Where Do Appraisers Come Up With Stuff Like This?

[J Grant]

I don't see a decline here , but I have been marking stable in most reports for last several months. Inventory is low here with short DOM for decent product. On the other hand, prices are all over the place, and I do see over priced listings sit on market till reduced, prices have risen over the past year, will see what this modest interest rise brings about.

 

[NC Appraising]

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, 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.

I agree with you on Cert 8. But that is it. I remember a different stance on this issue from several years back......

As a builder/developer (we built over 400+ homes this year). Appraising new construction is a waste of time (well how we do it now is) And yes, it played a huge roll in the market crash. I appraise more newer homes for REO purposes than re-sales.

So other buyers had the option of buying your home and paying 100% for the same exact upgrades and features?

This is why pre-sales are bad comps:

1. In hot markets, re-sales are selling above what new homes are selling for.

So does market value vary for a pre-sale, spec and a re-sale home? Does each one have a different definition of market value?

If a newer pre-sale home from within the same PUD is selling for more than new construction homes, what for and where do you make that adjustment?

You have to remember, we are appraising market value..not price. The BUILDER sets the price of the home not the market, some times they are wrong, high or low. Then appraiser use these pre-sale homes like yours as comps. Ever had a buyer to go into the builders show room and be willing to pay more for a unbuilt or pre-sale home?

2. Pre-sale homes are dated comparables. Yeah, they may have closed yesterday, but went under contract many months back. We know appraisers do not make market condition adjustments...that is worse than ....

3. The builders spec home typically sells for below or above the price a pre-sale home, depending on market conditions. Ever noticed that? There has to be a reason.

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open

market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming

the price is not affected by undue stimulus.

Just as in a re-sale home, the builders spec home is 100% finished and exposed to the market and there is a need to sell it.




So your upgrades and builder selections equals 100% of market value....and only 100% of market value...not 80% 0r 120%??? What if you selected the upgrades so good that if that home was 100% finished, it would sale for above market value? But then the appraiser uses the pre-sale comp that was really worth more and under values the home that they are appraising.

How do you derive adjustments? From the builders cost sheet? Do you have that secret sheet from the builder where the previous buyer was not willing to pay $12,000 for that bump out? No, appraisers gets the cost of the upgrades from the builder and makes non-market based adjustments (made up or cost for cost from the builders worksheet.....see how foolish this sounds...and makes adjustments on the grid.

Typically for a re-sale home or a finished spec home that has been adequately exposed to the market, several buyers have made a judgement to the upgrades, quality and finishes to the home and what the value of items are. In a new construction pre-sale home, these particular upgrades are for a specific buyer...sometimes they choose well and sometimes they chose upgrades that are worthless.

In reality, how can a appraiser ever come in low appraising your new pre-sale home? Never!! The only way they can come if low if there has not been a buyer...yet...to go into the model home and pick out every upgrade that exceeds your contract price!!

That is my personal experience from a home builders point of view. The appraisal only came low when we have not had a buyer to select a higher amount of upgrades from the previuos two buyers....but as soon as we get that good appraiser and that buyer who wants all of the upgrades...it's on!!! We have that one pre-sale comp to support all the other comps from here on out