Appraising New Construction:
How We Value Custom Homes Before They're Built
By Staff Appraiser, Spurgeon Appraisals
New Construction in Our Market Area
During the past several years, we have seen quite a bit of new construction in our market area. Most of the new homes currently going up in our area are custom-built homes, for which the buyer has purchased a lot or tract of land and has hired a general contractor to construct the home for them. There are a few instances where a builder/developer is constructing spec homes and selling them after completion, but this accounts for only a minority of the construction in our area, and many times these homes are sold prior to completion, with buyers even choosing the level of some of the finishes and/or interior design.
Energy-Efficient Upgrades in New Custom Homes
Most of the new construction homes that we have seen built during the past couple of years have construction costs within the $250,000 to $400,000 range. One of the trends we are continuing to see with custom homes is that borrowers are willing to fork out extra money now for features that may either take a long time to pay for themselves, or will never pay for themselves, but will add to the energy efficiency or comfort of the home. A classic example would be a ground-source heat pump, which is found in most of the new custom homes in our area. These are far more efficient than any other HVAC, but given the relatively low price of crude oil during the past several years (and subsequently natural gas/propane), we would have expected to see a move away from GSHPs. Instead, they appear to be as popular as ever in this area. Other items that we often see are environmentally friendly insulation, extreme amounts of insulation, and 2x6 exterior walls. I believe the popularity of most of these energy-efficient upgrades is driven by a fear of increased future energy costs, which is pushing market participants to be as independent as possible from purchasing energy in any form.
New Custom Homes
Energy‑Efficient Upgrades
Features buyers pay for now, even if they may never pay for themselves.
Ground‑source heat pumps
Environmentally friendly insulation
Extreme amounts of insulation
2×6 exterior walls
The Driver
A fear of increased future energy costs, pushing buyers to be as independent as possible from purchasing energy in any form.
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
Why Appraising New Construction Is Challenging
Appraising new construction can be very challenging. Sometimes we are given a list of raw materials and asked how much they will be worth when nailed together. How the materials are assembled is just as important as the quality of the materials used. For this reason, when we are asked to appraise a new home scheduled to be constructed as if it is complete, we try to obtain as many detailed plans from the architect, designer, and builder as possible. After all these items are gathered and analyzed, a conversation with the borrower may be necessary to obtain additional information.
New Construction
Appraising a Home Not Yet Built
How materials are assembled matters as much as their quality.
Architect
Detailed Plans
Designer
Detailed Plans
Builder
Detailed Plans
Gathered and Analyzed
Plus a conversation with the borrower when more information is needed.
The Result
An accurate and credible opinion of market value, as if the home were complete.
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
Functional Obsolescence in Custom Designs
Functional obsolescence is difficult to quantify in the appraisal of not-yet-constructed properties. Sometimes, a person who is building a home to fit their own needs and doesn’t ever plan to sell it will design a property with market-perceived functional obsolescence. An example of this might be a bachelor who constructs a master bedroom with a tiny master closet only large enough to accommodate a single modest wardrobe, or a couple with young children who construct a nursery room that can only be accessed through the master bedroom. Sometimes these items are curable, and sometimes they are not.
Functional Obsolescence
Designs the Market May Not Want
Built to fit one owner’s needs, and hard to quantify before it’s built.
Example 1
The Tiny Master Closet
A bachelor builds a master bedroom with a closet only large enough for a single modest wardrobe.
Example 2
The Nursery Through the Master Bedroom
A couple with young children builds a nursery that can only be accessed through the master bedroom.
Sometimes these items are curable, and sometimes they are not.
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
An Accurate, Credible Opinion of Value
What I’ve found is that custom new construction homes that haven’t been built yet are more complex to appraise than a home that has been completed already. In completing many of these types of appraisals, I’ve learned that through careful analysis of plans, materials, and design, it is possible to arrive at an accurate and credible opinion of market value. If you are looking for an appraiser with experience appraising homes that are to be completed, call us today.
Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.
