Lenders, the FHA, and the GSEs all have distinct approaches to new construction. When valuing new build homes, specific features and attributes must be considered that aren’t always applicable to resales.
Because it necessitates extra effort, you must ensure that you are compensated for your time. But, maybe more importantly, you want to make sure you’re following the correct procedure. Follow these guidelines to ensure you’ve covered all of your bases.
- Do not solely rely on plans.
Blueprints are a good place to start, but you’ll need to calculate and confirm the gross living area specified in the plans yourself. The “calls” used by architects are not the same as those used to determine square footage. In the architect’s finished living area, open two-story rooms, outdoor kitchens, finished lower levels, a casita, and a breezeway may be considered.
- Gather as much information as possible regarding the blueprints and specifications.
Building plans and specifications, which include any construction materials that will be used, are kept and maintained by homebuilders. As things change, the most conscientious will revise their plans and specifications. Make sure you have the plot plan, the home-building plan, the spec documents, and the cost breakdown list.
In addition to figuring the gross living area from the designs, you’ll need to look at the specifications, which include the materials utilized, such as doors, windows, cabinets, plumbing fittings, and electrical fixtures. The specs will also detail the size and finishes used in the construction, as well as provide you with an idea of the construction quality and how the planned changes compare to similar sales in the market. This information is essential for creating a list of comparables. You can use a cost service to estimate the cost of the new construction once you know the dimensions, materials, and so on.
- Consult with a number of area contractors.
Builders might provide useful information if you speak with them immediately to assess current costs and value. As you perform new building assessment tasks, you get some of the greatest construction cost data. Prior data can be analyzed for those construction projects that are most similar to the subject property in quality, size, and characteristics and used as cost data to support cost estimates for the current appraisal when evaluating new planned development. Depending on how old the cost data is, it may be required to adjust for time as the cost of construction materials continues to rise.
- When selecting comparable sales, be cautious.
First and foremost, you must determine which comparables are most appropriate for the job. However, some lenders may have special comparable sales requirements to establish market acceptance, so follow their instructions. Many, for example, need at least one completed sale that does not involve the subject builder.
- For site value, use the sales comparison method (if possible)
The optimum technique is to estimate the property’s site value based on selling prices of comparable sites, which is called the sales comparison strategy. In some markets, though, equivalent sites can be difficult to find. Declare in your report that the sales comparison strategy is neither appropriate or trustworthy, and use one of the other methods instead.
- Understand the FHA, HUD, and USPAP guidelines.
When appraising new construction properties, the standards vary and can change, so follow your lender’s instructions to the letter.