Unfinished home, "Subject To" completion.

[G-man]

I'm writing up an appraisal for a purchase of an as yet to be completed home that is to be "subject to" completion. The home itself is about 80% complete. Within the body of the report, am I to include an "As Is" value of the property? I know I have read that this is required, although I can't find it in a quick search. Am I correct on this?
Thanks.

 

[CANative]

Probably not unless the client has requested this. Ask them (unless just asking them will trigger them to say "might as well.) lol

 

[Tim The Enchanter]

I would only if it's in the original scope of work / engagement letter.
It's extra work.

 

[George Hatch]

An "as is" value is required if the deal is a federally related transaction. That usually means if the lender is going to keep the loan in their portfolio. If they're originating to sell to Fannie or Freddie or FHA then it's not an FRT.

If this is a construction loan then it's virtually guaranteed to be an FRT. If it's a conventional residential loan program then it most likely isn't an FRT.

I would not rely solely on the lender to make the request because the people ordering the appraisals don't always understand those criteria. It's your job to play 20 questions with those assignments to figure out what's going on.

 

[andrew81]

[url]http://www.FDIC.gov/news/news/financial/2010/fil10082a.pdf[/URL]

Be based upon the definition of market value set forth in the appraisal regulation. Each appraisal must contain an estimate of market value, as defined by the Agencies’ appraisal regulations. The definition of market value assumes that the price is not affected by undue stimulus, which would allow the value of the real property to be increased by favorable financing or seller concessions. Value opinions such as “going concern value,” “value in use,” or a special value to a specific property user may not be used as market value for federally related transactions. An appraisal may contain separate opinions of such values so long as they are clearly identified and disclosed.
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.25 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.26 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.

 

[Terrel L. Shields]

FRT is above $250,000...

 

[andrew81]

The appraisal/evaluation threshold is for transactions with a value of $250,000, if below $250,000 the lender may use an evaluation.

If the lender uses an appraisal, the appraisal must be prepared following minimum appraisal standards.

edit//

even if the lender were to use an evaluation the evaluation content states:

Provide an estimate of the property’s market value in its actual physical condition,
use and zoning designation as of the effective date of the evaluation (that is, the date
that the analysis was completed), with any limiting conditions.

there goes the idea of a subject to value

 

[incognito]

Somewhere in USPAP there is (or used to be) an AO that deals with this. My USPAP is at work, so I can't look it up...

 

[andrew81]

advisory opinion 17

Can either a current or a prospective value opinion for a property subject to completion of proposed
9 improvements be provided in compliance with the Uniform Standards of Professional Appraisal Practice
10 (USPAP)?

though does not necessarily address the exact issue, it does provide guidance on how to report/develop current and a prospective value opinions.

and in part by FAQs located on F-63, 64, 65, and 66

 

[sputnam]

Probably not unless the client has requested this. Ask them (unless just asking them will trigger them to say "might as well.) lol

As already stated, it is required if it's a federally chartered bank. Don't make it a big deal. You can acceptably base the as-is value on the hypothetical condition that there are no improvements on the effective date...or...you can estimate the percent complete and apply that to your subject to value. The lender and regulators will be fine with either approach. Just make sure you are clear about what you do.