In my daily appraisal travels we see more and more new construction inside existing developments. They stopped building a few years ago and now investors/builders are buying up the remaining lots CHEAP and starting to build homes on them. And YES,,,,,in our area anyway, I am definitely seeing an increase in values for these new homes compared to their few year old counterparts (at least when it comes to the price on the sales contracts, getting them closed at that price is another story) This is Partly because of dwindling supply and partly because people like NEW! Always have, always will.
BUT lenders are having issues with these ground breaker TESTING THE MARKET homes. If we find by looking at other developments in the area that the market is buying more new homes AND are paying more for them, based upon the most recent sales and pending sales, we should be able to make a determination that the property is in an increasing marketplace and adjust the comparable sales upward. BUT some lenders want more than this, they want these sales or pending sales to be within the same development or within 1 mile of the new development in order to support this trend. But many times it may be the FIRST home to go under contract in this development. What then?
I understand the risk for them, I do! But until a lender is willing to accept the fact that these areas of new construction are not going to go Belly Up again, they are not lending on these uncertain risks. As one Loan Officer said and I totally agree. You have 2 buyers in every transaction...The buyer and the BANK!
So how will values ever increase if lenders require sales or pending sales that do not exist in a particular area YET and they won't let us use other comparable developments maybe 5-6 miles away? Your guess is as good as mine. As appraisers we need to prove our findings of month over month data showing a trend upward. Until we can prove this with SALES, we cannot make adjustments on a FEELING or even on lack of SUPPLY as the reason why people are paying more for a home...Simple Economics I- Supply and Demand should carry some weight, but it doesn't without sales.
Once a Lender is willing to take a calculated risk on this new construction trend in a given development, then open the flood gates as many more new homes will pop up and that one lone sale can be used as a strong comparable along with others in the area and then the building will start to increase.
So what lender is willing to take that risk? Don't know but if they do take that risk it could mean an entire development will be heading their way for the loans.
Should make for an interesting year in 2012!
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