"Subject to" AND "as is" on new construction?

[Roseann Dufala]

I attended an appraisers conference the past couple days. One of the speakers who is the chief appraiser for a large, but local bank gave a talk on requirements. He stated that any property that is either proposed construction, new construction, or to be renovated MUST have both a "subject to" value AND an "as is" value. He said you cannot have a "subject to" value dated today on a property that does not exist or will exist at a point in the future. He said that this "rule" went into effect on Dec 11, 2010 and the reason it hasn't been enforced yet is that the lenders are still learning that this is a new requirement. (Although I wasn't clear on WHO the new requirement was issued by.)

I asked for clarity--as did many people there. I understand that a proposed construction would have an "as is" value of just the land value. AND that a "to be renovated" property would have an "as is" AND a "subject to" value. BUT, how does an appraiser put an "as is" value on a property that is already under construction? When I asked him this specific question, his answer was to say that depending on how far along it was, it would have value as a storage building only??????

Does anyone out here in appraisal world know about this "NEW" requirement by lenders? This chief appraiser said that lenders were not to accept anything that did not have BOTH values.

HELP---I have been doing appraisals on new construction. I will stop doing them if this is a new requirement because I do not have the vaguest idea on how I would do it.

Thank you ahead of time for any help.

 

[Lloyd Bonafide]

Does anyone out here in appraisal world know about this "NEW" requirement by lenders?

No. (Unless they specifically ask for the two different values in the order.)

 

[Michigan CG]

I would place a very large bet that this guy is completely wrong. The new construction is valued based on a Hypothetical Condition that the property is complete.

I don't buy it for a minute.

 

[BRCJR]

I think since about 2005 the Federal Reserve Board of Governors have required an "as is" value on proposed construction and developmental land (projected subdivisions).

The "banker" is not exactly correct or the individual in the appraisers’ conference did not fully understand.

From the Interagency Appraisal and Evaluation Guidelines


The estimate of market value should consider the real property’s actual physical condition, use, and zoning as of the effective date of the appraiser’s opinion of value. For a transaction financing construction or renovation of a building, an institution would generally request an appraiser to provide the property’s current market value in its “as is” condition, and, as applicable, its prospective market value upon completion and/or prospective market value upon stabilization. Prospective market value opinions should be based upon current and reasonably expected market conditions. When an appraisal includes prospective market value opinions, there should be a point of reference to the market conditions and time frame on which the appraiser based the analysis. An institution should understand the real property’s “as is” market value and should consider the prospective market value that corresponds to the credit decision and the phase of the project being funded, if applicable.

To read for yourself:

http://www.FDIC.gov/regulations/laws/rules/5000-4800.html#VIII

 

[AlwaysLearning]

I attended an appraisers conference the past couple days. One of the speakers who is the chief appraiser for a large, but local bank gave a talk on requirements. He stated that any property that is either proposed construction, new construction, or to be renovated MUST have both a "subject to" value AND an "as is" value. He said you cannot have a "subject to" value dated today on a property that does not exist or will exist at a point in the future. He said that this "rule" went into effect on Dec 11, 2010 and the reason it hasn't been enforced yet is that the lenders are still learning that this is a new requirement. (Although I wasn't clear on WHO the new requirement was issued by.)

I asked for clarity--as did many people there. I understand that a proposed construction would have an "as is" value of just the land value. AND that a "to be renovated" property would have an "as is" AND a "subject to" value. BUT, how does an appraiser put an "as is" value on a property that is already under construction? When I asked him this specific question, his answer was to say that depending on how far along it was, it would have value as a storage building only??????

Does anyone out here in appraisal world know about this "NEW" requirement by lenders? This chief appraiser said that lenders were not to accept anything that did not have BOTH values.

HELP---I have been doing appraisals on new construction. I will stop doing them if this is a new requirement because I do not have the vaguest idea on how I would do it.

Thank you ahead of time for any help.

These requirements are for federally related transactions and are not new.

If your client is a Federally Regulated Financial Institution (e.g. a portfolio lender) then yes, a proposed construction (or renovation) would require the property’s current market value in its “as is” condition and its prospective market value upon completion (“as completed”).

A prospective market value reflects an effective date that is subsequent to the date of the appraisal report and the value opinion is developed on the basis of an extraordinary assumption.

 

[The Warrior Monk]

These requirements are for federally related transactions and are not new.

You are correct.

 

[residentialguy]

Continue as you have been. They can alway send you a stip if they need it. :icon_mrgreen:

 

[residentialguy]

Of course, that is a greater SOW...which is a greater fee.

 

[The Warrior Monk]

Of course, that is a greater SOW...which is a greater fee.

Also correct.

 

[George Hatch]

I've had clients who have been requiring this for probably 15 years now. It's not new. I seldom charge extra for it unless either one or the other is a real hassle to find the data for.

If you're developing a value based on a hypothesis, how better to demonstrate the effect on value of that hypothesis than to provide the "as is"?