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New Construction Assignments- Rising Demand
by Andrew Bough, Executive Vice-President of Valuations at Solidifi
Over the last decade, U.S. single family housing starts have nearly doubled as they continue their march toward pre-crisis levels. In fact, appraisal assignments for new construction homes make up a significant portion of today’s market. “For appraisers with the right skills and expertise, this represents an opportunity to tap into a growing segment of the housing market,” said Andrew Bough, Executive Vice-President, Valuations at Solidifi.
Appraising for new construction assignments requires more experience and specific competency because the scope of work is more thorough and complex than a conventional appraisal. Strong analytical skills and deep market expertise are essential to evaluating potential buyer alternatives. With no traditional data sources to rely upon, appraisers look to builders and local Realtors®, who specialize in new home sales, to provide valuable information which they can also verify with reputable third-parties like title companies.
Appraisers must also be familiar with the development where the new build is located, including the speciﬁcs of the development: number of phases, total units, different models, common amenities, estimated completion dates and several other important factors. They take into account the base prices in the development and any premiums being paid for neighboring lots. Knowing which competing developments in the region a prospective buyer may consider as an alternative is an essential part of developing a credible report.
Homebuilders are one of the most valuable resources for appraisers; they are true local experts for both the subject property and surrounding developments.
“The appraiser’s relationship with the builder is a critical element in the new build process,” says Brian Walsh, Vice President of Purchasing and Production at Highland Homes in Lakeland Florida. “It’s essential that appraisers communicate with the builder to truly understand the specifics of the property and development.” The builder has access to vital information that the appraiser needs, such as plans and speciﬁcations of the development, marketing and exposure time information, as well as lists of common upgrades in comparable subjects. They also can provide a detailed overview of the broader community and confirm how many, if any, additional subdivisions are planned, in progress, and completed.
In addition to the analysis of the subject property appraisers must also be familiar with lender requirements for the appraisal assignment which are outlined in the letter of engagement. Speciﬁcations for new construction appraisal reports vary from lender to lender. For example, there may be differences in acceptable market indicators, the requisite number of comparable properties, or the photo requirements. Appraisers must take the time to review the speciﬁc requests for every order to ensure they are capturing all of the elements required by the lender. Transactions involving new homes are ﬂuid and subject to numerous changes as buyers often make upgrades throughout the building process which can inﬂuence the purchase price.
“It is very important for appraisers to maintain frequent and effective communication with all parties involved in the transaction. Appraisers must constantly review developer changes and amend their reports accordingly—this includes reviewing the current purchase contract to ensure accuracy. Having strong builder relationships from the get-go can provide a signiﬁcant advantage to appraisers—it also can offer lenders and homebuyers greater conﬁdence,” said Bough.
The ﬁnal inspection is often the last step in the process prior to closing. Delays at this stage can prevent borrowers from closing on time, and ultimately change the date they are able to move into their new home—in many cases, causing a logistical nightmare. To avoid delays, appraisers who specialize in new construction know they must also be available for ﬁnal inspections at a moment’s notice. Being ﬂexible and available to guarantee that the closing process goes smoothly is mission critical for both the lender and the homeowner.
When it comes to new construction, appraisers play a vital role in helping provide a positive experience for lenders, builders and homeowners. As this segment of the housing market continues to grow, appraisers should consider partnering with experienced new construction appraisers with a view of expanding their business.
About the Author
Mr. Bough leads Solidifi’s U.S. Appraisal operations. Mr. Bough’s experience spans more than 25 years in the U.S. valuations industry. Prior to joining Solidifi in 2018, he was Managing Director of Valuations at JP Morgan Chase. A certified appraiser since 1993, Mr. Bough has held various executive roles with regulated lenders in the United States, including leading valuations operations, and managing collateral risk for retail and wholesale lines of business.
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