New Construction Purchase

[Metroappr]

Hi-I am doing a purchase appraisal on a new construction condominium development. The question is: The purchase agreement has the borrower adding all kinds of extras like high end knobs, wrought iron spindles... The problem is that this purchase is the highest within this development (by $6,500) with no other developments to compare with(the only condo complex within the city). How would you guys approach this?

 

[J Grant]

There is such a thing as over improvement/super adequacy- buyers can PAY whatever they want, over and above our market value opinion...what do the most upgraded sales in subject condo show as prices?

 

[residentialguy]

JG does have Merit in what she is saying, however lack of sales does not mean lack of value. Welcome to a more complex appraisal. Bracketing is nice however sometimes it's not possible. The nicest house in the world can be appraised and it doesn't mean that it's only worth as much as the next inferior house.

 

[Metroappr]

I do get that-but there appears to be no market for these extras other than someone wanting to pay for it with someone else's money (mortgage). From a complex appraisal standpoint, how would you handle this? There is no MLS market data to support the extras or sold units within the development.

 

[J Grant]

JG does have Merit in what she is saying, however lack of sales does not mean lack of value. Welcome to a more complex appraisal. Bracketing is nice however sometimes it's not possible. The nicest house in the world can be appraised and it doesn't mean that it's only worth as much as the next inferior house.

That can be true, however, you do recognize the concept of an over improvement or super adequacy? OP did not cite lack of sales, they cited lack of sales at a high enough price to match the SC price.

 

[J Grant]

I do get that-but there appears to be no market for these extras other than someone wanting to pay for it with someone else's money (mortgage). From a complex appraisal standpoint, how would you handle this? There is no MLS market data to support the extras or sold units within the development.

It is not necessarily a complex appraisal, there is more likely a case of this particular buyer over improved the property, which you recognize. The buyer can pay for their personal taste items with their own funds if the MVO is below the SC price.

 

[hastalavista]

I get the impression that valuing the property at the top is not a problem from what you've seen based on the data.
However, the $6,500 in additional upgrades pushes the contract price $6,500 above what the rest of the data tells you.

What kind of value range are we talking here?
$6,500 on a $150k condominium may be significant.
$6,500 on a $850k condominium may be trivial.

(and, by the way, what are the market conditions in that market?)

 

[residentialguy]

It is not necessarily a complex appraisal, there is more likely a case of this partcular buyer over improved the property. Which they can pay for with their own funds if the MVO is below the SC price.

Bias is Unbecoming of an appraiser... In fact you're required not to have such bias.

 

[Metroappr]

$386,039. This the highest sale with no supporting data for the additional $6500. The market place is stable to increasing. A builder bought a swath of land and put up 2 building with 18 units. There are no other condos within this city.

 

[hastalavista]

$386,039. This the highest sale with no supporting data for the additional $6500. The market place is stable to increasing. A builder bought a swath of land and put up 2 building with 18 units. There are no other condos within this city.

If I thought the subject was worth $386,039 (I'd likely round my value) then I'd value it as such.
How fast are these units selling (what are the general market conditions?)?

The first condo project in the city; what has been the demand for this new product in a city where they did not exist before?