Out of Pocket Upgrades on New construction

[NJ Valuator]

In a new construction appraisal, if you verify that the buyer paid for permanent builder upgrades out of pocket and those upgrade costs were not included in the recorded deed price, how do you handle the comparable sale?

Do you:

• Adjust the comparable's sale price to reflect the verified upgrade cost?
• Make a separate line-item adjustment?
• Leave the recorded sale price unchanged and simply discuss it in the analysis?
• Handle it another way?

Assume the upgrade costs have been verified with the builder and represent permanent real property improvements.

 

[Mike Ault]

In a new construction appraisal, if you verify that the buyer paid for permanent builder upgrades out of pocket and those upgrade costs were not included in the recorded deed price, how do you handle the comparable sale?

Do you:

• Adjust the comparable's sale price to reflect the verified upgrade cost?
• Make a separate line-item adjustment?
• Leave the recorded sale price unchanged and simply discuss it in the analysis?
• Handle it another way?

My preference would be to make a line item adjustment if it's warranted and not play around with the sales price under some sort of "assemblage" theory. Sounds like builder is trying to defraud his silent partner or the buyer is trying to defraud the tax assessor.

 

[Tom D]

In the old days, upgrades were always paid in cash. Gee, what did builder do with cash. One big one went to jail, irs got him with unhappy employee.
I just had a line saying upgrades, assuming they all had some. Getting into the minutia of upgrade details can be a bear trap. And were the upgrades really not an over do.

 

[sputnam]

In a new construction appraisal, if you verify that the buyer paid for permanent builder upgrades out of pocket and those upgrade costs were not included in the recorded deed price, how do you handle the comparable sale?

Do you:

• Adjust the comparable's sale price to reflect the verified upgrade cost?
• Make a separate line-item adjustment?
• Leave the recorded sale price unchanged and simply discuss it in the analysis?
• Handle it another way?

Assume the upgrade costs have been verified with the builder and represent permanent real property improvements.

You don't adjust the sales price. The price is what it is. You might make an adjustment although, the sale included only the improvements the builder provided in exchange for payment. If you make an adjustment, make sure you think it through carefully... since they were not part of the sales price. Discussion in the analysis is probably best. Alternatively, find another comparable.

 

[jay trotta]

IMO-upgrades are a personal choice and only worth the money the buyer wishes to spend. (IE) buyer wants a Gold Faucet & Handles for the tub in the bath; is there a value for that ?
Do any comparables offer the same item? Does the market recognize those improvements?

 

[Mark K]

My preference would be to make a line item adjustment if it's warranted and not play around with the sales price under some sort of "assemblage" theory. Sounds like builder is trying to defraud his silent partner or the buyer is trying to defraud the tax assessor.

I have seen it happen many times in the past. No fraud, it’s just that the buyer had the terms of the loan already established and changed his mind during construction and wanted upgrades or modifications. They chose to pay for them out-of-pocket rather than go back and redo the loan.

I agree with the others and that I would not report a different sales price than what is in the MLS or recorded documents. I would discuss it only if you have some written verification of the changes.

 

[Mike Ault]

I have seen it happen many times in the past. No fraud, it’s just that the buyer had the terms of the loan already established and changed his mind during construction and wanted upgrades or modifications. They chose to pay for them out-of-pocket rather than go back and redo the loan.

I agree with the others and that I would not report a different sales price than what is in the MLS or recorded documents. I would discuss it only if you have some written verification of the changes.

Non-disclosure states are the happy hunting grounds for fraud. Anytime I see a sales price which doesn't reflect reality, that's the first place I go to.