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New Construction......

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Ghost Rider

Senior Member
Joined
Apr 27, 2003
Professional Status
Banking/Mortgage Industry
State
Connecticut
Did a new construction home in a PUD - they are in the second phase of the complex, and I think I'm stuck doing the first sale in the new phase - the first phase sold @ between $220 and $270K.......the Contract Sales Price for the one I am doing......$297K and change.....Same builder, same quality, even the same model homes - just located a little bit further up the street. I picked the three most recent sales, 2 of which were model matches for the subject, and had it come in @ $269K.....very strong appraisal, just did not meet sales price - not my problem......got a 52 page FAX from the realtor through the mortgage companty of an "appraisal" another appraiser did within the complex......(how she got a copy of it, I don't know or care) but all the comps are in an adjacent town......I can deal with going out of town for a comp, and maybe for 2 or 3 comps depending on the location, BUT, not when I have very good sales within a subdivision......oh, and did I mention that the town I'm in, the highest sale I have ever seen in town is like $500K, and the town that he pulled comps from has MUCH higher values, a lot of property in excess of 2 million dollars......

SO much for a nice relaxing office day on Friday.....
 

hal380

Senior Member
Joined
Apr 26, 2003
Professional Status
Certified General Appraiser
State
Connecticut
Hi Mike;

The only thing I think you could possibly do is to check for pending sales, and what the contract price is. I understand that there will be a confidentiality issue here on the part of the realtor, but if pending sale would support your subject's sale price my be the only think to hang your hat on. All this only if you intuitively feel the better position of your subject warrants the increase in price.

Please!, nobody ask me what part of USPAP I have pulled this appraisal logic from

I guess in a rising market the buyers will have to come to the closing table with some more money in thier pockets.

Regards Hal
 

Travis McGee

Senior Member
Joined
Sep 18, 2004
In new construction, it is common to have price increases in the new phases. I rearely use time adjustments, but in this case they might be legitimately applied to the comps in phase one. Yopu'd ned to see pending contracts for comps in your subject phase. It sould help to have a listing or resale in phase one, and a resale nearby outside subdivsion in price range. Good luck.
 

KD247

Senior Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
In cases like this, I like to take a step back and look at the big picture. We're trying to form an opinion of value based on sound logic and the best data available.

So, we're trying to predict what the market would do in response to a particular property. What could be a better piece of evidence than a current contract for the property that we're appraising? Unless, there's something unusual about the deal, the current contract is placed at the top of my stack of data.

But, to maintain its position at the top of the data pile, the contract must pass a series of tests to make sure it's a typical arm's-length transaction. Here are some of the questions I ask:

Is the contract significantly different than other offers received?

Was the property marketed normally and presented to other buyers?

Is there any other relationship between the buyer and seller?

Does the buyer have some unusual financing requirements that has limited their choice of properties?

Does the buyer have any other unusual motivation to purchase this particular property?

Is any personal property included?

Are any significant unusual financing or sales concessions included?

The most important test I apply is based on the principle of substitution. Putting myself in the shoes of a buyer, I take a look at every other currently available competing property. (Pending sales are not currently available.) If there is a similar property that's available, it's asking price sets the absolute upper limit of value for the subject.

If the current contract passes all the tests (particularly if there are other buyers interested at a similar price with similar terms) and if there are no other properties available for less, then the current contract is strongly considered in my opinion of value. What reasonable justification could I have to ignore it?

This analysis could almost be applied by a computer, but appraisals are done by human beings so that a bit of common sense and intuition can be thrown into the analysis. A contract could pass all those tests, with no competing listings, and it still could be an atypical deal. But, most contracts represent typical buyers and sellers behaving in a typical manner.

No matter how wacky the market gets, our job is to gather data, analyze, and report... not to try and control values by either facilitating or killing deals. And our techniques should never be so rigid that we lose sight of our goal, to predict what the market would do in response to a property.
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
Jo Ann's point is where I would start.

Check the DOM for the early phase sales. If that phase completed fast with under market average for days on the market, the developer may have under priced for the market and is making a correction on the second phase. If so, you may have to do a date of sale adjustment or go to a similar, competing development for suitable comps since the early phase may be below market levels.
 

Richard J. Glesser

Junior Member
Joined
May 16, 2002
Professional Status
Certified General Appraiser
State
Michigan
All comments prior are good advice. Another check would be if there are any sites remaining in Phase I, would the identical home to which you refer be built for the upper or lower figure. If its the lower figure then any change of value is a locational one being in the new phase vs the 1st phase. If the cost is the upper figure, then the change of value is due to date of sale and inflation, or as my other Northern Michigan colleague already stated, an under-priced first phase. Either way, some form of market support must substantiate the adjustment.

Having done a good appraisal, you can also stick to your guns and let them have the other appraiser do a new appraisal for their loan. Better she lose her license than you losing yours. :usa:
 

Linda M Lynch

Junior Member
Joined
Dec 12, 2002
Professional Status
Licensed Appraiser
State
Wisconsin
I've been doing a lot of work recently in a development that is now in its 3rd phase. One thing I've noticed is that the first phase was close to a well traveled road and was built nicely but with average materials and ammenities. The next phase was further back with more greenspace and the materials used were of higher quality, even though the style of homes stayed much the same. The 3rd phase backs up to state park land, the homes have a lot more brick, and the interior materials are considerably better than phases 1 & 2. So even though, on the surface, it is the same subdivision with the same type of houses, there really IS a difference. Sometimes that is hard to really quanitfy when writing reports for underwriters 1000 miles away.
 

Ben Vukicevich SRA

Senior Member
Joined
Feb 9, 2002
Professional Status
Certified General Appraiser
State
New Jersey
MH,

You're assuming that builders know market value and sell at market value... :D :D

If you're dealing with a national or regional builder, the division heads really don't care about market value. They care about getting their end of the year bonuses from the main corporate office. Some I work for have no clue about market value. They just take the cost of the dwelling plus the land, add the required corporate profit/margin figure and then price the units. And sell they do, just to make their division unit quota/goal for the year..to keep their jobs, and of course, to get the aforementioned year end bonus...and trips to the Caribbean. :D :D I also like the regional builders who have made their quotas for the year and tell buyers that their homes won't be ready until January of the next calendar year..I drive by them in December and they're complete...but the division head won't close on them because: A) He's met the calendar year unit quota so holding closings off until the next year helps with next year's quota and B) if he closes it this year, the corporate office will up next year's unit quota on him since he's exceeded his yearly goal making his job to meet the goal harder next year.

So using sales that are model matches may not be the market value of the subject, if your builder is operating under that scenario.

Just a thought

Ben
 
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