USPAP, New home comps

[Tim Hicks (Texas)]

It is my understanding that utilizing new home comps can or can not be used in an appraisal depending on the "exposed to the open market" criteria. I am presenting this here because I constantly see appraisers utilizing "custom build" comps in their reports for other custom build appraisals. It seems that these sales are not "exposed to the open market" therefore are not suitable for use in the appraisal report. I prefer to use any and all re-sales in the area because they best reflect the market. Some times I see appraisers combining the lot cost and construction for one dollar price when they occured up to a year apart. It is my understanding that you can use new home comps (like Centex, Choice, Pulte, KB) only if they have models set up and offer variations of these models to any and all buyers. Custom home build jobs are private transactions and should no be used? What say yee?

 

[Jo Ann Meyer Stratton]

I agree with you Tim. Created sales or land/home packages are not arm's lenth transactions whether they are custom site built homes or manufactured/modular home situations. The total package has not been exposed to the market, available for sale to any buyer. There fore they do not meet the open market/arms length criteria. In a tract subdivision where there are "x" number of models available by the same builder, they are exposed to the market with the buyer choosing the model and options, and any one can buy that home or have one exactly like it next door. And the developer can sell it to someone else if the first buyer falls through. None of those things can happen with a created sale or land/home package.

 

[Pamela Crowley (Florida)]

I do not use combined land purchase/custom building contract after the land purchase properties as comps. They are not qualified comps and there are always items in the construction that the HO handled on his own that are missed.

 

[Joe Birrell (NY)]

Here we go again with the definition of market value. There is another thread of postings which suggested that the definition of market value is the problem. I recently had the following problem - owner of property made up flyer and put in in neighbors mailboxes, within a day a friend of a friend offered full asking price of $510,000. The problem is that there are no sales in the marketplace that even come close to this number (high end for area is $450,000). What's the problem the lender asks - the problem is that the SUBJECT WAS NOT EXPOSED ON THE OPEN MARKET and is therefore NOT A MARKET TRANSACTION and the parties to the transaction are NOT WELL INFORMED. Give me another definition of market value to work with and I'll see what I can do, but it still won't be worth $510,000. Builders, real estate agents, etc. act as if they have never heard of "market value".

 

[JonB]

Fannie Mar Guideline Factory Built Housing Section 304 Page 1126

"The appraiser must not 'create' comparable sales by combining vacant land sales with the contract purchase price of the home (although he or she may use this type of information as additional supporting documentation)."

I am assuming that this would also be their philosophy regarding a custom stick built home.

I say try and find spec housing from developers, more and more mobile home dealers are doing it too. Then you get the best of both worlds. Brand new home, exposed to the market as a singular entity.

 

[Dave Smith]

To quote JonB:

"The appraiser must not 'create' comparable sales by combining vacant land sales with the contract purchase price of the home (although he or she may use this type of information as additional supporting documentation)."

That quote is also in the January 29, 2002 Fannie Mae Announcement 02-02 which has had a number of posts this year on the forum.

 

[bobburnitt]

If I understood you correctly, you said "take the lot sale that occurred a while back and then add the house cost to it" That's assemblage where I went to school, illegal, can't do it.

BB in Texas

 

[Tim Hicks (Texas)]

I was expecting more responses from the built-up sale advocates. I know too many appraisers that use the mortgage company/appraisal files comps on new custom home appraisals. Hmmm. Must be just the reports I get to see.

 

[Anonymous]

It seems that these sales are not "exposed to the open market" therefore are not suitable for use in the appraisal report. I prefer to use any and all re-sales in the area because they best reflect the market.

You are part right and part wrong. New home sales can be used as comparables, provided those new homes were constructed and offered onthe open market, such as a spec type home. Custom contracts can not be used.

In the range of custom homes, I would attempt to use both. Perhaps you can find similar quality in spec new homes, and some resale homes of comparable quality,etc.

 

[Don Clark]

8)

Bill:

North Carolina has a very specific policy dealing with this. I will admit that they usually talk about such matters as this in referrence to manufactured homes but it also works the same way for any home where the land was purchased seperately from the improvements then later assembled into house and lot for financing, etc. I also agree that proper exposure in the market is necessary. however, no indication is given as to amount of time and exposure. For example, right now we are in a sellers market and it is hot. In my market there is a shortgage of inventory in most areas. A property can sell before the sign goes up. Also, we and I have seen a huge increase in FSBO sales. i hour may be adequate exposure. Exposed to 2 people may constitute a market. BTW, USPAP does not speak to these issues except in the broadest of terms.

Don