New Construction Custom Value Issues

[jay trotta]

From 30,000 feet, it would be hard to analyze what either did or did not do; New Construction is a combination of all factors and the more information the appraiser has, the better the end result. Dealing in Suburban/Rural markets is a bit tricky, based in part on guidelines and therefore, research is generally expanded to see market indicators and when searching is beyond guidelines, then some additional report writing is required to satisfy the UW/Lender.

In general, when dealing with New, I require a set of Prints & a Spec Sheet (yes, we all know those can change), but a starting point is needed.

Good Luck

 

[J Grant]

Some banks will use a third party reviewer to reconcile values between disparate high value reports..but whether or not a borrower can originate that, or it is up to bank, I don't know. I've been that person ( ( the reviewer)...usually its a wider gap of value in question and one or both of the reports are questionable and far as I know the lender initiates it. In my area 900k range is is not considered a high value property, though it's a lot of money to be sure! Perhaps bank ordered two appraisals due to new construction/spec home.

 

[BRCJR]

Because some do not want to run the risk of appearing to be "value shopping".
But you are correct: an appropriately constructed review and underwriting policy/process could be used to address such scenarios.

In the few times we have to consider which Appraisal Report is most/more credible we look at them side by side and verify as much information as possible.
Many times we deem them to be fairly equal and will, in house lending, split the difference for our lending decision.
We have a written review of each, independent of the other, and a written reconciliation of the two.

 

[Mr Rex]

I live in a rural area and new custom homes often require search parameters of 30 or more miles particularly customs on acreage. I always use at least 1 or 2 new home sales of similar custom homes regardless of distance and adjust for the differing land values. This helps establish the reliability of the Cost Approach.

 

[leasedfee]

$850,000 vs. $953,000 isn't that crazy of a difference. About 10%. I was anticipating you writing something like $350,000 vs. $953k. I'd recommend that you ask the bank for two Standard 3 Review Appraisals (which you will have to pay for). Request that they be someone who is very experienced in your market. Perhaps that local experienced appraiser will see why they differ and pose some questions and recommendations based on the appraisals.

 

[Terrel L. Shields]

Using an eight year old comp is problematic in my book. I would rely upon the cost approach first.

 

[Amy Perkins]

Sounds like this is an unusual property. Opinions can vary. However, my guess is that someone is wrong. Request a third appraisal stating that they are more than 10% apart, which is significant in the appraisal world.

 

[Deleted member 128537]

Sounds like this is an unusual property. Opinions can vary. However, my guess is that someone is wrong. Request a third appraisal stating that they are more than 10% apart, which is significant in the appraisal world.

And maybe no one is wrong. And maybe both are wrong. Having 2 appraisers 10% difference in my kind of market is very possible and highly probable; especially when there is little conformity in the market. I've done properties like this and frankly in my area you can never rely on the cost approach. In fact I deduct 15% for external depreciation due to market conditions (over supply). Also if the subject property is on the high end of the market value range the less likely the cost approach will coincide with the market value. And that's probably true in most areas.

 

[jsmith1437]

Thank you all very much for the responses to my question. Unfortunately, I am still waiting for a response to my rebuttal letter that was sent Tuesday of last week. I have talked with the loan officer and I believe that pending the response on the letter, I will hire a third appraisal as you have all mentioned. Once I get that response, I may post the grids on here for further opinions on next steps and anything more I can do get the accurate value determined. Hopefully the delay in the response to my rebuttal letter means that they are working on updates!

 

[TRESinc]

I will hire a third appraisal as you have all mentioned.

keep in mind that your lender may not accept, or even care, about an appraisal from an appraiser you hired. they have a list of approved appraisers already and even if the person you hire is on that list they can still choose to not accept it. when getting a mortgage the lender is the client and has final say in who they will and will not accept appraisals from. i'm not even remotely saying it would/could happen but collusion between an individual and an appraiser is a possibility. our profession, like every other one, has it's share of bad apples and it's not inconceivable that one would take a couple hundred bucks on the side to make a report "better" for the client (in this case you).

good luck and keep up updated.