USPAP, New home comps

[Austin]

This is typically what happens when the government tries to pass regulations to compensate for the lack of common sense on the part of some appraisers. There are times and conditions when it would be perfectly appropriate to use custom built or different type dwellings as comps and there are times when it is not appropriate. The trick is having enough appraiser savvy to know the difference. This is one of my peeves with USPAP and that is how do you write a regulation to cover a situation that is some times permissible and sometimes not permissible and requires a rational decision on the part of the appraiser to sort it out? In my mind these regulations are demeaning to appraisers because they imply that these people don’t have enough brains to know when or how to make a decision. The regulations also substitute regulation for reason, which will not work.
There was a post last week that some appraisal agency is in the process of developing a body of knowledge for the appraisal profession. I say it can’t be done and should not be done because in some type properties so called standard procedures will not work. You have to actually improvise a method. In my opinion, this kind of regulated cookbook appraising is going to be the death knell of residential appraising. For example, if the selection of comps, the method of adjustments, etc are all regulated, then when data becomes available there will be no purpose for the appraiser. What does the residential appraiser contribute in this framework? The answer is a $7/hr data gatherer and form filler-outer. When you give up or let some agency take over your decision-making and your power to make judgment calls, you are giving up the only thing you contribute to the appraisal process. Without that you are just a cog in a wheel.

 

[bobburnitt]

A custom built home is ***not*** a sale. Plain and simple.

BB in Texas

 

[Austin]

Bobb: First: All homes are custom built to some perceived market level of acceptance. To take your perspective is to make a sweeping assumption that a custom built home is some strange off the wall bird totally out of kilter with the market and denies the principle of substitution, which is the basis of appraising.
Second: Most homes in the market I work in are custom built. We don’t have large developer subdivision type developments here. Development takes place mostly when a farmer subdivides his land’s public road frontage into .5 to 1 acre lots and people buy the lots and build their homes. I would say 75% of development takes place in this fashion here. It just happens that they all build about the same general style dwelling. The typical dwelling is a 1,200 sf rancher with full basement, carport, and back deck all of average quality. They hire a builder to build the house so tell me what is the difference between a custom-built and a sale? If custom built is the same as spec built and re-sales set the price level, then what is the difference is using custom built and re-sale comps? I have appraised thousands of them and there is no difference
Third: To take your perspective you have to assume custom built means built in obsolescence of some form, either an over or under improvement. You are basically saying custom-built homes are not market standard until they are resold, which may or may not be true. If you are appraising a custom built home, how do you measure this built in obsolescence you are assuming exists? If the custom built is that different, on what basis are you supporting your perceived accrued obsolescence? The market decides whether or not it is true or not, not the appraiser. You are also assuming that all custom built homes are the product of creative financing, which may or may not be true. If you take that position that custom built is not a sale, then you are appraising one, I would like to see your measure of obsolescence and read your addendas.
Forth: If the market is mostly custom built homes, then where is the cost data coming from? How do you extract cost from the market?
In summary, sometimes custom built homes are the norm and to deny them is to deny the theory of substitution. Other times custom-built homes can be rare birds totally out of kilter to market standards. My point is that if an appraiser can demonstrate that custom built is the same standard as resales, then by what authority can some regulatory agency say they can’t be used? If the appraiser can support it, then who can deny it? You can’t have rules that apply some times but not all of the time nor can you have regulatory agencies telling appraisers how to appraise. That is why we have appraisers with judgment to know the difference. Or it seems to me.

 

[bobburnitt]

Not in Texas,

If a person buys or owns some land, and then contracts with a contractor to build a house, that is a 'custom' build.

If an appraiser uses that property as a sale, well, it ain't a sale. I have filed a complaint on an appraiser here in Texas just for that very reason.

I'll let you know how it turns out.

BB in Texas

 

[bobburnitt]

Austin,

Maybe I should elaborate a little further.

If a developer has a subdivision of vacant lots, and is selling proposed new constructions, in another words, the buyer comes in selects an available floor plan, and then purchases lot and all as one purchase, to me that is a sale. These proposed homes have been offered for sale, and have been exposed to the market, arms length, blah, blah blah, and blah.

BB in Texas

 

[Austin]

Bobb: If it is one way in Texas and another way in Virginia, then where is the uniformity in the USPAP? You just gave two definitions of custom built and said you turned some one in that didn't agree with you. Maybe the person you turned in had a different view based on his/her market experience. That is reason enough in my view to do away with any agency imposed rule about what is a comp and what is not. That is arbitrary and capricious and thus not enforceable in law. You can’t have a law or rule that you can’t define and enforce it. That is my point. If you can use custom built comps some of the time, then you have to be able to use them all of the time. Show me where it is written defining and describing the difference between custom built and spec built. How do you appraise custom built homes? What do you use for comps when you do? If custom-built homes are significantly different, then how do you measure the difference? Does the difference add or subtract from price?

 

[bobburnitt]

Austin,

When a person already owns a piece of land, he calls up a contractor and says build me a house. The contractor bids the job, the owner accepts, the house is built, the owner pays for the house, THAT IS NOT A SALE.

You could use the data in a market cost analysis, BUT IT IS NOT A SALE.

If an appraiser comes along and makes up a sales price for the above, and calls it a sale, he / she should be disciplined.

Can't do it. Show me where USPAP says you can do that.

BB in Texas

 

[Austin]

Bobb: When you do the cost approach, you appraise the site and add the contributory value of the improvements. Under your definition, if the land is already owned, then you can’t do the cost approach on that property. If the land is part of the deal, then you can use the cost approach. Why? I don’t see the difference. If you can support the site value, improvement cost, depreciation, and developer’s profit, then why does the fact that the land did not transfer create a crime? If you use this property in a marketing grid, adjust for physical differences, and it is in line with the other two comps, then what is the beef? How long does the property owner have to own the land before it is not considered a sale? Where is that written? Again, totally arbitrary and capricious in my view.
PS: The only problem I can see that could support your view is that the land to value ratio could be different which could create obsolescence in the improvements. But again, I say that is a job for appraisal judgment and to have a fixed rule precluding the use of the custom job on a lot already owned as a comp sale is a flagrant attempt on the part of regulators to protect the appraisers from his/her own ineptness. If the appraiser is not qualified to make that distinction, then why did the regulators certify them in the first place? Why certify appraisers and then pass laws and rules that have no apparent purpose other than to protect appraisers from making mistakes in areas in which they are not qualified? Why not just say: Custom built properties in which the owner already owned the land constitutes a complex assignment requiring the services of a general certified appraiser.

 

[Terrel L. Shields]

Agree with that in my market. Many builders here buy a few lots or subdivide 10-20 lots. They may build only 8-15 homes a year, even less. a for sale sign goes up as soon as they break ground. Sometimes even realtors offer discounted commissions. The buyer may not get to choose the floor plan, but many buy in time to pick carpet colors, trim, appliances, etc.

 

[bobburnitt]

Terrell,

You are correct when you say that a develper buys lots and sells proposed new constructions. You must not have read my previous post.

Of course you assemble the site value and the cost in the COST APPROACH. That is the only way you could do it.

In the sales market analysis, you are supposed to use SALES. (I know you can use listings, pendings, etc.)

The difference is this: If a developer owns a lot, builds a house, or PROPOSES to build a house, this entity is EXPOSED TO THE MARKET, and purchased as ONE PRODUCT, it is a sale.

If the site, and the dwelling are purchased SEPARATELY by the buyer and added together, that is a form of assemblage. Don't do it.

BB in Texas