feel like you are not saying something.

Obviously, if the builder does not build what you were told would be built, your prior appraisal of a hypothetical improvement, that was never in fact built, becomes a useless piece of garbage for all involved.

Webbed.

:)) I'm not hiding anything...I just read some of the posts here about 1004D and I started thinking ahead of time...what would happen if.....:)) that's all...
 

Laurie E

Sophomore Member
Joined
Jul 16, 2007
Professional Status
Certified Residential Appraiser
State
Oregon
Yikes Bamba! Of course you should play detective regarding the closing costs! It's part of your job!
 

Bamba

Junior Member
Joined
Sep 12, 2007
Professional Status
Certified Residential Appraiser
State
Pennsylvania
However, you are required to analyze the current contract and it seems to me most lenders will choke over a $36,000 contribution. It just can't all be attributable to closing costs (who would pay $36K to get a loan?) Perhaps appliances or quality upgrades are being included as an incentive? Downpayment assistance maybe?

That was my question to the sales rep at the builder's office...and he said they DON'T KNOW at this point for what the 36K are going to be used...either make the mtg payments on their existing home, either some of the options etc...
 

realbiz

Junior Member
Joined
Mar 14, 2008
Professional Status
Certified General Appraiser
State
California
This incentive is excessive. In my market 3-4% is typical. Like Bamba said before I am not trying to be a detective, but it looks like that is the downpayment. I would adjust accordingly in my market for this excessive incentive. Lenders I work with would also question this, and most would only allow what is typical in the marketplace. The comparables 10K looks like a 3-4% credit.
 

TJSum

Elite Member
Joined
Nov 12, 2007
Professional Status
Certified Residential Appraiser
State
Maryland
What is your Market Study telling you? Those comps you are using, even if they settled yesterday, with new construction, they may have gone under contract six months ago or more. It could be the subject's closing help reflects current market conditions. Many builders are adding extra incentives instead of dropping prices to hide the drop in values to previous purchasers in the subdivision. You can't adjust for the subject's closing help, only the comps can be adjusted for that. But with a proper Market Study, maybe time adjustments will bring your subject much lower than the sales price which makes better sense because builders usually will sell something for more if they can.
 

lostinthezone

Sophomore Member
Joined
Mar 2, 2008
Professional Status
Certified Residential Appraiser
State
Maryland
What TJ said. Sounds like the builder is discounting the house by 36K and hiding it. What are the contract dates of your builder sales? In regards to your other question, if there are changes between your appraisal and the finished product the lender will likely want you to briefly analyze those changes and see if there is an effect on the value stated in the appraisal. If they are minor with no effect, report that. If the changes are significant with value issues, report that and you may be looking at a new assignment.
 
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