Factory-built houses are an important, yet often overlooked, part of the American housing market. Approximately 10% to 12% of new housing starts in the United States are factory-built. There are several advantages to building a house in a factory. For example, certain types of these houses can be constructed for 50% less than a similar-sized site-built home, making quality housing more affordable for thousands of Americans.
As an appraiser, your knowledge of factory-built housing is key to a credible appraisal. This article examines several tips for appraising these houses.
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What is a factory-built house?
Factory-built house is a term that refers generally to a number of house types that are constructed or fabricated, at least in part, off site. The prefabricated components are transported to the site and finished or reassembled there. By contrast, site-built, or “stick-built,” homes are put together at the building site from thousands of individual pieces (e.g., studs, nails, sheets of drywall, shingles, wires, pipes, electrical outlet boxes).
Types of factory-built houses
For appraisers, understanding the specific type of factory-built house you’re dealing with is key. It tells you which building codes apply, gives you clues about the construction process, and impacts how you approach the valuation.
Factory-built homes include:
- Mobile homes
- Manufactured homes
- Modular homes
- Panelized homes
- Pre-cut or kit homes
Advantages of factory-built houses
The five main advantages of factory-built over site-built houses are:
- Cost savings
- Less waste
- Less time to build
- Quality control
- Safety
Tips for appraising factory-built houses
New factory-built houses are being constructed and installed every day, and appraisers are needed to keep pace. Here are some things to keep in mind as you navigate valuing these properties:
Determine the type
It’s important to distinguish HUD code manufactured homes from other types of factory-built houses—including modular, panelized, and pre-cut (kit) homes. These other types of factory-built housing are considered by the GSEs and government agencies as similar to site-built housing for purposes of mortgage lending, securitization, insurance, and guarantee.
In an appraisal of a modular, panelized, or kit home, it is not required by the GSEs or FHA that the comparable sales must be the same type of factory-built housing. However, using similar factory-built homes would be the best practice.
Inspect the site
Even though the house is pre-built, the site still matters. Just like any other home, check out the surrounding land, landscaping, and location. Look at the inside and outside of the home, inspecting for damage, normal wear and tear, and repairs that may be needed.
In the case of a pre-1976 mobile home, particularly one in fair or poor condition, it is possible that the house might not represent the highest and best use of the site as improved.
Know the requirements
Fannie Mae, Freddie Mac, and HUD have different requirements for appraisals of manufactured houses than they do for other types of factory-built houses, and appraisers valuing these properties need to be aware of them. For example, the GSEs require an appraiser to develop the cost approach in an appraisal of a manufactured house, but they do not require the cost approach in the appraisal of a modular or panelized house.
Seek comps
It can be tricky to find recent sales of similar factory-built homes. Although it isn’t a requirement to consider the same type of factory-built home for comparable sales, it certainly is considered best practice.
You may need to do additional research, consult with other professionals, and cast a wider net for more data. Remember also that quality must be considered. Not all factory-built houses are equal in quality, just as not all site-built houses are equal in quality. This is particularly true regarding manufactured houses, which can vary widely in quality even though they are all built to meet the HUD Code.
Document everything
Take detailed notes on construction quality, finish materials, energy-efficient features, customization, and any signs of wear. Also, take photographs of distinguishing characteristics, such as the HUD label and compliance certificate in a manufactured house. These details will help support your valuation conclusions.
Where to find reliable information on factory-built houses
Below are some authoritative websites where you can find good information on the various types of factory-built houses.
Industry associations
Organizations like the Modular Home Building Institute (MHBI) and the Manufactured Housing Institute (MHI) have helpful resources. These websites are loaded with info, research reports, and even conferences where you can connect with experts.
Manufacturer websites
Check out the websites of actual home builders. They usually have detailed breakdowns of their models, construction techniques, energy efficiency ratings, and other factors that give you a deeper understanding of their quality and features.
Appraiser blogs and forums
Online forums and appraiser blogs focused on appraising are great for tapping collective knowledge. These platforms are places where you can ask questions about appraising factory-built houses, find solutions to unique challenges, and even learn about regional differences in the market.
Government agencies
Fannie Mae, Freddie Mac, and U.S. Department of Housing and Urban Development (HUD) have resources specifically related to factory-built homes. Check their websites for appraisal guidelines and changes to appraisal requirements.
Learn more about appraising factory-built houses
Want to learn more about factory-built houses and how to appraise them? Check out our CE course, Appraising Today’s Manufactured Homes, developed in collaboration with Fannie Mae. Get access to this high-quality CE course and hundreds of others—plus webinars, job aids, and exclusive partner discounts—with McKissock’s Unlimited CE Membership.