YOUR PHOENIX ARV NEEDS ONE MORE CHECK

The finished house has to match the math

A bigger house can support a bigger resale price.

But putting the bigger number into a spreadsheet does not build the addition.

That distinction came up in a valuation review this week. The report came back with an important qualification: its conclusion relied on the proposed square-footage addition.

Not completed square footage. Proposed square footage.

That does not make the project bad. It tells us what the value depends on.

As a lender, I want the valuation, construction budget, and project timeline describing the same finished house. If one assumes an addition, another leaves out part of the work, and the schedule assumes everything goes smoothly, we are underwriting three different projects.

The value only works if the scope gets delivered.

MARKET PULSE

AZ Big Media’s November 7 report puts October metro Phoenix active listings at 27,427, up 6.8% from a year earlier. Listings under contract were down 13.5%.

That is more competition for an eventual resale.

Here is the nuance: the same report says median time to secure a contract improved to 50 days from 53 a year earlier. It would be wrong to turn these figures into “every house is taking longer.”

The practical question is narrower: what is selling at your target price, with your finished layout, in your competitive area?

A metro headline will not answer that for you.

FROM THE LENDING DESK

When a project’s value depends on an addition or a major change in layout, I want these five questions answered together:

1. What are we actually delivering? Existing and proposed living area, beds, baths, garage, and major amenities. A garage is not automatically additional living area.

2. What has to happen before construction? Plans, approvals, permits, and any conditions that could change the proposed scope.

3. Does the budget cover that finished product? The addition, tie-ins, finishes, and remaining work need to be visible. “Full renovation” is not a detailed budget.

4. Do the comps support that product? Similar finished space and functionality matter more than finding the highest nearby sale.

5. What happens if delivery takes longer? Extra interest, insurance, utilities, and other carrying costs need somewhere to go.

6. 
   

That last question can change a deal without a single contractor change order.

Here is a hypothetical: a project carrying $500,000 of interest-bearing debt at 12% incurs approximately $5,000 a month in simple interest. Two additional months cost approximately $10,000 in interest alone. Actual loan terms, draw balances, and day-count conventions can change that calculation.

That is before utilities, insurance, taxes, or other expenses.

I would rather see that possibility in the underwriting before closing than explain it after the projected profit shrinks.

ONE THING TO STEAL

Put a five-line “finished product” summary at the top of your next deal submission:

• Existing home.

• Proposed finished home.

• Permit and approval status.

• Scope and budget supporting the change.

• Comparable sales supporting the exit.

Then make sure every attachment agrees with it.

If you are an agent: you can help validate the resale product.If you are a contractor: you can identify scope gaps.If you are a wholesaler or broker: you can make the package easier to evaluate.If you are an investor: you can see what has to go right before calling the spread profit.

Have an Arizona project you want us to look at? Reply with the property, purchase price, scope, budget, and expected exit. We can start with the actual deal, not just the headline ARV.

P.S. A higher ARV is useful only if the budget and timeline can deliver it. Forward this to the person putting together your next project package.

Newsletter Edition #42