Where on the grid to make this adjustment?

[Tom D]

if you cannot figure out each comps upgrades/updates then don't make any adjustment. you say why in your reconciliation. you can make a qualatative comment and explain why you didn't make a $ adjustment. the problem always come from an unsupported adjustment. nothing in workfile to show how, you done. but if you can't figure it out, they can't either.

 

[shrubberyvaluation]

I'm talking about value related upgrades, like the examples I posted.

Let me ask you this. For existing housing do you adjust for differences in upgrading? Like your subject has a recently renovated kitchen and master bath, but one of your comps doesn't? Do you adjust for that? If so, why? Maybe because those existing houses that have been updated sell for more?

Why would it be any different for new construction where it is clear as day that buyers will pay more for houses with upgrades than those without upgrades? If that's what the buyer's and seller's are doing, why would I report something different?

I wouldn't say new construction is clear as day. I see plenty pay different prices for the same features with the same builder. I see adjustments at the end such as free deck incentive, or some random minus to the cost for some bundle.

 

[Mark K]

It seems that some appraisers use only the cost approach for new construction grid adjustments.

I can see the argument that, in a large, cookie cutter subdivision, the contract buyers are the market and they're willing to pay $4$ for the upgrades.

However, the resale market is the one that will be buying the home if/when the bank/lender (our client) takes it back at foreclosure. I think that using only contract sales for 'sales comps' leads to a report that lacks credibility. There needs to be or should be at least one market resale to reflect the true market value of these highly overpriced upgrades.

 

[Terrel L. Shields]

However, the resale market is the one that will be buying the home if/when the bank/lender (our client) takes it back at foreclosure.

Yes, and new construction should be compared to 'new construction'. If a resale suggests there is a functional obsolescence above and beyond that of physical wear and tear, fine, adjust. But trying to pre-adjust new construction for a future event, well, kinda hard to do.

 

[Mark K]

Yes, and new construction should be compared to 'new construction'. If a resale suggests there is a functional obsolescence above and beyond that of physical wear and tear, fine, adjust. But trying to pre-adjust new construction for a future event, well, kinda hard to do.

I don't see it so much as trying to predict a future event as using a current event (resale of similar home) to illustrate the functional obsolescence of generally overpriced and high-margin 'upgrades'.

Is there still a suggestion/prohibition against using 'constructed' comps? For example, Lot = $100K, contract house price = $400K, "comp" is $500K that was never exposed to the market. Maybe they've done away with that guideline for convenience sake (easier to hit the number desired) but I'm pretty certain that there was guidance against that back when I did F/F work.

 

[shrubberyvaluation]

Yes, and new construction should be compared to 'new construction'. If a resale suggests there is a functional obsolescence above and beyond that of physical wear and tear, fine, adjust. But trying to pre-adjust new construction for a future event, well, kinda hard to do.

New construction that is built and then sold, or does not have any customization, seems more reflective of the market than a custom home where people are paying for each feature that specific person(s) want. Custom homes, especially with less common features, more often sell for more than market value.

 

[shrubberyvaluation]

I don't see it so much as trying to predict a future event as using a current event (resale of similar home) to illustrate the functional obsolescence of generally overpriced and high-margin 'upgrades'.

Is there still a suggestion/prohibition against using 'constructed' comps? For example, Lot = $100K, contract house price = $400K, "comp" is $500K that was never exposed to the market. Maybe they've done away with that guideline for convenience sake (easier to hit the number desired) but I'm pretty certain that there was guidance against that back when I did F/F work.

I think using sales where the lot and dwelling are sold seperately is a nono. It makes it tough to find comps in certain areas. In MLS a lot of the times they will lump the two sales together, but you can see from the tax records/deed.

 

[TerryRohrer]

I don't see it so much as trying to predict a future event as using a current event (resale of similar home) to illustrate the functional obsolescence of generally overpriced and high-margin 'upgrades'.

Replacement cost new would not reflect overpriced upgrades that do not contribute value equal to their cost, so I see no functional obsolescence. The overpriced upgrades add to prices of individual homes, certainly, and are premium additions to builder's profits only.

Is there still a suggestion/prohibition against using 'constructed' comps? For example, Lot = $100K, contract house price = $400K, "comp" is $500K that was never exposed to the market. Maybe they've done away with that guideline for convenience sake (easier to hit the number desired) but I'm pretty certain that there was guidance against that back when I did F/F work.

This still should be an issue, but I am not aware of any specific guidelines prohibiting it. I don't go chasing builders for their private sales that are in reality custom builds just to make another deal "work." But I don't think most who do a lot of new construction would even understand the idea that these might not be indicative of market value. These types of issues are usually only considered by appraisers who think in terms of market value instead of thinking of how to support the contract price/target they were provided. Clients certainly don't care when it will be the taxpayer picking up the tab.

 

[J Grant]

I'm talking about value related upgrades, like the examples I posted.

Let me ask you this. For existing housing do you adjust for differences in upgrading? Like your subject has a recently renovated kitchen and master bath, but one of your comps doesn't? Do you adjust for that? If so, why? Maybe because those existing houses that have been updated sell for more?

Why would it be any different for new construction where it is clear as day that buyers will pay more for houses with upgrades than those without upgrades? If that's what the buyer's and seller's are doing, why would I report something different?

We don't just "report" the market activity; we ANALYE it.
Typically, buyers pay more for the upgraded houses, whether new or existing/resale. However, the NEW home upgrades from the builder are charged as a line item cost, cash register style, like bringing up items in a store. That is why, a new home contract can be 40-60 pages long - the builder will itemize and line charge for every little thing - an upgraded hardware pull, upgraded carpet insulation, bone color tile choice vs cream color tile, this C level of wiring vs D level - a base model house priced at 360k can close at 500k with all those items added up.

Will the next buyer pay 140 for all that stuff, some of it personal taste choices, other of it not even noticeable, like who cares about level A carpet insulation the builder changed $60000 more for?
Market value opinion is the most probable price on the OPEN market, ( not just the more narrow builder niche new home market. ) so in order to find out what the buyer reaction would be, the appraiser must find recently built similar , perhaps in same subdivon, resales of existing homes listed on MLS.

I love reading the listing comments - the buyer spent 200k on upgrades from the builder - and on resale; a year later, we see with extraction, the resale got back 100k . If it gets back 200k, great, we just provided support. But rote adjusting for cost of builder upgrades can one day catch up with those appraisals -

 

[J Grant]

It seems that some appraisers use only the cost approach for new construction grid adjustments.

I can see the argument that, in a large, cookie cutter subdivision, the contract buyers are the market and they're willing to pay $4$ for the upgrades.

However, the resale market is the one that will be buying the home if/when the bank/lender (our client) takes it back at foreclosure. I think that using only contract sales for 'sales comps' leads to a report that lacks credibility. There needs to be or should be at least one market resale to reflect the true market value of these highly overpriced upgrades.

The open market (resales and new homes ) is what is present in the MV definition for the current value in the appraisal as well . It is not just about what can happen in the future ( though you are correct that is a concern_)