Where Do Appraisers Come Up With Stuff Like This?

[Meandering]

QUOTE="DWiley,
The home I live in now was purchased while under construction. We bought the home and the site together. We did not buy a "contract," we purchased a home and the site it sits upon, (But the home did not exist or was not complete on the day of purchase yet you did not have a contract for the completion?)

and we did so in a single transaction. There was no conversion of a construction loan; there was no construction loan.
Our purchase contract, like the supporting appraisal, was subject to the completion of the home. So, our purchase was not a "created sale" as addressed by Cert 8.

Many homes are purchased this way, and I see no reason why my purchase of my home could not have been used by appraisers as a comparable. The fact that it happened to be under construction when we signed the contract is not germane.

As for market exposure, there is nothing preventing a builder from exposing a home that is under construction to the market. Whether there was adequate exposure is something to be considered an analyzed, just as with any other potential comparable.
End Danny Quote.


Here is my point.

There are many ways to "buy" a new home.
There are spec homes,
There are custom built homes,
There are homes midway through construction that were destined to be spec homes.
There are lot owners that decide to build on the lots they own, and hire a contractor.

The original appraiser identified 22 sales of homes that were under construction while under contract to purchase, and determined those homes were not market value comparables.

The underwriter swiftly identified via tax records, that title had changed hands to those 22 homes.

Then the insurance underwriter required those homes as comps, without further investigation, nor consideration of why the original appraiser ACTUALLY STATED IN THE REPORT they were not comparables for a market value opinion. Not like the original appraiser tried to hide those transfers. He actually stated it in the report.

So, no one here knows if these were custom built homes, or if they were exposed to the market or if they were the result of combining land sales with purchase contracts, or if they were custom builds, or if they were not exposed to the market and were ordered to be built by a corporate interest.

Nope, nobody knows.

But there is a vendetta against this appraiser, so make him use those sales as comps.

That's why I asked about Tim's understanding of USPAP and misleading.

Because if it were my report,
And my original reported stated these were not comparables to be used in a market value analysis, but then was mandated to use them by the "intended user" of the report,

I would certainly comment that I did not believe those sales represent market value, should not be used in the analysis, but in accordance with the assignment conditions I was being mandated to present them in the report by the client's underwriter.

I would certainly say that their presentation, while I consider them inappropriate, was done to satisfy this assignment condition of USPAP and that the Client is not being misled by me. It was the client's underwriter who determined these sales be presented. The client's underwriter is a sophisticated user of appraisal products, and should the use of those comparables later be shown to be inappropriate, they exist in the report solely because of an assignment condition mandate to present them, but I have not used them in any way shape or form in my analysis.

Let it fall back on the underwriter who makes the decision to use them without sufficient information to determine if their use is appropriate, for any reason other than their location.


.

 

[J Grant]

Most new home developers have websites for the communities, look a community of interest up on the internet and see if they offer the house and lot as a package (which is typical, there are exceptions of course).

 

[jay trotta]

wheew, I have now opened all available winders & doors for some excess oxygen, lots of Co2 floating round here; IMO, market exposure in my area is provided by local Agents via MLS, if a builder here makes the investment in a subdivision, 99% will not sell an individual lot today. They are a "package deal"; premiums are what they are, can they be supported? That's quite another question.

Prior to 2007, if a subdivision builder Sold an individual lot, it would have "Deed Restrictions" in regards to the; Type of House / GLA minimum and various other "restrictions" in order to preserve the Pricing within the subdivision. It would not only keep past Buyers secure in their investment, but would also make current & future "Lenders" secure in their investment;

$.02 in a Start Up project, it has been my past experience (1980's) to match up a Lender with a Builder for perhaps the first 2-4 units and any Buyer or potential Buyer could bring in their own Lender, which in turn reduces any one Lender from being overexposed. Sold out several projects in that manor and no one got burned; these are different times I know, but considerations should be thought about.
Some subdivisions take right off and others linger, reasoning is limited or every builder would be a Billionaire.

 

[timd354]

To answer your questions;
1. No.
2. Did you check that these were not sales of land and then contracts to build, with refi's to completed primary mortgages after completion before you required these (comps) from the OA? Did you find anything in Fannie's guideline that allowed for custom built homes to represent market value sales and not just spec homes?
What part of my prior statement that this is "typical subdivision with homes being built by a large national builder and there are no land sales plus contracts to build involved in this subdivision" do you fail to understand?
and 3. What is your official decision concerning cert 8, the use of custom homes that have not been exposed to the market as market value comps, in regard to misleading and USPAP?

Thanks.

I obviously didn't check anything out. The people at my company are obviously a bunch of idiots who just like crapping on appraisers for no reason and we hope that all comps utilized in the appraisal reports that we receive are not exposed to the market...You feel better now? Do you feel somehow validated?

Sorry Marion but trying to have a serious conversation with you is not a productive use of my time.

 

[CANative]

Dang it Marion! lol

You take the freeway off ramp nearest the big sign that says "New Homes in the high $100,000's." You follow the arrows and the guys and gals with arrow signs point to the development. You find the sales office and the duty salesman says you can choose one of 27 lots available and one of 5 model homes to be built on it. Lot 75 with Model 4 will cost cost you $185,000. That is an acceptable comparable in the development because it was offered and purchased as a single economic unit.

As opposed to the Cert 8 property where you found a lot and bought it for $75,000 and then had Joe Smithe Building construct your dream house for $110,000 for a total of $185,000. This property was not offered to the market as a single economic unit and is not an appropriate comparable sale.

 

[hastalavista]

... the duty salesman...

I like that. I wonder how long they have to stand watch?

 

[Meandering]

I obviously didn't check anything out. The people at my company are obviously a bunch of idiots who just like crapping on appraisers .

And gloating about it on the internet, don't forget that part.

Either you are the reviewer, or,
you are the appraiser.

If you don't understand why the appraiser thought those sales were inappropriate, and the explanation in the report was not clear, then you ask them to clarify and explain their reasoning.

But, once underwriters start deciding which sales, or which group of sales are to be considered comparables, you have crossed the line into being the appraiser,

and hence, should hold the liability for what is in the report.

If you want to "be" the appraiser, than "be" the appraiser.

.

 

[CANative]

I like that. I wonder how long they have to stand watch?

Mom and dad used to sit on tracts while my brothers and I had the run of dozens of vacant houses, some with pool tables and other things to amuse us.

 

[Peter LeQuire]

It sounds as if the appraiser is operating under the misconception that the property he's appraising IS, in fact, a "created sale" and that the builder sales in the SD were, as well, which may result from ignorance, sloppiness, poor training, or having his chops busted by some reviewer who hammered her into using only sales of completed houses. The situation described is not a Cert. 8 "created sale". Those comparables may have been contracted for before they were complete, but the purchase transaction was of the completed dwelling, not of a site and a construction contract, nor of a house built on previously-acquired land.

Some people would argue that such sales do not meet the test of having been exposed to the market. I see this as a different discussion.

Edited to insert an inadvertently omitted phrase.

 

[Mr Rex]

From a NC Appraisal Board newsletter August 2006 http://www.ncappraisalboard.org/bulletins/aug06.pdf

Appraisers know that they cannot use a land/home package as a comparable sale. The question often received by Board staff is: How do I recognize a land/home package?

Some land/home package sales are simple to recognize. A check of the public records may indicate that the property transferred was only a lot, but the HUD-1 (settlement form) shows the sales price of both the land and the home. If public records indicate that only the land transferred, this is a land/home package sale and cannot be used as a comparable sale.

In other instances, what may look like a land/home package is actually a legitimate sale. In the past several years, more developers have been building subdivisions and advertising the properties on MLS as presales. The buyer goes to a sales office, selects a lot, and then selects from a limited number of the developer’s floor plans to be built on the lot. There may be a limited list of custom features available that adds to the cost of the package. When the home is finished, both the lot and the house convey as one unit, which is reflected in the public records.

If, however, the buyer goes to a developer and buys a lot, then selects his own builder who builds a home customized to the buyer, this is not a legitimate sale to use as a comp. The key is that the combination of the lot and home has not been exposed to the market and negotiated between a willing buyer and seller.

There are some instances where real estate agents report a land/home package sale on MLS. There are some red flags that could indicate such a sale. Some agents will make a remark that the sale is for information purposes only and is not to be used as a comp. Other agents may state that the sale is for comp purposes only. The property may show that it was only on the market for one or two days. Even if the sale is reported on the MLS, that does not always make it a legitimate, arm’s length transaction. It is the appraiser’s responsibility to verify the legitimacy of the sale.

Remember, Standards Rule 1-4 of USPAP requires that you collect, verify and analyze the data used in the report. For example, if you collect comparable sales information form MLS, you then verify the information by calling the listing or sales agent, the tax office, or another source. If there is any discrepancy between these two sources, you must continue to research the sale until you are confident that the information you will use in your analysis is correct. This is especially important if you receive verbal information or a HUD-1 that conflicts with public records.

You should also be careful to correctly identify both your data source and verification source, and to keep in your workfile a copy of the information relied upon for the appraisal. For example, if you use MLS as your data source and tax records as your verification source, you should have a copy of the MLS sheet and tax record in your file. Sometimes you may receive information orally, such as from the listing broker over the telephone. You should make a note for the file of your conversation, including the name and telephone number of the source of information and the date, as well as a summary of the information received.