Two Values Including Prospective Opinion

[Zoe]

That's incorrect. The appraiser often makes the call regarding when the construction will be complete. You definitely need to make sure that you and the Client are clear about what is needed. That is part of what the Letter of Engagement is for. So that later, when you've done the work and delivered the report, they can't say... 'No. What were really wanted was...'. Or, if they do, you can make them pay for your time.

Yeah, it can be done and I agree with the appraiser and client working that out. It is not normal in the lending the world. For a private client, I can see it happening.

 

[Zoe]

This is a little more complicated with proposed construction because we don't know what construction cost will be in the future. You could still do and "as if completed" today and project a future MV opinion "as if completed" as of effective date of inspection now.

You are forming H&B use analysis as of inspection date. (effective date) on MV appraisal. MV definition.

I don't know what H&B use will be in the future.

I want the client to have an appraisal worth something.

 

[J Grant]

That's incorrect. The appraiser often makes the call regarding when the construction will be complete. You definitely need to make sure that you and the Client are clear about what is needed. That is part of what the Letter of Engagement is for. So that later, when you've done the work and delivered the report, they can't say... 'No. What were really wanted was...'. Or, if they do, you can make them pay for your time.

Ids about "making a call when the construction will be complete", but the value opinion is either the current effective date or a specified future/prospective value date (asked for by the client - A future value date assignment is outside the norm for res lender work as far as I am aware.

Used to see it in Relocation appraisals.

 

[Tom D]

I have never done a rehab/new construction loan subject to any requested future date, just the date of the inspection. If construction is going to go over 6 months, the lender just orders a new updated appraisal. And i have done a ton of those appraisals for others.
I have personally, for myself, done new construction & rehab loans. I can tell that many of you have not done those loans, some bizzaro lending comments posted here.

 

[Zoe]

I think OP may have got confused and client don't need a prospective value opinion. Just a gut feeling.

 

[Zoe]

I would wager a penny all they need is "as is" and "as if completed" as of date of inspection.

 

[Terrel L. Shields]

" the Interagency Appraisal and Evaluation Guidelines recommend including both the current market value "as is" and the prospective market value upon completion or stabilization, if applicable, in real estate appraisals for regulated institutions. "

 

[ZZGAMAZZ]

The label (EA, HC) isn't the thing. Only (some) appraisers understand what those labels actually mean. Nobody else knows or cares about the labels. What's important is what you (SR1) do and how you (SR2)disclose the additional assumptions and limitations of what you did. And then provide the (SR2) warning to the reader that if some aspect of the SR1 scenario occurs differently it would have an effect on your opinions and conclusions.

The effective date isn't always the date of inspection. Appraisers do retrospective on a regular basis for certain situations like date of death or prior to the earthquake or whatnot. Same can occur when the question is what the property will be worth when a proposed or potential something is expected to occur by some date in the future.
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For an existing use/condition the Prospective includes some variables

1. What that future date is (for an existing use/condition the client will probably pick that date for whatever reason they have for asking for a future value)​

2. What the pricing trends will do between now and that future date​

3. How those pricing trends will change the current value​

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If this is a single family, the appraiser's only way to do this is to take the current value and project it into the future based on recent and current trends or whatever the appraiser thinks it will be. Usually and in lieu of info to the contrary the appraiser can extrapolate the recent past/present trends into the future. But that isn't the only possibility.
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Then when there's a "subject to" that changes the subject property attributes you still have all of the same variables that apply when there is no anticipated change to the subject attributes, but are adding a couple more variables:

4. That the work will be completed as of a specific date (which the appraiser may be the one forecasting when the project is complete)​

5. That the work will be completed per plans and specs because if it isn't then that will affect the appraiser's opinions and conclusions​

One wrinkle they never mention is that you basically cannot get to what this altered subject will be worth in the future without starting with what it would be worth today. That's why I always add a 3rd valuation scenario "subject to/current date" whether they ask for it or not.

"As Is / Current Date"​

"Subject To Completion / Current Date"​

"Subject To Completion / Future Date"​

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In that manner I am conveying the effect of the changes to the property (which is knowable as of today) separately from the effect on value of the future market trends (which is unknowable as of today).

I also build 3 projections of that future value - based on different assumptions for the pricing trends during the interim - before reconciling to one of them as my own conclusion. That way the reader can get an idea of what else might happen if the scenario I concluded to doesn't work out.



Obviously, the above isn't the only way to get to a prospective value for a construction related project, but it is one way to do it. YMMV.

Improvements in this assignment include a small, average condition SFR with a detached garage.
--As Repaired plans include renovating & enlarging the DU, and a garage-to-ADU conversion [eliminating current garage requirement]
--Urban density, mixed-use neighborhood in LA City Crenshaw District is interesting with very few ADU's although an estimated 20% of the residential listings describe the garage-to-ADU "Potential" that presumably [somehow] would affect the estimated, future, prospective value.

Well IMO that sure explains the need for a current value if my interpretation of your explanation above is relatively accurate:
Current Value AS IS is the basis of the Current Value AS REPAIRED that modified by the anticipated date of completion, as affected by projected market influences between now and then

 

[ZZGAMAZZ]

" the Interagency Appraisal and Evaluation Guidelines recommend including both the current market value "as is" and the prospective market value upon completion or stabilization, if applicable, in real estate appraisals for regulated institutions. "

Is it a coincidence that the FDIC webpage includes an article about ROV's as FNMAE recently announced changes in ROV protocol?

 

[ZZGAMAZZ]

Question Z, is this for Fannie

To be perfectly honest, I don't know, nor have I ever known about that in any appraisal I ever completed. Would that factor be addressed in the Engagement contract?