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Fair Market Value (FMV) is the Solution |
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| Let’s
take the example of a $200,000 land purchase with a $400,000
construction contract. In this example, the Acquisition Cost is
$600,000 but once the two are put together, and the property built, the
Fair Market Value (FMV) of the property will be, for example, $800,000.
This is similar to the concept that a pie, sold retail, is worth more
than the actual cost of the crust, filling and sugar that went into the
pie.
So when a construction loan is appraised, we appraise it based on plans
and specifications, as if it already existed, based on comparable sales
of similar size and quality, already in existence and recently sold.
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