Luxury home appraisal is a niche that’s both exciting and challenging. If you’re thinking about specializing in this area of real estate appraisal, you may want to educate yourself on the specific challenges you’ll face so that you can avoid making common errors. In particular, you may run into some difficulties when appraising proposed new luxury homes.
Here are some of the more common pitfalls and errors in appraising proposed new or renovated luxury homes.
1. Not getting enough details
One common failure is not carefully reading the construction documents or asking the builder about vague or unclear specifications which may lead to the appraiser misunderstanding the proposed project and certain associated costs. Sometimes an appraiser indicates that all of the improvements are expected to be high quality, but the appraiser does not know many of the specifics (flooring, cabinetry, countertops, doors, millwork, roof materials, etc.).
2. Forgetting to revise base costs
Another error that’s often made is forgetting to revise or modify base costs, such as adding an additional cost per square foot for tall ceilings.
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3. Not visiting the site
An additional oversight includes the failure to visit the site and hence not fully understand the site conditions. This is important because a site’s natural conditions and location can impact costs and the site’s value in a number of ways.
4. Using arbitrary costs
Finally, the fourth oversight that appraisers often make when valuing proposed new luxury homes is the use of arbitrary costs. Sometimes appraisers indicate that the data is based on local builder’s costs, but have no records of cost data or other support in the appraisal work file.
How to avoid pitfalls in appraising proposed new luxury homes
One way you can avoid making these common errors is by contacting and interviewing the builder as part of the appraisal process. Why? The builder may be able to provide valuable information, including, but not limited to:
- Sales information, including HUD-1 Settlement Statements, of other new construction sales not publicly available
- Details and specifications of the proposed property
- Descriptions of the energy efficient and technology features of the home
- Insight on the materials selected
- Typical buyer responses to material selections and features in the subject’s market