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Red Flag For This?

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robert hoagland

Freshman Member
Joined
Jan 27, 2003
Professional Status
Certified Residential Appraiser
State
Connecticut
Just finished doing an appraisal for a new construction. After thoroughly completing proper site and market analysis, my estimated sales comparison value is in line with other similar properties. However, my cost approach value is about $400,000 less. I have all of the necessary figures from the builder, plus my site value is right there( I believe), does this out of whack, or are values really that high?
 

Ghost Rider

Senior Member
Joined
Apr 27, 2003
Professional Status
Banking/Mortgage Industry
State
Connecticut
I see you are in CT - Not sure what part, but I'm guessing this is either down on the Gold coast, or Hartford County........There is probably a fair bit of builders profit in there, but I think you might be way off on the cost approach. In super high end construction (which you seem to be describing) costs get really high, really fast).......

If you submit a report with that, the UW will be calling you a lot trying to figure out why the cost approach is so far off - get in touch with the builder, get a copy of the contract, see the actual build costs - put them in the report as an attachment to support the cost approach........
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
The cost approach is directly dependent on 1)the land cost (which can be rediculous), and 2) how many bells and whistles go into a home. I've seen homes at $100 per foot or $1500 per foot. On a custom, you cannot rely on M&S. You really need to talk with the builder and get the cost breakout. You may be missing something.

Roger
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
I had one a couple years ago where everything I had, both costs and sales comparisons, were below this ones proposed sale price. I went to 2 other high end custom builders and briefly went over the plans & specs. Turned out the subject builder was ripping off the buyer with added entrepreneurial profit that was way above typical for this market. That's why people should get their plans & specs priced by at least 2 builders, especially in that high end.

Double check your figures, especially the land value and the costs of the specs. If your sales comparison approach is correct, something is missing in the cost approach. Go back and take a good look at you comps and make sure they really are comparable. I don't know where the problem is, but it is there somewhere. Let us know what you find out.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Robert....

Not to be unkind but what is your license level and experience level? Sounds to me like these might be complex appraisal assignments. Higher end new construction is never easy. My first thought is that there may be exceptional adjustments for location and the land cost might be off. I noticed that Greenich is 125% of the basic rate as a locational adjustment.
 

Tim The Enchanter

Elite Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
On a custom, you cannot rely on M&S. You really need to talk with the builder and get the cost breakout. You may be missing something.

Ditto that. Also don't forget the builders (hefty) profit. :D Overhead, Loan costs etc.

And yes, red flag. You haven't finished, no checkered flag yet. B)
 

Bill_FL

Senior Member
Joined
Aug 23, 2002
Professional Status
Certified General Appraiser
State
Florida
First, have you and/or your mentor done many homes at this level for new construction? So you have a copy of the construction contract(s). Those will be far more valuable that the M & S book for high end properties.

In areas I have worked in, as the quality level goes up, M & S becomes less and less accurate in terms of what builders are actually charging and getting paid to build custom homes. I have found a nice data base made up of construction contracts for similar homes that I have appraised make a much better const estimator than any of the services.
 
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