Upgrades and change orders paid outside closing

[eld2310]

My subject was a pre-sale for new construction in a development of similar homes. The sale price on the March, 2014 SA is $709,950 with a $5k builder concession which is standard for the development.

Over the course of construction the buyer has requested various upgrades and changes totaling $27,283. The $5k concession has been credited toward that so the remaining total is $22,283. The sale price on the PSA has not changed because the buyer has already paid the builder directly for the changes and upgrades (I have copies of the checks).

So really, the amount changing hands from buyer to seller is $732,233. Is that my sale price? I'm sure the lender is going to freak if there's anything other than $709,950 in the contract section of the appraisal. How would you approach this?

(I'm not asking about the value - that will be decided by the comps. Not every change is going to add value - a lot of it is just personal taste-related.)

 

[Lee Lansford]

I'd report the contract of sale price as the contract price . Further, I would disclose the outside the contract additions.

Following, I would move on.

 

[glenn walker]

Sounds like the sales price is still the same. If the buyer paid up and above the contract price in cash for the upgrades. You don't add on buyer paid options that are being paid for in cash and not being financed. In my opinion unless the contract price was amended and raised to reflect the price difference you just leave things alone and let the comparables determine your final opinion of value.

 

[bnmappraisal]

I would have to agree with the above 2 posts. The $709,950 is the contract price, everything above that is "outside" the contract. Whether the outside stuff adds value is, as you say, up to the comps!

I think it boils down to the contract price being $709,950...and based on SCA (maybe some consideration to the CA as this is new construction)... your OMV is $zzz,zzz

 

[Howard Klahr]

Regardless of the timing of payment, the change orders represent a modification to the original purchase contract and should have written agreements reflecting these changes. You need copies of these change orders as to not possess this information is to not have a copy of the entire contract in effect as of the valuation date. (I assume that the valuation date is post construction as opposed to pre-construction based on your question).

Just as you have described the transaction here all you need to do is describe the details in your report.

 

[hastalavista]

Regardless of the timing of payment, the change orders represent a modification to the original purchase contract and should have written agreements reflecting these changes. You need copies of these change orders as to not possess this information is to not have a copy of the entire contract in effect as of the valuation date. (I assume that the valuation date is post construction as opposed to pre-construction based on your question).

Just as you have described the transaction here all you need to do is describe the details in your report.

This sounds logical to me.

 

[Peter LeQuire]

Regardless of the timing of payment, the change orders represent a modification to the original purchase contract and should have written agreements reflecting these changes. You need copies of these change orders as to not possess this information is to not have a copy of the entire contract in effect as of the valuation date. (I assume that the valuation date is post construction as opposed to pre-construction based on your question).

Just as you have described the transaction here all you need to do is describe the details in your report.

What Denis said. The money the buyer pays out and the money the builder is paid make up the price, regardless when the money changes hands. The price is $737,233, with the $5,000 concession (which, I suppose, makes the net price $732,233). The value of the property is the value of the property as you develop it: some buyer preference items are just not supported by market information).

I would think that the buyer's prepaying of the preference items/upgrades would be credited at closing, up to the amount that would be supported by your appraisal. (If you establish that the value of the upgrades is $20,000, for example, the loan amount would be predicated on $729,950 not $732,233 (assuming the $5,000 concession doesn't affect the LTV requirement).

 

[reelrebel]

My subject was a pre-sale for new construction in a development of similar homes. The sale price on the March, 2014 SA is $709,950 with a $5k builder concession which is standard for the development.

Over the course of construction the buyer has requested various upgrades and changes totaling $27,283. The $5k concession has been credited toward that so the remaining total is $22,283. The sale price on the PSA has not changed because the buyer has already paid the builder directly for the changes and upgrades (I have copies of the checks).

So really, the amount changing hands from buyer to seller is $732,233. Is that my sale price? I'm sure the lender is going to freak if there's anything other than $709,950 in the contract section of the appraisal. How would you approach this?

(I'm not asking about the value - that will be decided by the comps. Not every change is going to add value - a lot of it is just personal taste-related.)

This is why I hate new construction; fees for this should be double a standard fee. I've never understood why the fee is same as your typical appraisal fee for a purchase or refi. That all said, I concur with the advice; also, you may want to look at SR 2-2 (a) (ix) which refers to new construction and/or repairs as of the date of value. May need a statement.

 

[eld2310]

I spoke to the builder's onsite agent and she gave me all the information on other sales in the plat - most of the buyers have been paying for upgrades outside of closing like my people. A few have rolled it into the sale prices so they can finance it.

She said that she feels like the amount of money paid should be what's reflected in the final MLS as the sales price, but she's been told not to do that by the boss. So we've got people paying up to $760k for a house that the MLS and county records will just show as $709,950. Real nice for comparable purposes. I also wonder how the Department of Revenue would feel about the fact that excise tax is being paid on less than the full consideration.

 

[reelrebel]

I spoke to the builder's onsite agent and she gave me all the information on other sales in the plat - most of the buyers have been paying for upgrades outside of closing like my people. A few have rolled it into the sale prices so they can finance it.

She said that she feels like the amount of money paid should be what's reflected in the final MLS as the sales price, but she's been told not to do that by the boss. So we've got people paying up to $760k for a house that the MLS and county records will just show as $709,950. Real nice for comparable purposes. I also wonder how the Department of Revenue would feel about the fact that excise tax is being paid on less than the full consideration.

Like I said, this is why I hate new construction. I bet your thinking your not getting nearly enough for the work put in. I bet the next one you get will have a higher fee or you can simply decline it, which is what I do. m2: