New construction appraisal - builder's closing costs

[Marcia Langley]

Ditto the others. The subject concessions of "up to $36k" would be reported only in the contract section of your report. Only the comp concessions would be reported/adjusted in the grid. In the grid, you give no consideration whatsoever to the subject concessions.

Any comp concession information obtained only from the builder on a non-MLS sale should be verified from another source who is not a party to the subject's transaction.

Since the comps were not MLS sales, you need to make sure they were not land-home packages. If they were, they could not be used as comps.

If they build another house besides what you appraised from plans then they will need a whole new appraisal.

 

[Bamba]

Thanks everybody!

Marcia, thanks for pointing that out...subject, at this point, is a land-home package...comps are not...
Here is what I got from the builder...what they are doing is this...borrower is buying the land and then getting a construction loan to build the house (which is what this appraisal is for)...after house is built, they go to settlement and get a fixed loan rate for the whole thing...so the comps they gave me are the ones that went to final settlement...if that makes any sense...

 

[Judy Whitehead (Florida)]

OK, I guess my question is......is the land included in the contract that you have? Sometimes there are two contracts - one for the land and one for the new construction. In effect, you are appraising the land as though vacant, as well, whether or not you have recent land sales or use another method. If the borrower is "buying the land" I would make sure that I had a contract for that if it is not included in the contract that you have.

In order to be a viable "comp" for the subject, the sales that you have had to have been finished construction, exposed to the open market and an arms length transaction, whether or not closing costs were paid by anyone on behalf of the seller. You cannot use a "contracted construction" as a comp. In other words, you can't use a "comp" that is what your subject was - and one of the reasons is that the "meeting of the minds" was when the buyer contracted to build the home, which could be a different market than today.

 

[Marcia Langley]

Judy is right. If the comps were land-home packages to start with you can't use them even after they have gone to final settlement.

 

[Bamba]

I got you...so I am going to use only one from the development which is a resale (been on the MLS, exposed to the market...the whole nine yards) and the other comps will have to be from outside of the development...

And Judy, I do have two contracts...one for the land which will settle next week...and one for the construction of the house...

 

[Judy Whitehead (Florida)]

Good job! At least you have one in the same neighborhood....it is tough when the one that you are appraising is the first!

 

[Webbed Feet]

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... <...... snip......>...

Bamba,

Ok! Yikes! ... I am glad the land sale contract with a following construction contract was brought up. I could be wrong but here is my guess. The builder charged WAY over market value for the land, the "concession" amounts to nothing more than what we might call a rebate of the buyer's own money from having paid too much for the land. I caught this going on once in a bare land appraisal assignment I had once. There was a clause that if the builder did not complete construction of a house in a separate contract that the buyer was not held to the sale of the land to the buyer. What was going on was they were attempting to get a loan on a land sale with a price drastically over market value so that the overage beyond the market value essentially becomes a no cost construction loan to the builder with the interest born by the home purchaser. I am sure the buyer was too naive to understand what was happening.

My bet is you have something similar going on. This is exactly why you cannot use "comps" from the builder that really were combined land sales with a second contract for construction of the improvements. Those have to get tossed out. More than this, if these were never listed on the MLS, was there ever any market exposure of the comparable?

I think you have your job cut out for you in researching all these so-called comparable sales. Again, I would not give a rip what phony baloney stuff was going on in the subject contracts from any view of adjustments. As we do NOT adjust the subject sale to the comp sales, or use subject contract matters as justification for comparable adjustments. ONLY the comparable sale transaction matters regarding comparable adjustment for concession activity. But those comp sales have to be an arms-length price for the land and house both with market exposure. Not one price for the land, and another to build a house added together by someone telling you the total sum is a market sale, it's not.

Webbed.

 

[Bamba]

Webbed, the truth is CC do show on the land contract not the house's...although builder's rep said there will be no CC paid on land for sure...yeahh...

And you were right again because land contract does have a clause that if builder defaults on the agreement, the buyer will not be held to the sale of the lot or the house and will get back either any deposits plus interest or the difference between the purchase price of the lot and FMV of the lot on that day whichever is greater.

I'm not going to use the comps they provided, just the resale that I found in the MLS...And I'm gonna report subject's CC in the contract section the way they are...up to 36K

 

[Jennifer Dietz]

I may be reading your thoughts wrong, but as far as I know, you don't adjust for subject's closing costs. The specs of the contract are stated in the report and that's all. Any financial + or -'s are not a factor in your final estimate of value. I do adjust for the sales concessions on the grid for the comparables only.

 

[Bamba]

I know subject's CC are only stated and that's it...I was worried because of the amount...10% of sales price seems an awfully lot and I'm worried that I'm getting in the middle of a builder's scam here...
The reason why...the development I live in had a big scandal years ago...builder, LOs and appraisers were convicted of fraud because they scam people and got them into homes they can't afford by inflating prices and offering incentives just to get them to settlement....needless to say, there were a lot of foreclosures and a big mess...