USPAP Requirements On New Consruction Comparables

[c4mortgage]

I am wondering if anyone can comment on what USPAP requirements/guidelines are for utilizing comparable sales on new construction/new subdivisions.

FNMA's Selling Guides states one comparables must be from inside the subject subdivision, one must be from outside the subject subdivision, and a third comparable can be from inside or outside the subject subdivision.

Does this align with USPAP Guidelines?

Any additional information would be appreciated.

 

[The Warrior Monk]

There is no USPAP requirement regarding the matter you are inquiring about. FNMA requirements are specific requirements for specific types of appraisals, and are included in the report as assignment conditions.

I am not completely familiar with FNMA requirements since I rarely do those types of assignments. But generally, this issue deals with relatively new subdivisions with no resale activity. If the subdivision is well established, and a resale market has been established, then this is not required.

 

[CANative]

David, the OP stated this was new construction in a new subdivision. The Fannie Mae requirement he cited is probably relevant. USPAP does not have this specific requirement but not following assignment conditions IS a "violation" of USPAP - Scope of Work Rule.

 

[CANative]

Additional Requirements for New (or Recently Converted) Condos, Subdivisions, or PUDS
If the subject property is located in a new (or recently converted) condo, subdivision, or PUD, then it must be compared to other properties in the neighborhood as well as to properties within the subject subdivision or project. This comparison should help demonstrate market acceptance of new developments and the properties within them. The appraiser must select one comparable sale from the subject subdivision or project and one comparable sale from outside the subject subdivision or project. The third comparable sale can be from inside or outside of the subject subdivision or project, provided it is a good indicator of value for the subject property. Two of the sales must be verifiable from reliable data sources, other than the builder. Sales or resales from within the subject subdivision or project are preferable to sales from outside the subdivision or project provided the developer or builder of the subject property is not involved in the transactions.

To meet the requirement that the appraiser utilize one comparable sale from inside the subject subdivision or project, the appraiser may need to rely solely on the builder of the property he or she is appraising, as this data may not yet be available through typical data sources (for example, public records or multiple listing services). In this scenario, it is acceptable for the appraiser to verify the transaction of the comparable sale by viewing a copy of the HUD-1 Settlement Statement from the builder’s file.

When providing builder sales from competing projects that are not presently available through traditional data sources, the appraiser must verify the sale from the applicable HUD-1 and indicate on the appraisal report that the HUD-1 was the document utilized for verification. Additionally, the appraisal must include discussion and analysis of sales concessions and upgrades for the subject property relative to concessions and upgrades for each builder sale. (For special appraisal considerations regarding condo projects, see B4-1.4-03, Condo Appraisal Requirements, and B4-2, Project Standards.)

 

[Restrain]

One other thing about the comparables (and this is a source of argument among appraisers). The comparable must be actively marketed, etc. this means that a sale given to you by the builder rep along with a closing statement is not acceptable, as this is a 'build' as opposed to a home marketed openly, etc. conversely, a new builder home marketed through MLS, with a reasonable DOM, essentially complete as of the transaction date, is a viable comp. Fannie has rejected appraisals because the sales data could not be verified through an independent third party source.

 

[CANative]

A sign on the highway directing home shoppers to the developments sales office is "openly marketed." MLS is not the only way to expose a property to the market.

 

[Restrain]

CAN, just be aware that Fannie has rejected appraisals for just this issue. A home that is not started until the buyer walks in, does the contract with all the changes, etc, is a custom build. You cannot verify the terms, all the upgrades, modifications, etc, any credits, etc. all you have is model type, contract date, close date, sale price, and hopefully, terms.

 

[Meandering]

A sign on the highway directing home shoppers to the developments sales office is "openly marketed." MLS is not the only way to expose a property to the market.

True,
But that causes an issue with Fannie, that the sale can not be a combination of a sale of land along with a contract to build.

Restrain is correct, marketed, but also already built.

.

 

[CANative]

CAN, just be aware that Fannie has rejected appraisals for just this issue. A home that is not started until the buyer walks in, does the contract with all the changes, etc, is a custom build. You cannot verify the terms, all the upgrades, modifications, etc, any credits, etc. all you have is model type, contract date, close date, sale price, and hopefully, terms.

Perhaps it's different in "non-disclosure states." Or perhaps it's the fault of appraisers not doing the work that needs to be done to be GSE compliant.