Proposed Construction Appraisal
Appraising property that hasn’t been built yet seems like a confusing process. In most cases a valuation expert plays a role in this process. The appraiser must follow a few key guidelines to ensure an accurate and honest value judgment.
Appraising new construction presents a unique challenge to even experienced professionals.
There are four main data sources that an appraiser will need in order to craft a thorough value analysis. According to real estate experts. the lender should obtain this information and then pass it along to the valuation expert.
- Building plans – The design for the home. The plans come in the form of drawings and were initially created by the builder or architect. The floor plan, along with the sizes of rooms and dimensions of the structure, are detailed here. Any specifics relating to electrical components or mechanical features are also noted in the plans.
- Spec sheet – Short for “specifications,” this document describes the exact materials to be used in the home’s construction. Any insulation, roofing material or other exterior details are listed here.
- Cost breakdown – An analysis of the total expenses incurred during the construction of the home. This includes the cost of design as well as all materials and labor. This may prove the most useful document in determining value.
- Plot plan – Essentially, a blueprint for the surrounding property. Accessory buildings as well as utility lines, septic systems and drainage are covered in the plot plan.
The more detailed these documents are, the greater the accuracy of the analysis will be. Once these four documents are all in the appraiser’s possession, typically the cost approach to value is heavily weighted to arrive at the home’s worth. This method, of course, takes into account the cost of total replacement. An appraiser is also likely to consider a market approach valuation. After the home is built, the appraiser may do a second analysis (1004D) to confirm the home actually constructed matches the appraisal plans and specs.
