New Home Builder Upgrade Adjustments

[Gweedo]

I would like to get some feedback on a Scenario. Subject is a spec home which has been listed for awhile on the MLS. MLS pricing on the home has increased in the last several months-. Subject is a unique model which is no longer offered in the community- no model match sales.-- Model S (3,000 sf) Purchase price $350,000- Base price $325,000. Options $35,000- (incentives towards options/base price-$10,000).

Comp 1-Model M- (2750 sf) sold price $340,000. - Base price $310,000- Options $45,000. (incentives towards options/base price $15,000). GLA Differential -150 sqft.
Comp #2 Model T (+) (3,010 sf) sold price $385,000- Base price $355,000, options $50,000. (incentives toward purchase price/upgrades-$20,000).
Comp #3 Model T (3,010sf). Sold price price $360,000. Base Price $335,000. Options $40,000 (Incentives toward purchase price/upgrades-$15,000)

Due to the GLA similarities of the subject and comps would you still try to make a GLA adjustment or adjust for model difference instead under a different line item and leave the GLA ? Would you adjust 1-1 for model difference ? How about upgrade differentials? 1-1 Difference? A percentage ? How do you justify a percentage -- brand new with no depreciation - buyers paid 1-1 for differences.

Builder states that since the Model T and Model T+ are basically the same square footage that it shouldn't be a problem with value. That the other appraiser use the Model T+ to get value for the Model T comps all the time.


The plus options adds- extended patios multi side glass doors at bedroom and greatroom .

Would love some feedback from those that do a lot of new home appraisals.

 

[J Grant]

I would like to get some feedback on a Scenario. Subject is a spec home which has been listed for awhile on the MLS. MLS pricing on the home has increased in the last several months-. Subject is a unique model which is no longer offered in the community- no model match sales.-- Model S (3,000 sf) Purchase price $350,000- Base price $325,000. Options $35,000- (incentives towards options/base price-$10,000).

Comp 1-Model M- (2750 sf) sold price $340,000. - Base price $310,000- Options $45,000. (incentives towards options/base price $15,000). GLA Differential -150 sqft.
Comp #2 Model T (+) (3,010 sf) sold price $385,000- Base price $355,000, options $50,000. (incentives toward purchase price/upgrades-$20,000).
Comp #3 Model T (3,010sf). Sold price price $360,000. Base Price $335,000. Options $40,000 (Incentives toward purchase price/upgrades-$15,000)

Due to the GLA similarities of the subject and comps would you still try to make a GLA adjustment or adjust for model difference instead under a different line item and leave the GLA ? Would you adjust 1-1 for model difference ? How about upgrade differentials? 1-1 Difference? A percentage ? How do you justify a percentage -- brand new with no depreciation - buyers paid 1-1 for differences.

Builder states that since the Model T and Model T+ are basically the same square footage that it shouldn't be a problem with value. That the other appraiser use the Model T+ to get value for the Model T comps all the time.


The plus options adds- extended patios multi side glass doors at bedroom and greatroom .

Would love some feedback from those that do a lot of new home appraisals.

I adjust for sf living area ( not model type). For upgrades if the upgrades are in a similar ballpark I see them as the market might see them as equivalent, such as an upgrade package of 50k vs 40k....but if there is a larger difference in upgrades such as 40k vs 20k, the one comp would be part upgrades and the other upgraded with an adjustment. I like to include at least one and often two recently built resales if possible as sold comps and or as a listing, because that shows what open market values as upgrades rather than just what builder is charging as a cost for upgrades. Are you planning to deduct for incentives as a form of concession? Adjust for patios etc see what comes out.

 

[Gweedo]

Incentives all ready were figured as a deduction in sales price- They just differ in amounts from comp to comp. -- So when you have a significant value difference in base price, in this case between subject and comp #2 and #3 with nearly identical GLA how do you justify the price difference ? And even comp #1. GLA adjustment doesn't account for the model differences?

 

[J Grant]

Incentives all ready were figured as a deduction in sales price- They just differ in amounts from comp to comp. -- So when you have a significant value difference in base price, in this case between subject and comp #2 and #3 with nearly identical GLA how do you justify the price difference ? And even comp #1. GLA adjustment doesn't account for the model differences?

That's a tough one and you just have to slog along...put tthem on grid, make the other adjustments, add another comp or 2 etc. The real difference in base model price is for comp 2 and comp 3, because the comp 1 base model price reflects it's smaller sf.

So what is the design/appeal difference between comp 1 and comp 2 of similar size? And what is teh difference between either of them to your subject?

Does the more expensive model have higher ceilings or a better layout, or a larger garage.. what makes it more expensive?. If you can't figure out the difference, maybe a well informed buyer can't either?

Usually there would be a design/appeal difference, or some reason why 2 models of such similar size for why one is priced 20k higher than the other.

 

[J Grant]

The question in new home appraising is whether to apply $ for $ as an adjustment what builder is charging for upgrades, lot premiums or model differences...it is very easy , ( and sometimes appropriate) to use $ for $ builder charge. But that is just regurgitation of builder prices, it is not developing the contributory value..for market value which is what should the property bring on the open market.....that is why I always spend time analyzing the recently built resales...if a similar home goes on MLS 2 years old and MLS said it had 50k in builder upgrades, what was the sale price? (or is it going to contract if a listing) we can adjust C2 to C 1 but seeing what resales are doing with similar upgrades/features shows if the builder charges are reasonable reflections o value or just BS that disappear later....like a 40k lot premium that at best recoups 10k....it's experience I do a lot of them and each new assignment is a challenge. Usually when the value is there it comes out naturally with all the comps and adjustments applied.

 

[KYLECODY]

I would like to get some feedback on a Scenario. Subject is a spec home which has been listed for awhile on the MLS. MLS pricing on the home has increased in the last several months-. Subject is a unique model which is no longer offered in the community- no model match sales.-- Model S (3,000 sf) Purchase price $350,000- Base price $325,000. Options $35,000- (incentives towards options/base price-$10,000).

Comp 1-Model M- (2750 sf) sold price $340,000. - Base price $310,000- Options $45,000. (incentives towards options/base price $15,000). GLA Differential -150 sqft.
Comp #2 Model T (+) (3,010 sf) sold price $385,000- Base price $355,000, options $50,000. (incentives toward purchase price/upgrades-$20,000).
Comp #3 Model T (3,010sf). Sold price price $360,000. Base Price $335,000. Options $40,000 (Incentives toward purchase price/upgrades-$15,000)

Due to the GLA similarities of the subject and comps would you still try to make a GLA adjustment or adjust for model difference instead under a different line item and leave the GLA ? Would you adjust 1-1 for model difference ? How about upgrade differentials? 1-1 Difference? A percentage ? How do you justify a percentage -- brand new with no depreciation - buyers paid 1-1 for differences.

Builder states that since the Model T and Model T+ are basically the same square footage that it shouldn't be a problem with value. That the other appraiser use the Model T+ to get value for the Model T comps all the time.


The plus options adds- extended patios multi side glass doors at bedroom and greatroom .

Would love some feedback from those that do a lot of new home appraisals.

Please don't listen to what a builders rep tells you about how others "make value". Most tract subdivisions here have homes with the same appeal. Slight size differences in models are accounted for with GLA adjustments as long as they are both one level or both two level. The differences in upgrades is kind of the rub and pita about new construction.

Like JG if they are close overall then I consider them similarly upgraded with no adjustments. If there are large difference in upgrades than you need to extract it from the market just like you would backing a park or being sold with an RV garage, etc. Don't take their 10k lot premium, for example, and add 10k to the ones without it. The builders price sheets are ridiculous and those that are making differences on a dollar for dollar adjustment are usually looking for the easy way out. Once you get past a certain point with upgrades there is really no more contributory value. Watch these homes when they hit the resale market a few years later. Whether someone had 50k in upgrades or 20k (in the entry level range) with the same model they will sell very similar and often with no differences at all other than market variance. Its supposed to be how the market reacts to differences in upgrades. Up to you to figure that out.

 

[Addie]

I adjust for sf living area ( not model type). For upgrades if the upgrades are in a similar ballpark I see them as the market might see them

Trying to learn different appraisers approaches to the same problem. Cut me some slack. I’m in training.

Why are you using the phrase “I see them” in this post? And then might? Shouldn’t your “I” be Replaced with “market” and “might” with supportable data in your workfile?

 

[J Grant]

Trying to learn different appraisers approaches to the same problem. Cut me some slack. I’m in training.

Why are you using the phrase “I see them” in this post? And then might? Shouldn’t your “I” be Replaced with “market” and “might” with supportable data in your workfile?

I phrased it to communicate on the bulletin board. I would not phrase it that way in an appraisal report. The message I was trying to communicate is that when analyzing contributory value of upgrades I try to look at them the way the market would see them, as a finished package, rather than the piecemeal cost items added up by the builder for the builder upgrade $ charge.

The data always goes in the work file - I always pull lots of comps not all of them make it to the grid..

 

[J Grant]

Please don't listen to what a builders rep tells you about how others "make value". Most tract subdivisions here have homes with the same appeal. Slight size differences in models are accounted for with GLA adjustments as long as they are both one level or both two level. The differences in upgrades is kind of the rub and pita about new construction.

Like JG if they are close overall then I consider them similarly upgraded with no adjustments. If there are large difference in upgrades than you need to extract it from the market just like you would backing a park or being sold with an RV garage, etc. Don't take their 10k lot premium, for example, and add 10k to the ones without it. The builders price sheets are ridiculous and those that are making differences on a dollar for dollar adjustment are usually looking for the easy way out. Once you get past a certain point with upgrades there is really no more contributory value. Watch these homes when they hit the resale market a few years later. Whether someone had 50k in upgrades or 20k (in the entry level range) with the same model they will sell very similar and often with no differences at all other than market variance. Its supposed to be how the market reacts to differences in upgrades. Up to you to figure that out.

Good post, just wanted to add (since some of the literal minded say "but we are not appraising a future value!"), today's effective date resales are what new homes built a few years ago hitting the market command in upgrades, lot premiums etc. Best ( if we can find them ) are resales in the subject community, next best choice is similar communities. If a 3 year old house hits the market and RE listing says it had 50k in builder upgrades, is the sale price 50k higher than non upgraded houses, or 60k higher or 30k higher? Look at other resales sold and listings because we don't want to rely on one sale, but market feedback is there how open market is responding to builder upgrades, lot premium charges or if one model home vs another has an appeal factor.

That can help inform appraiser on whether the contributory value of a builder charge might be $ for $ equivalent, less than or more than . Some appraisers don't bother and just regurgitate the builder comp prices and line item charges $ for $. That kind of "appraisal" will come out to the sale contract price, how could it not? We do consider of course new home appeal and C 1....if we do arrive at MV at SC price, (always nice, right?), having used resales strengthens the report . Makes it kind of bulletproof ...those appraisers regurgitating builder prices get reports accepted but the their reports are weak if challenged years out in a review or buy back, years later is when the challenge (if there is one ) usually happens.

 

[NC Appraising]

I adjust for sf living area ( not model type). ut.

Check this builder out: https://www.eastwoodhomes.com/find-your-home/neighborhood/glendalough

I partially agree with you. As noted by the link, not all models are the same price per square foot. Some models cost more to build. Some has two story great rooms and a overall larger foot print, but are similar in GLA, but cost more to build.

Therefore, some appraisers may only adjust for the sqft, and that is it. You would also have to make a design/style adjustment OR a quality adjustment.