Don’t always rely on blueprints, or builders specs.

Many developers are required to record what model and elevation new construction will require on any specific lot. It’s not complicated to understand, water management districts, engineers and planners have criteria that must be followed and altering these specifications can be tricky. Often a buyer wants this lot and this floor plan and specific elevation. In order to accommodate the buyer, elevations and floor plans are juggled, some criteria is altered, ultimately it falls through the cracks and fails to be noted in the county tax records.

Gather as much detail about plans and specs as you can and perhaps have a realtor to help protect your interests.

Home builders keep and maintain both building plans and specifications that include any construction materials they plan to use. The most diligent ones will update those plans and specs as things change. Make sure you get your hands on the “plot plan,” home-building plan, spec sheets, and cost breakdown list. Beware change orders are not always documented.

When calculating the gross living area from the plans, you will need to examine the specifications which list the materials being used, including doors, windows, cabinets, plumbing fixtures, and electrical fixtures. AGAIN BEWARE! The design center and materials you use can price your home’s value much higher than the current market value at times. The specifications will also describe the size and finishes used in the construction. Know the quality of materials and construction and how the proposed improvements compare with other sales in the market. “This information is critical so that you can compile your list of comparables.” Once you have the dimensions, materials, and so on, you can use a cost service to estimate the cost of the new construction.

Talk to multiple project managers for each home in the area.

This can be tedious, and getting these managers to share their knowledge can gain valuable information about each home built. As long as you talk to them now to evaluate current costs and value. Don’t rely on data you received from builders years ago or even months ago. The market is always changing. Also, speak to more than one builder in your area to gain an objective viewpoint. And remember, other builders may be rivals of the builder constructing your subject property, so they may not be entirely objective. Make sure you include plenty of notes in your work file about who you spoke to, when, and what the person had to say.

Be careful as you choose comparable sales

First and foremost, you paid cash without requiring an independent appraisal. Now you may be in a challenge when selling, many lenders have requirements for selecting comparable sales, so follow their lead without becoming too objective. For example, many tend to require that at least one sale in the subdivision be by another builder. This is not always possible. this is where a project manage can be helpful. Lenders don’t like to see all the comps by the same builder “because the builder could be inflating the value of property.!”

Additionally, to demonstrate the marketability of the area, some lenders require you to provide a comparable sale at least within a mile of the subject property.

The REAL CHALLENGE AT TIMES, custom-built homes recently built in the neighborhood cannot be considered as comparables unless they have been exposed to the market and to a typical buyer—and not just to the person who requested the custom features and design in the first place.

Those requirements can make it hard to find other new construction comparables. If recent sales within the immediate neighborhood in the past 6 months are a challenge, you may expand your search to other neighborhoods or go back further in time—even if doing so is outside the lender’s guidelines it may be acceptable. Do so only if those comps are necessary for you to create a credible estimate of value. “Make sure you provide plenty of notes justifying why you chose the comps you chose and how you adjusted value based on them!”

Use the sales comparison approach (if possible)

The sales comparison approach, when you estimate the home’s value based on sale prices of comparable homes, tends to be the best approach. However, comparables can be hard to come by for similar new builds. If the sales comparison approach is not applicable or credible, state that in your report and use one of the other methods, for example:

• Allocation method: Here, you use several sales in the subject subdivision and take the cost of construction from the total sales price to arrive at a site value. Use several sales, get an overall ratio of land to improvement value, and then apply that ratio to the subject property.
• Extraction method: Similar to the allocation method, but instead of applying the ratio, you use the derived site values as land comparables.

Know your FHA, HUD, VA, USAA and USPAP Requirements

The requirements vary, and they can change, so follow your lender’s instructions to a tee. Some big ones to know (at least until they change):

• FHA requires that you gather information and execute tasks weeks ahead of the appraisal order.
• FHA requires a final inspection. The final inspection can take place if the improvements are within 90% of completion and must be done by an appraiser.
• Appraisers must complete Form 90251 for FHA loans.
• Fannie Mae allows appraisers to use plans or a model home that is similar to the proposed construction, to come up with a preliminary value.
• USAA and USPAP allows appraisers to use documentation other than plans and specifications as long as there is enough detail to create a credible report. For a current value, you would use a hypothetical condition. For a prospective value, you would use an extraordinary assumption. USPAP requires appraisers to keep true copies of all the information used to complete the appraisal report, including blueprints and specifications, in the workfile.

I am not a licensed appraiser and do not practice as such. My knowledge is based on experience, networking with a great deal of lenders and appraisers, understanding their challenges through the mid to late 2000 error! Experiencing the horror stories and experiencing the new Federal and State guidelines demanded of appraisers, my commercial experience and Continued Education help me to understand and hopefully able to share some of the challenges you may face in your resale or new construction experience.