6 Tips for Evaluating New Construction Homes

New construction is treated a little differently by lenders, FHA, and GSEs. When appraising new homes, you need to consider certain features and attributes that don’t necessarily apply to resales. It requires more work, so you want to be sure you’re charging for your effort. However, perhaps more than that, you want to be sure that you are following the correct protocol. Stick to these best practices to make sure you cover all your bases.

Don’t trust plans completely

The plans can certainly provide a starting point, but you will need to personally calculate and confirm the gross living area shown in the plans. The “calls” that architects use is different from the ones you’ll use to calculate square footage. Two-story open spaces, outdoor kitchens, finished lower levels, a casita, and a breezeway can be considered in the architect’s finished living space.

Gather as many details as possible on the plans and specifications

Home builders keep and update building plans and specifications that include all the building materials they plan to use. The more diligent will update these plans and specs as things change. Be sure to get your hands on the plot plan, house construction plan, spec sheets, and cost breakdown list.

In addition to calculating the gross living area from the plans, you will need to review the specifications which list the materials used, including doors, windows, cabinets, plumbing fixtures, and electrical fixtures. The quote will also describe the size and finishes used in the construction and give you an idea of ​​the quality of construction and how the proposed upgrades compare to other sales on the market. This information is essential for you to establish a list of comparable. Once you have the dimensions, materials, etc., you can use a cost service to estimate the cost of new construction.

Note: Sometimes fine finish studs are not always available, so you may want to consider builder’s allowance studs if needed. Make sure to check the grants for fairness.

Talk to several local builders

You can get valuable information from builders, provided you speak to them now to assess current costs and value. Some of the best construction cost data is compiled by you as you complete new construction appraisal missions. When evaluating a proposed new build, past data can be reviewed for construction projects that are most like the subject property in quality, size and features and used as cost data. to support cost estimates for the current evaluation. Since the cost of building materials generally continues to skyrocket, it may be necessary to adapt to the weather, depending on how old the cost data is.

Be careful when choosing comparable sales

First and foremost, you are responsible for determining which comparable is best for the assignment. However, some lenders may have additional requirements to include specific comparable sales to demonstrate market acceptance, so follow their advice. For example, many tend to require at least one settled sale that does not involve the subject builder.

Additionally, to demonstrate the marketability of the area, some require you to provide a comparable sale of a competing subdivision, built by another builder. Others want to see at least one comparable sale within a mile of the property in question. When offering builder sales that are not presented through municipal records or various listing services or similar conventional information sources, you should validate the sale from the appropriate settlement statement.

These requirements can make it difficult to find other new build comparable. If you can’t find any recent sales in the immediate neighborhood within the last 6 months, you can expand your search to other neighborhoods or go back further in time, even if it doesn’t meet the lender’s guidelines. Only do this if these comps are necessary to create a credible estimate of value. Be sure to provide plenty of notes justifying why you chose the compositions you chose.

Utilize the sales comparison methodology for site value (if possible)

The sales comparison approach, where you estimate the site value of the property based on the sale prices of comparable sites, tends to be the best approach. However, comparable sites may be difficult to locate in some markets. If the sales comparison approach is not applicable or credible, indicate this in your report and use one of the other methods, for example:

Allocation method: Here you use multiple sales in the subdivision in question and estimate the cost of construction and divide it by the total sale price to arrive at the percentage of the cost of the improvements over the purchase price. The reverse of this percentage is the percentage of land to buy price. Use multiple sales, get an overall ratio of land to purchase price, then apply that ratio to the property in question.

Requirements vary and can change, so follow your lender’s instructions carefully when evaluating new construction properties. A few big ones to know (at least until they change):

Understand your HUD, FHA, and USPAP needs

Requirements vary and can change, so follow your lender’s instructions carefully when evaluating new construction properties. A few big ones to know (at least until they change):

The FHA distinguishes between proposed construction and properties under construction.

If the property is 90% or less complete for an FHA loan, the mortgagee must provide the commercial real estate appraiser with a copy of the floor plan, lot plan, and any other documents needed to determine the size and level of the property. quality of the house that the appraiser is evaluating. If construction is more than 90% complete for an FHA loan, the mortgagee must provide a list of components to be installs or completed after the inspection date.

The FHA requires new construction to meet HUD Minimum Ownership Requirements (MPR) and Minimum Ownership Standards (MPS).

The USPAP allows appraisers to use documents other than plans and specifications as long as there is enough detail to create a credible report. For a present value, you would use a hypothetical condition. For a potential value, you would utilize an exceptional belief.

The USPAP requires appraisers to keep true copies of all information used to complete the nationwide property and appraisal services report, including plans and specifications, in the working file.

Requirements vary and can change, so follow your lender’s instructions carefully when evaluating new construction properties. A few big ones to know (at least until they change):

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