While most appraisals only require a single field visit—and in some cases none—when it comes to appraising new construction, you may need to visit the property several times. It mostly depends on the lender requirements, but you are also going to be sure you practice due diligence.
Not only will you conduct an extensive lot inspection before construction starts, but you may also need to visit the property during construction—to assess progress and detail when work is complete. You will also need to conduct a final inspection.
Inspection during construction
In some cases, the lender may require you to visit the property and inspect it periodically during the construction phrase.
During the visits, you will assess progress and report it back to the lender so that the lender can release construction draws (funds taken from the loan to pay material suppliers and contractors).
It’s possible that the lender will have other contractors complete these steps, but if you are called upon, make sure you visit the property as often as is required.
Do note that your appraisal inspection visits aren’t the same as inspections done to confirm the work is to code. Inspectors will be hired to complete full inspections at various stages of the build. Lenders want you to confirm that the various stages are complete.
Related Reading: 6 Tips for Appraising New Construction Homes
When the construction is at least 90% complete, you can officially—by most lenders’ standards—conduct a final inspection and report on the value. That said, if you can wait until it is 100% finished, do so, so that you know for sure nothing is being added or omitted that could affect value.
That said, depending on the type of loan or the time that has elapsed, the lender may ask for a confirmation of the original opinion of value or ask for an updated value. Some loans have time constraints on the amount of time that can elapse between the original appraisal and the final inspection, so you’ll have to do as the lender asks.
When you go to do your final inspection, follow this guidance:
- Take your notes and original sketch of the improvements with you.
- Confirm all your measurements and finishes. Changes may have, and most likely, occurred during construction. Square footage could have been added or omitted, a change request for custom features could have taken place, or materials and finishes could have been downgraded because of budget issues.
- Be completely honest.
- Appraisers who mean well may classify a project as complete, even when work is still required. Don’t be lenient. If work is in progress or tasks are left undone, state that in your inspection documents. If you say work is complete and the lender releases funds, but the work is not done, you are liable if the builder doesn’t finish the project—and could face a law suit. Always report exactly what you see.
- Remember that it’s not your job to tell the lender when to close a loan.
- It’s your job to report to the lender the progress on the home so that the lender can make an informed decision. Be very detailed in your reporting, include many pictures, describe the incomplete items and assign your estimated cost to complete them. Then let the lender decide what to do next.
When appraising new construction, remember that you are the eyes of the lender. The lender relies on you to confirm that the collateral is secure and that construction is complete. Don’t drop the ball when it comes to assessing both the level of completion and the quality of the construction. It’s your job to project the lender and borrower.
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