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 different types of factory-built houses, the five main advantages, and 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
Mobile homes
The term mobile home correctly applies to a manufactured house that was constructed prior to the advent of the federal Manufactured Home Construction and Safety Standards (MHCSS, also known as the HUD Code). Mobile homes were constructed before June 15, 1976. There are still a few of these around, but they are becoming less common every year.
Fannie Mae and Freddie Mac will not purchase or securitize a mortgage on a mobile home manufactured prior to June 15, 1976. Likewise, HUD will not issue FHA mortgage insurance on a pre-1976 mobile home.
Manufactured homes
Manufactured homes are designed and constructed to meet the federal Manufactured Home Construction and Safety Standards (MHCSS), also known as the HUD Code. They are transportable in one or more sections, and they can be identified by an affixed HUD Certification Label, which is a metal tag affixed to the exterior of the dwelling unit.
Some property owners, real estate agents, appraisers, and others incorrectly use the term “mobile home” when referring to modern manufactured homes, particularly single-width units. If a home was manufactured after June 15, 1976 in accordance with the HUD Code, then it is properly referred to as a manufactured home regardless of whether it is a single-section or multi-section home.
Manufactured homes come in many different sizes, with differing quality levels, features, and amenities. An appraiser should not assume that all manufactured homes are comparable to one another.
Modular homes
Modular homes are built in a factory in self-supporting modules, which are often called “boxes.” Then they are transported to the site on flatbed trucks, where they are either rolled onto a foundation or set in place with cranes.
The building materials (e.g., framing, roofing, plumbing, electrical, cabinetry, and finishes) used in modular homes are the same as those used in conventional site-built homes. Like any other type of housing, the quality of modular homes will vary.
Modular homes and manufactured homes are often constructed in the same factories, on the same assembly lines, using the same materials. What distinguishes one from the other are the codes to which the homes are constructed. Manufactured homes are constructed to meet the HUD Code, while modular homes are constructed to meet the same state and local codes that apply to site-built houses.
A modular home will not have a HUD certification label affixed to the exterior or a HUD data plate affixed to the interior. If you encounter a HUD certification label or data plate, the home is a manufactured home, not a modular home.
Panelized homes
Panelized homes are factory-built homes in which large pre-assembled panels (i.e., a whole section of wall with windows, doors, wiring, and siding) are transported to the site and assembled there. They are often called prefabricated homes or “prefab” homes, although that term is also sometimes used to refer to other types of factory-built housing. Panelized homes must meet state and local codes for the location in which they are set up. When finished, they are indistinguishable from site-built homes and are appraised the same way.
Panels generally provide more chance to customize a home than with modular construction. The wall panels may be constructed of traditional lumber or metal studs. Another more energy-efficient type of panelized wall is a system of structural insulated panels (SIPs), which may be used in roof panels as well.
Panelized houses may also employ roof trusses and floor panels with floor trusses. A big advantage is that the house can be enclosed and made weatherproof and secure within a day or two.
A study by the NAHB Building Systems Councils found that construction of a 2,600 square foot home with trusses and panels used 26% less lumber, generated 76% less waste and was constructed in about only 37% of the man-hours needed to build a similar stick-built home.
Pre-cut or kit homes
Kit home is a generic term for homes that are pre-cut. They are popular with do-it-yourself homebuilders, but they can also be constructed by professionals. They can range from simple cabins to elaborate timber frame structures.
The framing components for this type of house are cut (and in some cases partially assembled) in a factory, then these materials are transported to the site to be erected there. They are also subject to local and state codes.
Common types of kit homes include log homes and dome homes. Some log homes are erected in a factory, and then the pieces are disassembled, numbered, and shipped to the building site for reassembly.
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
Cost savings
Factory-built houses can be constructed for 50% less than similar-sized site-built houses. These homes are built more efficiently because they are constructed in a centralized, controlled indoor environment. They are not subject to weather delays and cost overruns that can result from having to build in the rain, snow, or wind. Conversely, site-built homes can be subject to subcontractor delays, weather damage to building products, theft of materials, vandalism, and delivery problems.
Industry data shows that the labor cost component of a modular or manufactured home is typically 8–12% of the total house construction cost, while the labor cost of a site-built home is upwards of 40–60% of the total cost. This savings on labor can be significant, particularly in an urban environment where labor is both expensive and scarce.
Factories purchase in bulk and generally receive deep discounts on building materials, which are passed on to the buyer. Manufactured home producers indicate they can save up to 30% of cost on standard building materials through high-volume purchasing. Modular home producers enjoy similar benefits but not to the same extent, as their inventory usage is often lower.
Less waste
The costs of construction waste disposal are also greatly eliminated. With factory-built homes, most of the waste is disposed of in the plant or recycled. City disposal rates can be particularly steep.
Factory-built housing also reduces waste both in the time and costs to replace defective materials such as warped studs, damaged boards, etc. The reason why is that most material suppliers send their choice materials to manufactured and modular home producers, since they are volume customers. Moreover, as lumber and other building components are stored in covered warehouses and installed in climate-controlled buildings, ruination of building materials due to weather (dampness, freezing, etc.) is virtually eliminated.
Less time to build
Production cycles for factory-built homes are shorter. A site-built home usually takes more than three months from start to finish. Site work, production, and set-up of a modular or manufactured home can take a month or less. Of course, this depends on the complexity of the multi-section units.
Shorter production cycles can mean savings on construction loan interest, plus it gets the buyer into their new home faster.
Quality control
Quality control of factory-built houses is superior because they are produced in a climate-controlled setting by professionals who build houses daily. These employees are specialists; they repeat the same tasks every day, are subject to supervision by skilled tradespersons, and have continuing training.
Many factory operations also are subject to federal or state supervised quality control programs that include independent inspection agencies.
The machinery, tools, and technology used in the factory are state-of-the-art. This speeds construction and results in greater precision. Templates, computers, and lasers are employed to ensure nearly perfect cuts and joints.
Safety
The building materials in factory-built homes are the same as those used in site-built homes. In addition, factory-built homes are engineered for wind safety and energy efficiency based on the geographic region in which they are sold.
Manufactured homes, for example, are subject to federal laws requiring smoke detectors, egress windows in bedrooms, at least two exterior doors, standards on smoke generation in materials, and limited combustible materials around furnaces, water heaters, and kitchen ranges.
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. 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. 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 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
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