An appraiser's estimate of what a property will be worth on the date construction is expected to be finished.
A building that does not exist yet has no current value as a building, so a construction appraisal looks forward. The OCC handbook says the construction loan appraisal should include a prospective market value. The value upon completion, called the “as complete” value, is an estimate of the property’s market value as of the time development is expected to be completed.
It sits between two other figures. The “as is” value reflects the property’s actual physical condition, use and zoning on the appraisal date. The “as stabilized” value is the estimate for the date the property is projected to reach stabilized occupancy. A project that must be built and then leased may need both prospective values.
For tract developments the handbook uses a tighter measure for the loan-to-value test: the lesser of the borrower’s actual development or construction costs, or the prospective market value of completed units multiplied by their percentage of completion.
Lenders usually test the loan against cost as well as value.
How it shows up in the data here
Appraised values are not in any public lender file. Bank call reports show construction and land balances held, not the values behind them, so no bank's loan-to-value on a project can be computed from the data here. Use the LTV and LTC calculator with your own appraisal figures, and find lenders with construction on their books at construction lenders.
Go further
- Loan-to-value and loan-to-cost calculator: Run a loan amount against an as-complete value and total cost.
- LTV and LTC calculator: Loan to value and loan to cost, the equity a lender will ask for, and the federal supervisory limit for the property type.
- Maximum loan calculator: The loan each test allows: DSCR, LTV and debt yield side by side, and which one binds.
- Construction loan package checklist: A construction lender is lending against a building that does not exist yet. The package has to show what it will cost, who will build it, where every dollar comes from, and how the loan gets repaid when it is done.
- Supervisory loan to value limits and HVCRE, explained: Two federal rules shape how much a bank will lend against real estate: a table of loan to value ceilings, and a capital rule that makes some construction loans cost the bank more to hold.
Related terms
- As-is value: The market value of a property in its actual physical condition, use and zoning on the appraisal's effective date, with no credit for planned work.
- As-stabilized value: An appraiser's estimate of what a property will be worth on the future date it is projected to reach stabilized occupancy.
- Appraisal: A written, independent opinion of a property's market value as of a specific date, prepared by a qualified appraiser.
- Loan-to-value ratio (LTV): The loan amount divided by the value of the property securing it. A $700,000 loan on a property valued at $1,000,000 is 70 percent loan to value.
- Loan-to-cost ratio (LTC): The loan amount divided by the total cost of a project: the property plus all construction costs. It shows how much of the budget the lender funds.
- Construction loan: A short-term loan that pays for building or renovating a property, advanced in stages as work is finished and repaid from a sale or a permanent loan.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.