Residential New Construction Appraisals
Appraising new versus previously owned homes
Is buying in a new-home community more of a financial risk than purchasing a home in an established neighborhood? Home value depends upon the same factors regardless of whether it is new or pre-owned: quality of the neighborhood, growth in the local housing market and the state of the overall economy.
One of the main differences in valuing a new home vs a pre-owned home is understanding if the features of the new home are “built-to-suit” that particular owner/buyer or meets the market demands of that property’s competitive market. One of the biggest mistakes home owner’s make when building new construction is over-improving a home or building a home that does not meet the needs of the market which they are in. A simple example is a homeowner who upgrades a home at a cost that well exceeds the cost of a typical home within that market. While this higher quality may meet the demands of that homeowner, most market participants within that neighborhood may be desiring a better “value” for the home and not the top of the line materials. A home ultimately is worth what the purchaser is willing to pay for it and everything else is an estimate of value. To determine a property's value, it’s common to reference either a home appraisal or a comparative market analysis.
How do you value a home in a new construction neighborhood?
A new construction home may be very simple or overly difficult to value. Many times it depends on the number of comparable sales available. A new construction home in a brand new subdivision in a new market may not have any like properties within reasonable distance. On the other hand, a new construction home in an establishing master planned community, may have unlimited number of comparable sales of very like properties. The biggest distinguishing factor in valuing new construction homes is having an appraiser that has the experience and understanding that research is required to understand that particular home’s market. An appraiser should interview the builder’s sales agents for that market. Many times builders do not input all of their sales into the local Multiple Listing Service or may just list their “speculative” home sales, which are typically lower quality with fewer upgrades relative to the “build-to-suit” homes built. The appraiser must understand and analyze not only what the standard features of the homes are in that community but also the upgrades and premiums offered for homes in that community. This requires relationships with those builders.
Does the cost of a new home equal the value?
While the cost of a new home is relevant and important consideration in valuing a new construction home, it does not always equal to the value of a home. Many times cost can represent the owner’s personal wishes or needs for the property and not represent what the market demands for a home in that neighborhood. Extreme examples experienced by appraisers at Gardiner Ray, LLC include a musician who builds their personal home and constructing a sound proof, acoustical friendly room for personal recording, a professional chef who equips their kitchen with commercial grade appliances, or a high-tech CEO who installs robot chandeliers in their home. While all of these features offer a unique and sometimes intriguing amenity, it is unlikely that the full cost of these features would be paid by “typical” market participant.
Gardiner Ray, LLC has worked over several years to build relationships with area builders. These relationships are not only with the owners and managers of these building companies but also the sales agents within the new construction communities. We have had the opportunity and privilege to work in several capacities with the following plus many more high volume builders:
- Megatel Homes
- Highland Homes
- Plantation Homes
- Lennar Homes
- D R Horton Homes
- Shaddock Builders
- Betenbough Homes
- Bloomfield Homes
- K Hovanian Homes
- David Weekley Homes