New Home Builder Upgrade Adjustments

[Gweedo]

Okay, then are you saying that its okay to use a comp with an increased value of $6000 of a upgraded item shouldn't be adjusted for and used to justify and increase in base price for a subject property?

 

[Gweedo]

In fact by not adjusting for comparable upgrades, whether they are higher or lower you are giving them value , if those upgrades are different from the subject?

 

[residentialguy]

Do you think anyone is going to recognize those "upgrades" when the property sells 5 years later? That's the issue.

That would defiantly be an issue if we were appraising a value with an effective date being 5 years into the future.

 

[Gweedo]

If we are required on new home to complete the following " the appraisal must include discussion and analysis of sales concessions and upgrades for the subject property relative to concessions and upgrades for each builder sale" - how does an appraiser justify not making adjustments for upgrades if we are adjusting for the differences against the subject? Because are we not giving those upgrades value from competing comps , by not adjusting for them?

Seriously, I am confused here. If my peers are not adjusting for builder upgrades- I want to understand the reasoning. Especially if we are given a list of builder upgrades, upgrade total amount , how often do we try to extract a value for something by completing paired sales, regression, extraction or some other method- and now we are given a value supported by closed sales or pending sales and don't adjust for is since the future value of these items may be different?


Has anyone seen this article?


http://appraisalnewsonline.typepad.com/appraisal_news_for_real_e/2008/07/adventures-in-r.html

 

[J Grant]

Terrel Do you think anyone is going to recognize those "upgrades" when the property sells 5 years later? That's the issue.

Res Guy That would defiantly be an issue if we were appraising a value with an effective date being 5 years into the future.

On current effective date we can use a sale built 5 years ago or 3 years ago that sold recently and thus see what builder upgrades command in value NOW on homes on homes built as new a few years back. )
That is the reason we add recently built resales to the new home builder sales...to get a of read on contributory value of upgrades relative to $ for $ cost charges from builder...adjust for them $ for $, lower or higher today)

 

[KYLECODY]

If we are required on new home to complete the following " the appraisal must include discussion and analysis of sales concessions and upgrades for the subject property relative to concessions and upgrades for each builder sale" - how does an appraiser justify not making adjustments for upgrades if we are adjusting for the differences against the subject? Because are we not giving those upgrades value from competing comps , by not adjusting for them?

Seriously, I am confused here. If my peers are not adjusting for builder upgrades- I want to understand the reasoning. Especially if we are given a list of builder upgrades, upgrade total amount , how often do we try to extract a value for something by completing paired sales, regression, extraction or some other method- and now we are given a value supported by closed sales or pending sales and don't adjust for is since the future value of these items may be different?


Has anyone seen this article?


http://appraisalnewsonline.typepad.com/appraisal_news_for_real_e/2008/07/adventures-in-r.html

No one is saying don't adjust for them or explain them. People are just saying its not as black and white as adding things on a dollar for dollar basis. Dollar for dollar is more relevant in the cost approach. If the subject and comparables all have say between 20-30k in upgrades that would most likely be a wash. If the subject and one comp have 20-30k in upgrades and the only other comparable available from that builder has 65k in upgrades try and figure out what that means. Looking at resales in the same subdivision what is the difference between a home that is nice with granite, stainless steel, 18x18 ceramic tile versus the same house with all of that plus plantation shutters, crown molding, tankless water heater, commercial grade appliances, oversized patio, etc. Would it be a set dollar amount or more likely a percentage that is fairly similar across different price points? It wouldn't be what was paid for it. Would be substantially less, thats the markets reaction to it.

You had asked about going into the sales office and what they give you for comps. I always ask for 2 new sales with the most similar amount spent in upgrades if possible and a pending. If all they are doing is looking at the sales price to "make it work" but their comps have significantly more spent in upgrades than I ask what else they have. Then I get a resale from the area that is similar. I generally give a resale a bump under condition or age as buyers are willing to pay more for a new, never lived in home versus a resale. This typically puts that comparable in the same range as the new builds. If it doesn't I may have to dig a little deeper or see whats going on.


New construction can be a crap shoot. If you stay in business long enough wait until the market turns again and the new construction builders are getting say $250k for a home whereas the same home 3 years old, now a resale is down to 150k..I had a few very nasty interactions from a couple sales reps during the last decline, was enough to make me decline new construction for quite some time.

 

[Gweedo]

So, if out goal is to make a comparable property as similar in value to the subject property- its better to make a hypothetical adjustment on the estimated future value of the depricated upgrades vs the recent actual buyer paid cost of the upgrades of a closed sale ?

 

[J Grant]

So, if out goal is to make a comparable property as similar in value to the subject property- its better to make a hypothetical adjustment on the estimated future value of the depricated upgrades vs the recent actual buyer paid cost of the upgrades of a closed sale ?

No it is not future value ! When people make comments on this board like Terrell did "imagine this house 5 years out" they are talking in general about what might happen with upgrades, not instructing to appraise for a future value.

It's about contributory value of upgrades vs cost builder charged...they might end up being the same, but looking at current eff date resales of recently built homes lets appraisers see how market reacts to upgrades when they are part of the house as a whole instead of a builder charging for them line by line. Have you seen new home builder contracts?

 

[Gweedo]

So in the grid if we adjust to make the comps similar to the subject and don't adjust for the upgrades , value is still being given to those upgrades since the final sales price of the comps and subject reflect those upgrades, correct?

So unless you go line by line with the subject upgrades in comparison with the comps. and extract a market difference for each item, where do you obtain this data, how do you justify. that this data is better than the sales office data for the upgrade cost paid for by the new home buyer?

If making a contributory value , extracted through resales , of depreciated upgrades on resale homes and apply that adjustment to a new home, how is that adjustment better supported than 1-1 adjustment from the upgrade cost?

 

[J Grant]

So in the grid if we adjust to make the comps similar to the subject and don't adjust for the upgrades , value is still being given to those upgrades since the final sales price of the comps and subject reflect those upgrades, correct?

So unless you go line by line with the subject upgrades in comparison with the comps. and extract a market difference for each item, where do you obtain this data, how do you justify. that this data is better than the sales office data for the upgrade cost paid for by the new home buyer?

If making a contributory value , extracted through resales , of depreciated upgrades on resale homes and apply that adjustment to a new home, how is that adjustment better supported than 1-1 adjustment from the upgrade cost?

Every appraisal is different. The resale contributory value of depreciated upgrades can support making a 1-1 adjustment on new...but even when that happens I don't make literal $ for $ adjustments of what builder charged for each model.

If builder upgrades are $52,688 for #1 model A sale and #2 $59,470 for model A sale, I might just call those both "upgrades", but if compared to a model with limited upgrades such as #3 sale model A sale home $12,000 upgrades I might adjust $40,000 for upgrades between the #3 sale and # 1 and # 2. Or I might adjust #3 upward by $50,000. It would all depend on other amenities lot premiums etc, what similar upgraded recent resales sell for once adjusted for C 2 to C 1 (orC 3 to C 1 for a 5 year old resale)