A local appraiser we work with recently received a call to appraise a home in Florida. The home owner said that his home consisted of 2 acres of land and a partially built residence. He wanted to know if an “as-is” appraisal for the property was a good idea.
Normally, homes that are under construction are not good candidates for accurate “as-is” appraisals because it is very difficult or nearly impossible to find comparable homes that have sold while in similar states of repair. Plus, when doing an “as-is” appraisal, the home in its current state is not worth the same amount as the home in its finished state!
However, the appraiser was curious and did some more research on the subject. We thought we would share his findings with you so that you can plan your home construction and mid-construction evaluations better.
According to paperwork the appraiser obtained, the construction had been on-going for over a year. The seller had accurate plans pertaining to projected costs, repairs and a timeline.
In order to determine any type of evaluation figures, the appraiser must take the sales of homes that are completed and deduct an estimated amount. The estimated amount is what it would cost to complete the construction. This way, the amount is comparable to that of a finished home.
In order to do this, the appraiser will need accurate construction plans and specs from the home owner. If those are not available, this type of appraisal is even closer to impossible.
Further, an incomplete home is not eligible for conventional financing. Thus, the seller would need to find a cash buyer that is willing to take on the job of completing the house. For a buyer, this means sinking more cash into the home.
For the seller, this drastically limits the pool of potential buyers. Not to mention that the types of buyers who would be interested are usually investors looking to get homes like this at a deep discount.
If the plans for construction are available, a “subject to” completion appraisal could be a good marketing tool to showcase what the home will be worth when complete. This can be beneficial to the seller because they can determine if the cost to complete the home is lower than the final worth of the home. For example, If the cost to complete is $100K and the repair work adds a value of $200K, the home is worth more when it is done than at its current “as-is” asking price!
Overall, this is a complex appraisal and for some, it may not be the right time to do it. Perhaps better wait until the construction is complete before tackling this issue or get a “subject to” appraisal instead.Tags: appraisal, appraisal questions, appraisal questions answered, appraisal sale, appraisal zoning, appraiser questions, as is appraisal, construction, does your appraiser, home appraisal, home appraiser, home sale, home value, what is an appraisal, what is appraisal
This post was written by Joseph Castaneda