New Construction Reconsideration of Value

[J Grant]

I just imagine that we've all had new construction appraisals where we say, "Wow, they're paying $500k for this!?!" and then the builder sends you five model match comps at a similar price.

Gotta separate your personal biases. This is a difficult situation though. Does 1 sale constitute a market?

It is not about personal bias. If five people pay 500k new, there has to be a way for the appraisal tests of the market to see if contributory value value vs builder cost and price is in balance or out of whack. Of course if we skip that analysis and just rubber stamp the builder prices with the builder's own new sales and plop in as a token a sale from outside we'll never know. That is not an appraisal, it is a rubber stamp of a price.

 

[chad hampton]

In just about every new construction appraisal I’ve ever done, The client has required MLS re-sales of homes. If I were to use three other new construction homes provided by a builder, they wouldn’t have been approved. Which makes sense, if the bank has to take that home over, it’s not new construction anymore. That and I haven’t met a builder yet that I would trust any farther than I could throw them.

 

[JeffSH]

What they pay new is price, what a house commands one month later in a resale speaks to the value returned in the open market. If we just rubber stamp the builder's own sale prices, why get an appraisal done?

We are not being asked to value a one-month old home. What's the value today based on the most similar comps? The most similar comps aren't resales. Five 'suckers' eventually becomes a market. Who are we to say otherwise? It's not a rubberstamp, it's an appraisal. I've come in low on new construction.

It's like how it was in 2021. Comps are slim, but how can I say that this purchase price isn't the value of the home when there are 10 people lined up and ready to put in a similar offer? What happens in the future is irrelevant.

 

[George Hatch]

We can always look at other projects that have already sold out and in doing so have demonstrated the effects of those upgrades on their prices. Import the adjustment factor as a percentage of the pricing and apply it to our comparables. These outside comparos don't need to be current or directly comparable to our subject unit because all we're looking for is the adjustment factor.

The easiest way to find them is to look at resales for their original prices and compare them to the original prices of the other units in those projects.

 

[J Grant]

We are not being asked to value a one-month old home. What's the value today based on the most similar comps? The most similar comps aren't resales. Five 'suckers' eventually becomes a market. Who are we to say otherwise? It's not a rubberstamp, it's an appraisal. I've come in low on new construction.

It's like how it was in 2021. Comps are slim, but how can I say that this purchase price isn't the value of the home when there are 10 people lined up and ready to put in a similar offer? What happens in the future is irrelevant.

How can you say the purchase price isnt the value of the home.....YOU don't say it, the market says it for you. As in the market speaks through our appraisal. But without analyzing the value contribution test of a newer home on the open market out of the builder's control of new home pricing ( which is a lot about costs and weird builder prices of lot premiums etc), without that test the market says nothing, all you are saying in the appraisal is a repeat of the builder's own prices.

 

[JeffSH]

How can you say the purchase price isnt the value of the home.....YOU don't say it, the market says it for you. As in the market speaks through our appraisal. But without analyzing the value contribution test of a newer home on the open market out of the builder's control of new home pricing ( which is a lot about costs and weird builder prices of lot premiums etc), without that test the market says nothing, all you are saying in the appraisal is a repeat of the builder's own prices.

There are some places where construction is steady throughout the years, but a lot of new construction appraisals I did 2020-2021 were brand new developments in cities that hadn't seen a new home since 2008. You can't really speculate on the resale market in that situation IMO.

Determining if the construction costs are reasonable for new construction with no resales is what the cost approach is for. I understand how futile the cost approach can be, I'm just sayin.

 

[J Grant]

There are some places where construction is steady throughout the years, but a lot of new construction appraisals I did 2020-2021 were brand new developments in cities that hadn't seen a new home since 2008. You can't really speculate on the resale market in that situation IMO.

Determining if the construction costs are reasonable for new construction with no resales is what the cost approach is for. I understand how futile the cost approach can be, I'm just sayin.

WE don't speculate on the resale market, we research the resale market - every house at one point in time was new construction and then it becomes a resale so all you need are similar resales in size, view, upgrades etc -of course the idea resale sold comps or listings are in newer or more recently built communities and the best are in the subject community if possible.

 

[JeffSH]

In just about every new construction appraisal I’ve ever done, The client has required MLS re-sales of homes. If I were to use three other new construction homes provided by a builder, they wouldn’t have been approved. Which makes sense, if the bank has to take that home over, it’s not new construction anymore. That and I haven’t met a builder yet that I would trust any farther than I could throw them.

If I have multiple new construction comps from 2 different builders within the same new development, the resale market is irrelevant. It's always nice to see new construction hold its value, but I'm not even going to look at resales if I have that much new construction data.

Resale info is only relevant when new construction comps are limited. I'm not valuing a resale.

I understand the other side, I'm just arguing to post content. In a perfect assignment, you'd have a one-year old resale that holds value. Sometimes it's not that simple and the best resale comp you have is 5+ years old.

 

[Terrel L. Shields]

It's always nice to see new construction hold its value, but I'm not even going to look at resales if I have that much new construction data.

Long time since I haven't seen a new construction that didn't hold its value... perhaps in 2009 when new house sales were almost non-existent then a resale might still be lower... or more likely, a short sale/REO

 

[JeffSH]

Long time since I haven't seen a new construction that didn't hold its value... perhaps in 2009 when new house sales were almost non-existent then a resale might still be lower... or more likely, a short sale/REO

The new home market was booming so much in West Omaha ~2018 that 3 year old homes were going for the same price as brand new. It was nuts. Possibly the only time I've ever submitted an appraisal without new construction adjustments. I had a bunch of paired sales.

Edit: I left Omaha just before the pandemic. I always wonder what happened because appreciation was already 5%-10% YOY depending on the neighborhood.