If you’re building a “spec” home from the ground up or you’re involved with a rather complex rehabilitation project, you’ve obviously done your homework beforehand...and checked it twice before you turned it in. When building a spec property, you’re speculating that by theinvestment real estate subject to value time you’ve finished the new home, you’ll have a buyer.

Spec homes are more commonly found in areas where the homes are selling rather quickly and property values have been on the rise. Building a brand new home without a buyer can hit your bank account rather hard without property preparation.

The same approach works for rehabilitation projects of all sizes. From the more modest of remodels to a near complete tear-down, the final asking price should be determined ahead of time in addition with the well-being of knowing that finding a buyer is assured. In either instance, the value according to both you and the bank is subject to the repairs being completed. All of them. And if there are any missing improvements not made, the value will be deducted based upon the value of the missing improvement.

Say that you buy a property for $50,000 and determine that it will take $100,000 in improvements and repairs. Your list of repairs will have both the description of the repair as well as the cost and value. If part of the repair is to put on a new roof and a new roof is valued at $7,000, then the property will be appraised assuming the roof will in fact be replaced.

At the end of the construction period, the appraiser will visit the property yet again and review the “subject to” list making sure what you said you were going to do, you in fact did. The lender won’t assume that the improvements were made, they’ll send someone else to verify them. If the improvement was overlooked or decided against, the final value may be reduced in the lender’s eyes.