New Home Builder Upgrade Adjustments

[residentialguy]

But that is not realistic. An agent is not responsible for instructing a client to "over pay", however an appraiser is responsible for over valuing a property. Most agents believe their own hype. If challenged, they will never admit, even to themselves the buyer "over paid". They just say things like the market was so hot, or the buyer fell in love with the house, etc..

I've seen agents that actually say that to their buyers. "Bid high and when the appraisal comes in, we can renegotiate it down"
And yes, they do are required to protect their clients. You were an agent...Is FL immune from NAR ethics?
Article 1 When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors® pledge themselves to protect and promote the interests of their client.

 

[norapp]

I've said it before and I will say it again. A new home is like a new car. Depreciates the moment you take possession. Watch those builder upgrades. Many will not mean anything in a few years.

 

[Terrel L. Shields]

I've seen agents that actually say that to their buyers. "Bid high and when the appraisal comes in, we can renegotiate it down"
And yes, they do are required to protect their clients.

The favored nations clause is a CYA clause which shifts liability away...but who does it shift blame to?

 

[residentialguy]

I've said it before and I will say it again. A new home is like a new car. Depreciates the moment you take possession. Watch those builder upgrades. Many will not mean anything in a few years.

Good advice for buyers, however that doesn't take away the fact the New has value when appraising. New home, as you pointed out, is a different market than those of used home buyers.

 

[J Grant]

New has value , and builder upgrades have value. How much value is the question...norapp did not say new home is a "different market" than used home buyers.

The MV definition references what a property should bring on the open market ( not the "new home market" ). What does it say at top of appraisal as the purpose ...does it say the purpose is to provide a market value opinion of subject with reasonable exposure on the "new home market ", or does it say the purpose is to provide a MV opinion of subject with reasonable exposure on the open market. ( the MV definition is the latter ) .

Yes builder new home sales are great comps as new home buyers typically might choose another new home, thus we should use new home sales comps. But the reason for using recently built resales in addition to the new home comps, is that the resale activity indicate the contributory value of upgrades and lot premiums, rather than just dollar for dollar cost-on the theory that cost does not always equal value. If we don't add them as comps, at least analyze them .

Especially when we opine at the SC price , using resale comps in addition to new home sales comps strengthens the report.

 

[residentialguy]

The MV definition references what a property should bring on the open market ( not the "new home market" ). What does it say at top of appraisal as the purpose ...does it say the purpose is to provide a market value opinion of subject with reasonable exposure on the "new home market ", or does it say the purpose is to provide a MV opinion of subject with reasonable exposure on the open market. ( the MV definition is the latter ) .

What about "Market" in "Market Value" don't you understand? They are not the same market. The comps should appeal to the same market participants that would also consider purchasing the subject property. C2-C6 sales are different buyers and sellers with completely different marketing.

 

[J Grant]

residentialguy, post: 2842964, What about "Market" in "Market Value" don't you understand? They are not the same market. The comps should appeal to the same market participants that would also consider purchasing the subject property. C2-C6 sales are different buyers and sellers with completely different marketing.


DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market

The definition of MV is ONE open market- The buyers and sellers can be different for a type of property, that is normal. However you reference completely different marketing , and THAT is the very reason to analyze resale activity along with the new home sales.

It's not just that builders have different marketing, such as glitzy furnished models, onsite sales office and design centers, national level websites etc, but is is the different TERMS a builder sells under that help create their price...by terms it is more than concessions. Terms are a builder price typically is base model with upgrades, lot premiums, pool etc as itemized costs added up as line item charges for a total, cash resister style. We can see builder home contracts at funny prices like $629,755.21 , because the price was literally rung up like checking out of a store.

Are homes on the open market from non builders priced that way? No, they are not. Therefore how can you tell what price such a home would get if its upgrades or lot premiums /other were not line item charged ( and reflective of that one specific buyer's preferences?.)

How would an appraiser to see what contributory value of builder upgrades, lot premiums etc is on the open market, without also analyzing resales ...hopefully of similar recently built homes.? Tell me how it could be done..
Or do you apply dollar for dollar the same $ charges builder charged as the adjustments ?

we are supposed to use the most similar /comparable/competitive sales to subject, which are per buyer preference other new home sale comps. So yes, we do use them and often give them a lot of weight. But Fannie allows for appraiser to also use less comparable properties if needed for SOW ( that is not the exact exact verbiage but it is in there )

As appraisers, our choice to include additional comps needed for credible results and explain why, or analyze them without using them on grid in narrative[/QUOTE]

 

[residentialguy]

But Fannie allows for appraiser to also use less comparable properties if needed for SOW

I don't disagree. If you need to expand, you expand. Just remember that new home buyers are a different market. Yes they are on the open market, as are market of high rise condo buyers.

How would an appraiser to see what contributory value of builder upgrades, lot premiums etc is on the open market, without also analyzing resales ...hopefully of similar recently built homes.? Tell me how it could be done.

Is this a trick question? Just as I would seeing the contributory value of a Upgraded kitchen in a C3 ranches...look at other C3 ranches with those upgrades. Same with C1...you look at other C1 sales with those upgrades and see how it affected the price

 

[Gweedo]

How many appraisers when they show up to the builders sales office , wether its for the subject or a competing comps have the sales agent ask-- "What value do you need?" They seem to always cherry pick those sales with the highest value which in turn have the highest upgrades. I don't think using an older comp that has higher upgrades to justify an increase in base price on a comp with less upgrades is correct. -- Isn't that is what it appears that what the builder sales office is trying to get appraiser to do? By not addressing the individual model pricing, differential upgrade and differential incentive amounts that is what appraisers are doing?

 

[Terrel L. Shields]

y not addressing the individual model pricing, differential upgrade and differential incentive amounts that is what appraisers are doing?

"Upgrades" to me are meaningless noise. Do you think anyone is going to recognize those "upgrades" when the property sells 5 years later? That's the issue. Is the "upgrade" adding value? Or creating a future functional obsolescence no one recognizes? The "value" we opine will be something along the line of impact of the "average" upgrades of the solds. Those with large or superfluous upgrades will sell "low" (in the mind of the original buyer) and those nearer the base prices will sell "high" because the average sold home has some upgrades...overpriced upgrades perhaps, but upgrades.

(Sample I saw in the recent past. "Fireplace" upgrade from a zero clearance cheapie to a brick gas log fireplace - added upgrade about $6,000. But the base already had the cheapie $4,000 fireplace in place. So they paid $10,000 extra for a very modest fireplace.) In either case, I don't adjust for fireplaces, I may consider it as a factor is judging the quality, but adjustments for fireplaces are dart board material.