The time frame for under construction appraisal.

[Richard Carlsen]

Andrew

I do about 20 new constructions a year and I don't think that I've ever put in an estimated completion date. I've had some extend out to about a year and a half from start. One large log house took nearly 2 years to complete. Those typically required a new appraisal upon completion due to the time frame.

However, the opinion of value was not as of the date of completion but the effective date of the report when I visited the site. If you give the value as of the estimated date of completion, be it 3 months in advance or 1 year, you are appraising into the future which is a big no-no.

The lending decision normally done on a new construction is the construction loan which carries the property through the building phase until there is a C of O and a Cert of Completion from the appraiser saying that it was done IAW the plans and specs and the value contained in the report as of the effective date was good. It really does not get into present value of the property at completion. At the time of completion, the loan is rolled into an end mortgage which may or may not require a new appraisal based on the lenders requirements, time of construction, etc.

My point is, we do not value the subject based on the estimated date of completion. That would be an "as is". We do a hypothetical based on the plans and specs "subject to" with the effective date of the appraisal report, usually being the date of the visit to the site.

 

[Michigander]

Part of Standard Rule 1-4

(h)
When appraising proposed improvements,12 an appraiser must examine and have available for future examination:
 
 
(i)
plans, specifications, or other documentation sufficient to identify the scope and character of the proposed improvements;
 
 
(ii)
evidence indicating the probable time of completion of the proposed improvements; and
 
 
(iii)
reasonably clear and appropriate evidence supporting development costs, anticipated earnings, occupancy projections, and the anticipated competition at the time of completion.
 
 
 
Comment: Development of a value opinion for a subject property with proposed improvements as of a current date involves the use of the hypothetical condition that the described improvements have been completed as of the date of value when, in fact, they have not.

The evidence required to be examined and maintained may include such items as contractors estimates relating to cost and the time required to complete construction, market and feasibility studies, operating cost data, and the history of recently completed similar developments. The appraisal may require a complete feasibility analysis.

I am quite sure this is what Moh is referring to.

 

[Richard Carlsen]

The requirement is for the lender/builder to advise how long it will take. It is not a requirement that the appraiser convey that complettion date in the report. These are things that he must have in his work file to demonstrate that he has considered all relevant items.

And I trust Moh had them.

What I was commenting on and questioning was the efficacy of using the completion date as the effective date of the appraisal since he stated that if construction extended beyond that date, it could change the value. The date of the value of a new construction is not in the future when the work is completed. It is the date of the visit to the site when the HC is imposed on the report. The certs done upon completion only confirm that the value as of the effective date stated in the report was correct or not correct based upon the plans and specs. It has nothing to do with the value as of the date of completion. That is a new assignment.

 

[Carnivore]

Serena,

I agree, I just did not recall exactly where that requirement existed(I dont memorize USPAP). I think Moh was trying tell the client that the appraisal numbers may be incorrect if they exceed the time period.

This is a bit of fortune telling, that really should not be in USPAP. How or why its there I dont have a clue.

 

[Richard Carlsen]

Andrew

How could the number be incorrect if the report is as of the effective date of the visit to the site? Granted the value of the property could change with the passage of time but that is not a consideration of the assignment. That is getting into future speculative value, a place where we really don't want to go in an appraisal.

Let me suggest a hypothetical time line to try and make my point:

1.02.2006 The assignment for a new construction appraisal comes in with full plans and specs.

1.05.2006 Appraiser visits the proposed site

1.07.2006 The appraisal is written, "subject to" completion per plans and specs with an effective date of the report of 1.05.2006 (the date the site was visited)

3.15.2006 Lender calls and asks for a Certificate of Completion for the assignment as the house is finished and a C of O has been issued.

3.16.2006 Appraiser visits the property, confirms that the house is finished IAW plans and specs and issues a Cert of Completion.

Based on the above time line and action, the HC value of the subject is as of 1.05.2006. The value referred to in the Certificate of Completion is the value of the report dated 1.07.2006 with an effective date of 1.05.2006.

Nothing that the appraiser does, says, calculates or certifies has anything to do with the value of the property as of that date (3.16.2006) other than the issuance of the Cert of Completion. This document refers back to the basic appraisal which has an effective date of 1.05.2006. To do anything other regarding value as of the date of completion would require a new assignment. If you are projecting a value based upon the completion date in your basic report, you are appraising in the future.

 

[Carnivore]

not just the value conclusion...

Richard,

You will get no argument from me about the effective date value conclusion.
Although I think they do expect a certain shelf life to rely on the appraisal conclusions.

My issue is with the anticipatory requirements of competition. That indeed is fortune telling and has no place in USPAP as a requirement.

 

[Brad Ellis]

Moh,

Using the contractor's estimate for completion appears to be fine; it is one of the sources cited right in the comment for the standard.

However, I do not know where you are going with the value changing if improvements are not completed on time. This was "subject to" and ought to have been based upon the hypothetical condition that improvments were already completed per plans/specs.

What you appear to be talking about is a prospecgtive value opinion.

Lines 60-76 in AO 17 apply directly insofar as ASB advice is concerned. Did you use that guidance?

Brad

 

[moh malekpour]

Richard,
Appraisal for under construction is based on HC of completion as if it has been completed. It cannot be an open-ended date for completion; it has to be a reasonable date and should be answered by the builder at the time of appraisal. It is a HC of the builder's commitment to fulfill it in order to get that appraisal acceptable. The builder's commitment package is not only the completion of construction but a reasonable time frame of that completion. At the time of inspection, the time frame and the configuration of structure were established and I mentioned them in the report. I know, 5 weeks was short but it didn’t come from me, it was theirs. I am just trying to find out what is the reasonable time frame but I don’t think open-ended time is the answer.
Any HC needs to be based on evidence of completion. Open-ended time frame is not an evidence of completion. If you have any reason that it is not going to be completed, you cannot make a HC of completion. In order to believe a construction would be completed, it has to have a beginning and ending dates. An open-end date means vague date that it may not ever be completed and it makes the HC invalid.
You may ask what can you do if they never complete it. The answer is that I cannot do anything. I got paid for my work and they got no valid appraisal. It is their problem, not mine. But if I don't have a date of completion, they can have a vague HC from me and extend it to any time they want and that is not the reason for HC appraisal.

 

[Charlotte Dixon]

Richard,

I am pretty sure we are supposed to give an estimated time for completion if the subject construction was in progress at the time of inspection.

I actually never heard of that, giving an estimated time for completion. Never been asked, never read it anywhere, never heard of it until now. Is this for FHA, maybe?

 

[CANative]

Moh, read the standard rule (1-4 h ii)

It's germane to the development of the appraisal. I would think it is important to the cost approach. There would be a difference in costs if the job was going to take 3 years instead of 3 months.

You've already completed the development part of this assignment.