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Synthetic Sale - Where is reference?

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mike32716

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I recall that a sale which conists of a lot purchase followed by a construction contract is not a legitimate sale. This would be where the owner buys the lot and then separately contracts to have a house built. I believe the term was "synthetic sale" in that the "sale price" is the cost of the lot plus the construction costs.

However, I can not find reference to it in USPAP or FNMA guidelines. Does anyone remember seeing this? I am just looking for the reference to this type of sale. I know I saw it somewhere! m2:
 

Mr Rex

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The term is assemblage. See USPAP 1-4 e. Synthetic Sale is not a USPAP or Fannie term, your post is the first time I have ever heard the 2 words together, but I can see where it may come from.
 

mike32716

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The term is assemblage. See USPAP 1-4 e. Synthetic Sale is not a USPAP or Fannie term, your post is the first time I have ever heard the 2 words together, but I can see where it may come from.


I seem to recall the answer being more specific than that. The reference was with respect to using a lot sale plus construction costs as a comparable sale which, as I recall, was not permitted. USPAP,FNMA, I can't remember where I saw it, but it was pretty specific. Getting old!
 

mike32716

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Also, I looked through about 40 of the USPAP question and answers and did not find it. However, I think there are about 200 questions now. If anyone has access to same or can give me a link please let me know.
 

William K

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Fannie Mae sellers guide
XI, 406.02 Selection of Comparables

"However, in no instance may the appraiser create comparable sales by combining vacant land sales with the contract purchase price of a home"
 

Jo Ann Meyer Stratton

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The term is "created sale", it used to be called land/home package.

USPAP Standards Rule 1-4 e

An appraiser must refrain from valuing the whole solely by adding together the individual values of the various estates or component parts.
 

Elliott

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Oregon
Synthetic sale is a stock / investment term.
 

Brad Ellis

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Mike,

Not assemblage. Assemblage is the combining of two or more lots into one larger one and, if there is a resulting increase in value from doing that, it is called plottage.

You can see some of the reasoning on this if you search the archives of the NC board. Their reasoning is good- i.e. that the site complete with the home has never been offered on the market as a single entity; hence the prohibition on land/home packages (and that is the most common term used for that type of deal).

Brad
 

mike32716

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Thanks All, The FNMA reference is what I needed to show a lender who is being beaten over the head by a builder. I understood the concepts but could not find the exact reference. I do remember it from all those USPAP classes! See, I wasn't sleeping through the lecture. :)
 

Stephen J. Vertin MAI

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Illinois
An appraiser must refrain from valuing the whole solely by adding together the individual values of the various estates or component parts.

I always believed this to refer to partial interest appraisals. At least it is always brought up in partial interest classes as such.

Their reasoning is good- i.e. that the site complete with the home has never been offered on the market as a single entity; hence the prohibition on land/home packages (and that is the most common term used for that type of deal).

Let me clarify, I have never used a land sale and construction price combine as a sale but it seems to me in strong markets it may not be a bad indication of value. I have used newly developed projects of similar properties to develop the Cost Approach. So why not sales comparison?

NY's logic seems flawed. The land was offered on the market? Further most end users get at least three construction bids if not more. If this is not the case builders have a market incentive to keep cost down right? If the market were hot it does not seem, on surface, to be a bad selection of data. It seems to me a much more potent argument would be, while not such a bad indicator when markets are strong it is a terrible indication when things are down. Thereby, all and all, not accurate under all market conditions. But the same argument could be made for the cost approach.

Most likely NY should have said "we believe appraisers are to stupid to tell difference between strong and weak market conditions so we have ruled out using the data all together". We believe the data has a strong tendency to be misused by some. Isn't that what fannie and the rest do in making appraisal guide lines? :)
 
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