New construction can be difficult to appraise, especially when the home hasn’t been built yet. It can be made more difficult with your client asking tough questions about your recent appraisal on the subject. How do you problem solve when it feels like there is literally nothing to work with?
1. House? What House?
No house to be seen on the lot? Is the house only partly constructed? Whether there is a new fully-constructed home or not, get a copy of the blueprints, cost breakdown, plot plan, and specification sheet from either the builder or the realtor. This way you won’t be stuck imagining what the home will eventually be and have solid information to base your valuation on. However, you should also try to find comparable properties, even if there are not many homes constructed in that area.
2. Near or Far Comps
Sales comparisons for new constructions are your best option to determine home value, but they cannot always be relied on for certain situations. You may be working with a home that has many similar houses within the guidelines of your assignment–easy! Or you may be dealing with one that is a fresh, new design and is quite unique for the gross living area–yikes! Either way, comparables may be few and far between. If all you have to work with is newly built homes that may not have similar features to the one you’re appraising, it’s ok to look beyond your client’s guideline for comps. When you do though, you must make sure you note why you’ve done so and add any adjustments to your report to make up for differences in market.
3. Include Upgrades (Don’t Count Them Out)
If home upgrade options were not given to you or cannot be easily found on your own, you’ll need to ask the constructors, homeowner, or realtor for that info. Don’t leave out these vital additions from your appraisal. You may feel like not having these upgrades in hand leaves a wide home value range. Your clients may not like seeing an appraisal come back with such ranges. Do your best to find out what those upgrades will or could be! This may mean researching what locals prefer in home upgrades, which could change your evaluation completely.
4. Consider the Local’s Preferences
Sometimes when you’re assigned a project, you may not realize there are unique preferences homebuyers in the area will like or dislike. Premium upgrades, like hardwood floors and finished basements, bring up a home value in nearly every local house market. However, you may come across a home upgrade that may seem like it adds value, but actually doesn’t. For example: you find out that your new construction is going to add a swimming pool to their property. While swimming pools are definitely a luxury, further investigation reveals that people in the area consider them to be too expensive to take care of and would rather have the extra lawn’s space instead. Every home is different, as well as the local market too. If you hit a snag in your appraisal process for homes like this, consider looking into the local homeowner’s preferences to solve your issue!
New construction projects can be difficult to appraise. You’ll need to think creatively and dig a little deeper to find answers to the holes that come up for projects like these. Just remember to note everything you’ve found, especially if you had to step out of the box to do it, so as to not run into an E&O issue!
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