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new construction builder's incentives

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Renee Borne

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Joined
Jan 5, 2005
Professional Status
Licensed Appraiser
State
Arizona
I have a comp that sold for $948,000. The builder told me that the buyer was given a $45,000 upgrade at their design center. After looking at the photos it looks as if most got the same package. Is this a concession? The people would have to get flooring, counter-tops, etc anyway. What do you do with these "extras"? do you make any type of adjustment?

Thanks
 

Randolph Kinney

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Joined
Apr 7, 2005
Professional Status
Retired Appraiser
State
North Carolina
A concession is something of value given to the buyer by the seller as an inducement to purchase.

If you can show what the comparables had in the way of concessions, you need to adjust for that. The definition of market value on the 1004 explains it.
 

Renee Borne

Thread Starter
Junior Member
Joined
Jan 5, 2005
Professional Status
Licensed Appraiser
State
Arizona
would you make a condition adjustment instead of a concession adjustment? It is hard to tell with new construction because it seems that some people can fall for the "sales pitch" of the design center and some people go on their own. That is why I am wondering if it becomes a condition adjustment.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
The upgrades often consist of interior work that you can't see (granite instead of solid-surface, upgraded cabinetry, upgraded floor coverings, etc).

These are so common here that they are expected in new homes. $20,000-$30,000 in concessions on $250,000 homes are common.

You really cannot compare a new home to anything except a new home, and if you use a new home against an existing home, you have to make significant adjustments on the basis of market differential. The adjustments will often exceed the concessions by an additional 10+ around here.
 

Couch Potato

Elite Member
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Mar 15, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
They paid $948,000 for the house which they received. Why would you adjust for the builder's book keeping methods for the cost of the house? The builder didn't want to lower their prices so they put more into the house. It would be like Hershey adding half an ounce to all their chocolate bars, but not changing the price. The fact you get more for your money does not alter what you paid.
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
It is a discount, not a concession. You still should address it because it raises other questions, such as: If you have a comp that does not have the upgrades being given for free, should you make an adjustment for quality? After all, these adjustments might not be anything someone would pay more for, but if they get them for free, it may influence them to make the purchase. If that is the case, an adjustment for inferior upgrades may not be warranted up to a certain dollar amount. What is that dollar amount? What are these upgrades being given away? Which ones have a measurable impact on value, and which no longer do?
 

Tim Schneider

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Joined
Feb 8, 2007
Professional Status
Certified Residential Appraiser
State
Wisconsin
You really cannot compare a new home to anything except a new home


Well. according to the state boards, a new home appraisal should contain at least one "low age" home.
 

hastalavista

Elite Member
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May 16, 2005
Professional Status
Certified General Appraiser
State
California
I have a comp that sold for $948,000. The builder told me that the buyer was given a $45,000 upgrade at their design center. After looking at the photos it looks as if most got the same package. Is this a concession? The people would have to get flooring, counter-tops, etc anyway. What do you do with these "extras"? do you make any type of adjustment?

Thanks

Its relevant if you are using this property as a comp to your subject and your subject does not have similar upgrades.

Assume your subject is the base model with no upgrades.
Assume this property is a model match to your subject except that it has $45k in upgrades that were included in its base model price.
Without knowing the fact that these upgrades were included in the base price, the appraiser might assume the subject (base model price, no upgrades) and the comp (base model price that included $45k upgraded) were the same.
 
Last edited:

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
And why can't you compare new construction to existing? The answer is ... you can but you might not want to. I also contend new construction should be compared to new construction but then ... what do I know?
 

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
Is the builder trying to say he sold the house for $948,000,
but he threw in $45,000, so the buyers really got a $993,000
house and so you should appraise an identical house for $993,000??
What a great guy.

Kind of reminds me of the I Love Lucy episode where
Lucy, Desi, Fred, & Ethel have to buy a used car because
they are stuck in the sticks and then have to pay the wiley
local an extra $100 for the steering wheel.
 
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