When appraising a new construction....

[Sid Holderly]

Even when the lender gets the que that the construction is complete from the builder or owner it is often not totally complete. It depends on what percentage the lender considers acceptable on what is not completed. Often, trim, flooring, landscaping, or a back-ordered component is not installed. I report what is not completed and sometimes have to go back several weeks later for an update or ??? they want for the underwriter. Communication with the builder and owner is the only source of when it is to the point required for the final and that is why it is often ordered too early and the appraiser makes a useless trip.

 

[ramrcdk]

Hi,

In learning your role there while Firing the AMC (Cheers to Your Company). Here are some proactive thoughts:

Regardless of the Stage of property construction...only ...maybe:
A GREAT time to Order IS:
When the Builder has finalized ALL Option & Change Orders AND the Buyer makes no-more-changes: Add-Ons.
WHY? Several Reasons but 1) IS:
Because this means there will be NO changes for paperwork, numbers, loan processing, & where the FINAL Purchase Price will be accurate on all Forms and through the ENTIRE process. Each time there is a Builder Change Order IT IS a unnecessary-headache for everyone IF ORDERED TOO SOON and this happens A LOT! At some Point in the Builder -Buyer process The Builder most often has a date where "there will be no changes to the property, else the buyer is "fined" so to speak."
For Appraisers: we must look at the market for the MV of EACH of the $Change Orders. Process RE-process the Report...each time. At Times: to find value for Example: extra pre-wiring. HARD TO DO, cabinet upgrades, etc. The More times FOR changes...the more THE FEE can change BECAUSE the lender will want the SP to be correct on our Appraisal Forms. This requires Corrections.

Keep it as SIMPLE as it can be by being PROACTIVE in communication with the Builder Rep'! They can AID you to ...streamlining the process.
Often, your closing dept. can AID you within a TIME frame of when they need ...to start each Properties closing docs. Most Often, Nothing will close without a proof of : CO.

EXCEPTION: Based UPON YOUR LENDING Closing Dept. PREFERANCES, perhaps they won't mind a FINAL Inspection for 100% completion of the property, to be completed by the Appraiser on most all properties (exception: FHA, etc.) just prior closing. In this scenario there will be a (additional Form) Final Inspection Appraiser's Fee. The Final is Ordered asap BUT after you have been "informed by the Builder that they have obtained "CO" certificate of occupancy.

Thank you...for caring enough TO ask. AND thank you for firing the AMC- who's rep' typically DOES NOT CARE....like YOU DO!

 

[Vermonter]

Discuss with the LO/processor if we need the appraisal done prior to completion for the sake of underwriting (to have it done subject to completion) and if so at what point UW wants that to be completed - which we will then require the builder and/or borrower to inform us of, when the construction reaches that point. At that time, I would be able to order the appraisal, whatever the required completion point is. This would ensure we aren't ordering too soon, and that we have all expectations in hand for the appraiser when the order is made - wasting no one's time.

This will be up to the lender and the individual loan. I do some where they expect 1 inspection somewhere mid construction process and then 1 final upon completion.

And I've done others where you inspect a vacant lot before any site work, complete the report and do multiple draw inspections afterwards. Post foundation, pre-backfill....post framing, pre-insulation....post drywall, pre-completion and then a final when complete. Think my record for a long drawn out construction is an initial report, FIVE 1004d inspections and then another 1004 when complete because too much time had passed.

It will really depend on the loan, the buyers, the build process, etc.

 

[William Rightsell]

When you are appraising a new construction - how far into the process do you wait? Are you looking for 80% completion? 85%? 95%? At what point do you say "Ok, there's enough here I can confidently appraise the property."

Is this a trick question???
Once they hand me the plans.

 

[jtinmichigan]

Unfortunately we don't have any time table, which is why I was asking what was kind of the "general rule of thumb" that everyone goes by. I was thinking a month out, myself, but wasn't sure if that was too far out of skew.

So here is my thought process, and y'all can tell me if this would be an acceptable approach:

Discuss with the LO/processor if we need the appraisal done prior to completion for the sake of underwriting (to have it done subject to completion) and if so at what point UW wants that to be completed - which we will then require the builder and/or borrower to inform us of, when the construction reaches that point. At that time, I would be able to order the appraisal, whatever the required completion point is. This would ensure we aren't ordering too soon, and that we have all expectations in hand for the appraiser when the order is made - wasting no one's time.

My lender is starting a new pilot program where we ditch AMCs and order directly with the appraisers, so the working relationship with my appraisers is of utmost importance to me. I'm very dedicated to creating a strong partnership with everyone we work with, but I've just started so I don't have the rapport with them yet to reach out individually and ask them "Hey, how do you wanna do this?" So all the input I receive here on these forums is very much appreciated!!

In most cases I do them from plans, specs and a site visit well before any ground has been broken or maybe with the site cleared and ready to start. Sometimes the foundation has been started. The report is then made subject to completion and a final inspection once its done. Most contractors want and need periodic progress inspections as work is completed so they can get paid for the work completed and have funds available to complete it. In that case we do periodic progress inspections so the lender can release funds on an ongoing basis. By the time the house is fully complete there is generally only 10 to20% left to pay. Very few builders can afford or are willing to fund the entire project out of pocket until its done. Once that's done the loan is rolled over from a construction loan (interest only) into a conventional mortgage. I have rarely seen, in 30 years doing these (and I have done a couple hundred new construction projects) where the appraisal was done at the end of the building process.

The only time would be when the builder built the home on spec (out of pocket, or on speculation) and then put it on the market with a few finish items such as floor coverings or finish paint so the potential buyers could pick their own colors and flooring. You might want to talk with the lender and get this nailed down.

 

[Terrel L. Shields]

the Builder that they have obtained "CO" certificate of occupancy

Most of the new construction I see is custom homes and much of that is out of a city therefore, there is no COO required.

I've done others where you inspect a vacant lot before any site work, complete the report and do multiple draw inspections afterwards.

Construction inspections are great work. You literally get a week by week view of what and how things progress. And it's usually quick and easy work.

 

[Ariba]

Easiest stuff in the world. I'd do them all day long.

Especially the non-existing comparables. Did you mean all daaaaaaaaaaaaaaaaaaaaaaaaaaaay long

Construction inspections are great work. You literally get a week by week view of what and how things progress. And it's usually quick and easy work.

Most if not all appraisers are not qualified and/or have the expertise to be building inspectors. Also, are you now the building code enforcer? Do you turn them in the building department when they cut corners?

 

[Terrel L. Shields]

Especially the non-existing comparables.

Construction is hot and heavy here- more than plenty of comp sales and resales less than 2 years old..

 

[sputnam]

When appraisers do construction inspections... they are not acting as building inspectors. They are acting as the eyes for the Lender. To ensure that the builder is spending the money on the project. You are not expected to determine if the construction is done correctly... only that it's done. All that is needed is basic construction knowledge... of the sort that is commonly taught in Qualifying Education.

 

[Vermonter]

Most if not all appraisers are not qualified and/or have the expertise to be building inspectors. Also, are you now the building code enforcer? Do you turn them in the building department when they cut corners?

Think you're misunderstanding the SOW of a construction loan appraisal. We are just verifying the work has reached a certain benchmark. Not acting as code enforcement. Same as any other appraisal