School Me On "Builder Incentives"

[Doug DeMars]

The problem was the contract was not a settled deal.

Brilliant, huh? So it's not REALLY a contract...or is it the current version that they gave you? It's most likely a proprietary one too. No CAR RPA for this deal...no sir!

All this just confirms my prior opinion that tract homes are the work of the Devil.

And we are the minions of the lending industry. Such is life...

I just did a new home in a tract. Fairly straight forward...with a little twist. (FYI...570K home) The contract had a provision where there was a 20K credit allowance for NRCCs...if the buyers used the builder's preferred lender. BUT...only 50% of this allowance would be allowed if a different lender was selected.

Whatever...

 

[Mike Boyd]

I don't think a HC is appropriate in the case you describe; there is no legitimate valuation/analysis reason to use one.

Remember that the comps are adjusted if they have the credit; the subject's credits need to be analyzed and reported as part of the contract review process, but the subject's credits do not impact the comparables. The comparables' credits will impact how each one is adjusted in the sales grid and, as a consequence, will affect the opinion of market value. :new_smile-l:

I agree. Remember, you are appraising the real property that you are inspecting as it is on the day of inspection....unless your client wants a "subject to" conclusion. How the incentives will be used is not really your concern. Furthermore, if ALL the comps in this tract had the same incentive, would that not be TYPICAL resulting in no adjustment? REO comps are not appropriate but should be mentioned as to how many there are, what they sold for and how long they were on the market. If there are new listings of REO in that tract that should be of great concern to your client. Make sure you have an addendum page explaining how the new homes are being marketed including the option for incentives.

Seems to me that the "preferred lender" scheme is currently undergoing DRE scrutiney for not being fully disclosed as to what financial benefits accrue to the builder. Hopefully, that will soon be history.

 

[TJSum]

The problem was the contract was not a settled deal. How can you claim to understand the contract when there's a "TBD" in the included upgrades and the there's $15k of uncommitted funds floating around.

All this just confirms my prior opinion that tract homes are the work of the Devil.

I would not proceed with the assignment until you know for sure what you are appraising. Call your client and tell them the situation, that $15,000 in upgrades are still TBD. Once you have a firm contract, then you can proceed. The appraisal is "subject to", but in order for that to be possible, you need to know what it is subject to.

If the client tells you to proceed anyway, then I would treat the $15,000 as cash back and nothing else because no upgrades are itemized.