New construction appraisal property finance guide, Building online advice, Safe platform
New Construction Appraisal – How It Is Done?
21 Mar 2022
If you are looking to finance a new construction property, chances are your lender or mortgage company will require a new construction appraisal. You may be wondering how that can be possible when the home itself isn’t even built yet. There are, however, certain processes in place in order to accurately appraise a new home.
What is a New Construction Appraisal?
A new construction appraisal is an estimate of the market value of a property that doesn’t yet exist. The appraiser will look at the blueprints and other documentation of the proposed construction in order to come up with a value. This value is then used to help finance the property.
How is a New Construction Appraisal Done?
In order to complete a new construction appraisal, the appraiser will need to have some specific information. This includes:
-The blueprints of the property
-A description of the proposed construction
-The estimated cost of the construction
-The date the property is expected to be completed
The appraiser will also visit the site to get a sense of the surrounding area and what comparable properties are selling for.
It’s important to remember that a new construction appraisal is just an estimate. The final value of the property may be higher or lower than the estimate, depending on a number of factors.
How Long Does a New Construction Appraisal Take?
The length of time it takes to complete a new construction appraisal will depend on the complexity of the project. A simple home with few customizations may only take a few days, while a more complex property could take weeks.
New construction appraisals are important in order to finance a new property. The process is relatively simple and doesn’t take too long to complete. If you have any questions about the appraisal process, be sure to ask your lender or mortgage company.
Who Completes a New Construction Appraisal?
In order to complete a new construction appraisal, you will need to hire an appraiser. This is someone who is licensed and qualified to estimate the market value of a property. It’s important to choose an appraiser who has experience in the type of appraisal you need.
Chances are your lender or mortgage company will have recommendations for someone in your area who is qualified and able to perform a new construction appraisal. If you’re not sure where to start, the Appraisal Institute offers a nationwide directory of licensed appraisers. Before paying for an appraisal, however, make sure that your financier approves of who you plan on hiring.
What are the Steps of a New Construction Appraisal?
The process of a new construction appraisal is relatively straightforward. The appraiser will need to have some specific information in order to complete the appraisal, including the blueprints of the property, a description of the proposed construction, and the estimated cost of the construction.
Step 1: Acquire Specs and Cost Breakdown
The first step is to get your hands on the specs of the property that you want to be appraised. This includes the blueprints, as well as a description of any proposed construction. You should also have an estimated cost breakdown of the entire project.
Step 2: Estimating the New Construction Home Value
There are three methods that are commonly used to assess the value of a pre-construction home. These are:
This method is the most commonly used by appraisers when trying to determine the value of a new construction home. The appraiser will look at sale prices of similar homes sold in the area. Though many new construction homes are unique in nature, the appraiser will want to make sure they can find homes with similar styles, sizes and features in the area for the most accurate comparables.
While the cost approach may make sense in theory, it can actually be rather inaccurate. The approach will consider the cost of the land to the cost to replicate or reproduce the home. What leads to discrepancies is that many appraisers will use a national database to determine numbers, which can vary greatly depending on the area.
The least common appraisal method is the income approach which determines the value of the home based on the potential income if it were to be an income-generating property.
Step 3: Outlining the Analysis
Once your appraiser has determined a number, they will need to explain the process by which they arrived at that decision. In order to appease the lender or mortgage company, the appraiser will need to identify the elements they used to produce the estimated home value.
Step 4: Completion of a Uniform Residential Appraisal Report
Developed by mortgage lending company, Fannie Mae, a URAR report is the most common form of the appraisal report in the United States. The URAR is a standard form that is used by all lenders and appraisers when completing an appraisal. This will include all of the information outlined above as well as sketches of the property, photos and more.
Once the build has been completed, the appraiser will return to the property in order to verify all the work that was expected when they produced their appraised value. At this time they will be able to provide a Certificate of Completion, which Fannie Mae says must:
- Be completed by the home’s original appraiser/appraisal company
- State the build was completed and everything is in line with the original appraisal report.
While this may seem like a complicated and daunting process, new construction home appraisals are quite common and require little from the buyer themselves. By providing the appraiser with all of the necessary information up front, you can help to ensure a smooth and quick appraisal.
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