Appraisal while under contract

daba78October 18, 2008


We have been looking at a house that is a bit unique in that it is not completed (was foreclosed upon before completed). It has no HVAC, plumbing, sewer, electric service (some wiring done), not all drywall complete, no floor coverings, etc. Therefore, it has been hard to find any comparable houses in the area, in order to determine a fair price.

We submitted an offer which was just under 80% of the asking price, which has been accepted (also, the seller has added an "AS IS" condition to the contract).

The contract (which we haven't yet signed) also has a clause which gives us the right, after we are under contract, to hire a certified appraiser to perform an appraisal, and if the house appraises at less than the purchase price, the seller must either lower the price down to the appraised price, or we can walk away.

I was just wondering if any of you have ever exercised this option?

Also, it it common practice for a potential buyer to hire an appraiser BEFORE signing the contract? If so, that may be the better option for us.

Also, are certified appraisers able to make a pretty accurate assessment of a house which is not yet completed?

Any ideas would be greatly appreciated!

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I've never purchased a home as you've described but I've sold hundreds of them in various stages of construction. I worked a couple decades as a bank workout officer & my portfolio usually was about 60% under construction residentials.

In every case, I insisted on a signed contract with earnest money before allowing the buyer to have access to the property for inspections, appraisals, & whatnot. I didn't want to to be fiddling around opening the house & wasting my time with tire-kickers.

The appraiser will perform what's known as either an "as-is" or "as complete" appraisal. They do this frequently. They will consider both the "cost" & "market comp" appraisal methods & arrive at a value based on one or the other...or, possibly a blend of both depending on your local market conditions. I appreciate that it seems "unique" to you but, trust me, it's not unique to either the bank nor the appraiser. Even in good markets small builders fail to complete properties & end up in foreclosure; people divorce halfway through completion of their "dream" home; & other factors resulting in partially complete homes hitting the market.

Good luck with your new home!


    Bookmark   October 18, 2008 at 12:57PM
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Thanks for the prompt response, tricia, and for the reassurance that this house isn't too far "off the radar" to be accurately appraised.

You mentioned "as-is" or "as complete" appraisals. What are the differences between the two types?

Also, if the house is being sold "as is" is it still possible to have it appraised while under contract?

Thanks again!

    Bookmark   October 18, 2008 at 1:37PM
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Just a thought, please check with you local building dept. to see how much permits will cost--were there any ever pulled--and what inspections they will require. If they do require permits, ask for someone in the dept to view the home first.

    Bookmark   October 18, 2008 at 2:06PM
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If it's being sold "as is" the appraiser will give you an "as is" appraisal meaning he/she will determine value of just what's already appurtenant to the site plus any materials not yet installed but present onsite & included in the sale. As example, maybe there's a stack of drywall in the garage or rolls of electric wire somewhere on site.

You may also need an "as complete" appraisal if you're going to finance the finish work.

If there are uninstalled materials laying sure to inventory them & take lots of pictures (dated). Uninstalled materials frequently grow legs & walk away in the night! The bank should have secured them but, these days, who knows what they're doing...or not doing to protect the property.

Also, ask the lender if the property is currently insured & for how much! This is very important. There are so many foreclosures today I'm uncomfortable saying this doesn't need to be asked. It 'should' be a no-brainer...banks have general liability policies to cover this type of thing but the loan officer in charge does have to remember to notify the insurer of the property's address within 30 days of the foreclosure. I'm completely uncertain that every property is making it onto the proper insurance list today. So...ask & you can sleep easier plus it 'might' trigger the darn loan officer that he/she needs to notify the insurer immediately of the property's existence! Would not be fun to lose the house to fire 3 days before you close...and empty properties are targets for bored teenagers, unfortunately.

As "as complete" appraisal is performed for houses as per the plans & specifications. For instance, if you were building from scratch & needed to get an appraisal done for your construction loan. Obviously, there's not yet a physical house to appraise. So, the appraiser uses your plans & specs to ascertain value as if the home was completed.

After you have closed the sale & start to finish the sure to obtain your own Builder's Risk insurance policy. It will cover you in case the guy delivering the HVAC trips over his McDonald's cup & breaks his leg. Also, get lien waivers from everybody who provides materials and/or labor. If you have a construction loan your lender will assist with this process. If you'll be finishing the home with cash then it's totally your responsibility to protect yourself.

In my portfolio, I built-out probably close to 90% of all houses than came to me unfinished. I GC'd them. I found it much easier to sell a completed house (and sold them for substantially more value to my employer...the bank) than it was to sell a half finished place. I'm a bit surprised they are selling it to you "as is". I guess banks are just so overwhelmed today & don't have the employee skills on staff to get the job done. Many times, I've been assigned the task of building out entire had 450 unfinished houses! Yikes. It was in Rancho Mirage, CA. The day I first arrived on-site to take over as GC...I found 3' of sand blown into the houses. Oh, what a mess! Took me almost 3 years to get the last house sold but oh what a party the bank threw for me when I closed that last house! lol :)

Ya know, you should ask Dave here on the forum about getting an FHA loan that includes funds to finish the construction plus the purchase price. I'm skilled at workouts but permanent financing isn't my 'thing' but Dave will know...


    Bookmark   October 18, 2008 at 2:25PM
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Your appraiser will check for permits, inspections, & such. But, mariend is correct...good idea to go to the town's Building Department yourself. Personally, I'm in the process of trying to purchase a foreclosed property that doesn't have a Certificate of Occupancy (aka CO). There's a standoff between the lender & us as to what the next step will be. The town won't tell us if they'll issue the CO without inspection & the lender won't sell us the property contingent upon our ability to obtain the CO. Aarck! Yes, go to the town & find out about permits & inspections!


    Bookmark   October 18, 2008 at 2:30PM
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tricia, thanks again for sharing all of your knowledge and experience (you certainly have plenty of it -- no wonder your bank threw you a party after you completed that subdivision!). It makes the whole process much easier to understand. I also appreciate your suggestions about documenting any materials present, and insurance.

mariend, very good point about the inspections! I did happen to have the town's inspector look the place over, and he told what it would take to get the property to the point where it could be occupied.

    Bookmark   October 19, 2008 at 12:37AM
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Interesting thread. Thanks, Triciae, for your posts about all your experiences. I learned a

    Bookmark   October 19, 2008 at 4:57PM
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Sounds like one I saw in North Port. There are Windemere, Gulfstream, and Grover Bros homes all done for $100,000, why bother?

    Bookmark   October 19, 2008 at 6:41PM
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