Appraising partially completed buildings demands a cautious approach, often requiring appraisers to conduct progress inspections or valuations for structures in the construction phase. Estimating the value of these incomplete structures presents challenges, particularly when relying on a "percentage complete" approach to derive an 'as is' value.
Careful consideration is essential, as the straightforward application of the percentage completion to the overall estimated construction cost does not yield an accurate estimate of how the market would value the property in its incomplete state if placed on the market.
Structures under construction introduce complexities, such as contractors' liens, construction holdbacks, or other assessments, which may be unknown to the appraiser and can be misleading if not considered. Various reasons can halt construction activity, potentially impacting the 'as is' value significantly. Therefore, estimating this value solely based on the percentage complete is deemed inappropriate.
During progress inspections, it is advised that appraisers limit comments to an estimate of percentage completion, refraining from providing a dollar value 'as is.' If a client insists on an 'as is' value, a fully-documented appraisal report becomes necessary, utilizing comparable sales that are similarly incomplete.
To ensure a comprehensive appraisal, maintaining an adequate photographic record of the premises is crucial. Partially completed buildings may lose materials easily removed from the site when construction ceases, making it challenging for the appraiser to justify the percentage completion figure without photographic evidence.
Clear written instructions on the expected standard of finish upon completion are vital. Factors such as parking facilities, landscaping, fencing, and appliances can influence value, making it unlikely that supportable adjustments are applicable.
Appraisers should refrain from implying compliance with all building code requirements, as this falls outside their expertise. Additionally, judging the quality of work and materials used, especially when concealed by subsequent construction activity, should be explicitly addressed in the assumptions and limiting conditions accompanying the report.
In instances where appraisers are asked to provide a 'cost to complete' figure, clarity is paramount. The report should explicitly state that the cost to complete assumes continuity of construction activity, acknowledging that additional costs may be incurred if a contractor has to be replaced or construction activity stalls.
Furthermore, the report should emphasize that simply subtracting the cost to complete from the 'value as complete' does not yield an 'as is' value. Adhering to these suggestions significantly reduces the risks appraisers face when valuing partially completed buildings.
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