Construction, Progress & Development Appraisals
Professional Real Estate Valuations for Construction, Renovation & Development Projects
Construction and development projects can require a different type of appraisal than an existing, completed property.
Whether you are building a new home, completing a major renovation, developing land, arranging construction financing or determining the value of a partially completed project, the appraisal may need to consider both what exists today and what the property is expected to become.
Cade Appraisals Inc. provides independent construction, progress and development appraisal services for property owners, builders, developers, investors, lenders and other authorized clients.
Depending on the assignment, the appraisal may consider the property in its current condition, the proposed improvements, the anticipated completed property and the market evidence relevant to the project.
What Is a Construction Appraisal?
A construction appraisal is a professional real estate valuation involving a property that is proposed, under construction or undergoing significant improvements.
Unlike an appraisal of a completed home, the appraiser may need to analyze plans, specifications, construction details and other information describing improvements that do not yet exist or are only partially complete.
Construction appraisal assignments may involve:
New home construction
Custom homes
Major additions
Extensive renovations
Residential developments
Commercial construction
Investment properties
Partially completed buildings
Construction financing
Properties being substantially redeveloped
The exact scope of the appraisal depends on the property and the intended use of the
report.
“As Is” and “As If Complete” Property Values
Two important concepts in construction appraisal are the property's “As Is” value and its “As If Complete” value.
The As Is value considers the property in its current condition as of the effective date of the appraisal.
For a property under construction, this could mean the value of the land together with the improvements that have actually been completed to date.
An As If Complete value considers the property based on the proposed completed improvements, subject to the assumptions and conditions established within the appraisal assignment.
For example, a house that is only partially constructed may have one value in its current state and a different anticipated value once construction is completed according to the plans and specifications.
These are two different valuation questions and should not be confused.
Construction Progress Inspections
Construction financing is sometimes advanced in stages as work progresses.
A progress inspection can document the stage of construction that has been completed at a particular point in time.
Depending on the assignment requirements, the appraiser may inspect the property and report on observable construction progress.
This could include items such as:
Site preparation
Foundation
Framing
Roofing
Windows and exterior finishes
Mechanical systems
Drywall
Interior finishes
Kitchen and bathrooms
Flooring
Exterior improvements
Overall completion
A progress inspection is not the same thing as a building inspection, engineering inspection or municipal building-code inspection.
Its purpose and scope are determined by the appraisal or lending assignment.
Why Are Progress Inspections Important?
Construction projects change over time.
At the beginning, there may be little more than a vacant site. Later, there may be a foundation and framing. Eventually, the building approaches completion.
When financing is being advanced throughout this process, the lender may require information regarding the progress of the improvements before releasing additional funds.
The lender determines its own requirements and whether a progress inspection or updated appraisal is necessary.
Appraising a Partially Completed Property
Partially completed properties can be more complicated to value than either vacant land or finished buildings.
The appraiser must understand what has actually been completed, what remains outstanding and how the market would recognize the property in its existing state.
Depending on the assignment, relevant considerations may include:
Current stage of construction
Quality of completed work
Proposed finished improvements
Remaining construction
Site improvements
Market demand
Comparable completed properties
Comparable land sales
Construction plans and specifications
Other relevant market evidence
The appropriate valuation methodology depends on the individual property and assignment.
Major Renovation Appraisals
Construction appraisals aren't limited to new buildings.
A property undergoing extensive renovation may also require an appraisal.
Examples include:
Complete interior renovations
Large additions
Second-storey additions
Major structural alterations
Conversions
Substantial commercial renovations
Redevelopment of an existing building
An appraisal may be required before work begins, during construction or after the
improvements have been completed.
Does Construction Cost Equal Market Value?
No.
This is an important distinction.
The amount spent constructing or renovating a property does not automatically equal the
amount those improvements contribute to market value.
Market value is influenced by what purchasers are willing to pay for the property within its particular market.
For example, a highly customized improvement may be expensive to construct but may not generate an equivalent increase in market value.
The appraiser therefore considers construction information alongside relevant market evidence rather than simply adding construction costs to the land value.
What Information Is Needed for an “As If Complete” Appraisal?
When an appraisal involves improvements that are not yet completed, the appraiser needs sufficient information to understand what is proposed.
Depending on the project, useful information may include:
Architectural drawings
Floor plans
Building plans
Site plans
Specifications
Construction contracts
Cost estimates
Building permits
Finishing schedules
Proposed building size
Proposed materials and finishes
Information about garages, basements and outbuildings
Development plans
Other relevant project documentation
The more clearly the proposed improvements are defined, the better the appraiser can understand the property being valued.
Development Appraisals
Development property can require considerably more analysis than a conventional residential appraisal.
A property's value may be influenced not only by what currently exists on the site but also by what the land can legally and physically support.
Depending on the assignment, a development appraisal may consider:
Current land use
Zoning
Official plan designation
Site size and configuration
Road access and frontage
Municipal services
Development approvals
Environmental constraints
Floodplain or conservation considerations
Potential severance
Density
Surrounding development
Market demand
Comparable land sales
The appraisal must distinguish between development potential that is reasonably supported and development possibilities that are merely speculative.
Highest and Best Use
Highest and best use can be particularly important when valuing development land or properties with redevelopment potential.
A property may currently contain a house or another improvement, but that does not
automatically mean its existing use represents the basis on which the market recognizes its greatest value.
Depending on the assignment, the appraiser may need to consider the property's legally permissible, physically possible and financially supported uses within the applicable appraisal framework.
This analysis can be especially important for:
Large residential lots
Potential severance properties
Vacant development land
Older properties in redevelopment areas
Commercial sites
Mixed-use properties
Properties with changing land-use potential
Severance & Redevelopment Potential
Property owners sometimes assume that a large lot can automatically be divided.
That isn't necessarily the case.
Potential severance can depend on zoning, frontage, lot area, servicing, access, planning policy, environmental restrictions and municipal approval, among other considerations.
An appraisal should not automatically value a property as though a severance or redevelopment approval already exists when it does not.
The actual status of approvals and the assumptions used in the valuation must be clearly understood.
Vacant Land & Development Sites
Development appraisal assignments may involve properties ranging from a single vacant residential lot to much larger development parcels.
Depending on the property, the appraisal may consider:
Residential building lots
Potential severance parcels
Commercial land
Industrial land
Mixed-use development sites
Rural development properties
Agricultural land with development considerations
Larger development sites
The appropriate appraisal approach depends on the characteristics of the land and the nature of the proposed development.
Residential & Commercial Construction
Construction appraisal services can apply to both residential and commercial real estate.
Residential assignments may involve custom homes, additions, substantial renovations and residential development.
Commercial assignments may involve retail, office, industrial, mixed-use or investment properties.
More complex projects may require additional documentation, market research and analysis.
Construction Appraisals for Financing
Construction and development appraisals are frequently connected with financing.
A lender may require an appraisal before construction begins and additional inspections or valuation work as the project progresses.
Because lender requirements vary, it is important to confirm the appraisal requirements before ordering the report.
Some lenders may also require the appraisal to be ordered through a specific process or completed by an approved appraiser.
Frequently Asked Questions About Construction & Development Appraisals
Can you appraise a house before it is built?
Yes. Depending on the assignment and availability of adequate plans and specifications, an appraisal can consider a proposed property on an “As If Complete” basis subject to the assumptions and conditions of the appraisal.
Can you appraise a house that is only partially built?
Yes. Partially completed construction can be appraised depending on the scope and requirements of the assignment.
What is the difference between “As Is” and “As If Complete”?
“As Is” considers the property in its current condition. “As If Complete” considers the property based on the proposed completed improvements described in the appraisal assignment.
What is a progress inspection?
A progress inspection documents observable construction progress for the particular assignment. It should not be confused with a building-code, engineering or home inspection.
Can you appraise major renovations?
Yes. Appraisals can involve properties before, during or after substantial renovations.
Can you determine whether my property can be severed?
An appraisal can consider relevant land-use and development information, but it does not replace professional planning advice or municipal approval. Severance feasibility should be confirmed with the appropriate municipality and planning professionals.
Can development potential increase property value?
Potential development can influence market value when it is sufficiently supported by market evidence and relevant planning and property information. Development potential should not simply be assumed.
Does my construction budget determine the finished value?
No. Construction cost and market value are different concepts. The appraiser analyzes how the completed property is expected to be recognized within its market.
Professional Construction, Progress & Development Appraisal Services
Construction and development projects require careful consideration of both the property that exists today and, where applicable, the improvements proposed for the future.
Whether you require an appraisal for new construction, a major renovation, a partially completed property, construction financing, a progress inspection or a development property, Cade Appraisals Inc. provides independent valuation services supported by relevant property and market analysis.
Need a Construction, Progress or Development Appraisal?
Contact Cade Appraisals Inc. to discuss the project, property and appraisal requirements.