Appraising homes in Tustin Legacy--a new master-planned community on the former Tustin Marine Corps Air Station--requires adapting traditional methodology because there's limited sales history. All comparables come from within the development itself, which is still being built.
What Tustin Legacy Is
For context: Tustin Legacy sits where the old Tustin Marine Corps Air Station operated until 1999. For nearly 20 years, this land sat largely undeveloped. Now, builders are creating a mixed-use community with thousands of homes, shopping, and office space.
The first phase homes started selling in 2016-2017. We're in the early innings.
New master-planned communities have built-in complications for appraisers. We don't have years of sales history. We don't have established comps. We're essentially trying to establish market value for homes in a community that's still being built.
The Challenge: Limited Comparable Sales
For established neighborhoods, I find three solid comparable sales within a mile. For Tustin Legacy, all the comparables ARE Tustin Legacy homes.
This sounds limiting, but it actually simplifies things in one way: the subject property and comparables are very similar because they're in the same development with similar finishes and designs.
The complication: I have very few sales to work with. In March 2017, maybe 40-50 homes have sold in Tustin Legacy. Compare that to an established neighborhood with 200+ annual sales, and you see the data limitation.
How New Communities Establish Value
New communities establish value through several mechanisms:
Builder Pricing: The builder's initial pricing sets the baseline. If a new 2,500 sq ft home lists for $650,000, that creates an implied value marker.
Early Sales: The first 20-30 sales establish a price range. If homes start selling between $625k-$675k, that's the emerging market value.
Comparable Sales Nearby: Even though Tustin Legacy is new, there are nearby established communities (Tustin, Irvine proper, Santa Ana) with established comparable sales. I can use those as secondary reference points, adjusting for the "new community premium" or discount.
Market Conditions: Broader market conditions matter. A home in a new community built during a strong market (like now, in 2017) will appraise higher than one built during a soft market.
My Valuation Approach for Tustin Legacy
Here's how I appraise new community homes:
Primary Comparables: Recent Tustin Legacy sales of similar floor plans, phasing, and finishes. If the subject is a 2-story 2,500 sq ft home, I find Tustin Legacy sales of similar homes.
Secondary Comparables: Sales from nearby established communities (Irvine, Tustin proper) adjusted upward or downward for location, community amenities, and newness.
Cost Approach: What did it cost to build, plus land cost, plus builder markup? The builder wouldn't be selling below cost, so cost provides a floor value.
Income Capitalization: While primarily residential, new communities sometimes include rental units. Broader market rental rates can inform value.
Most weight goes to primary comparables because those are market-proven sales in the exact community.
Adjustments for New Construction
When using newer home comparables, I adjust for factors unique to new communities:
Condition: New homes are in pristine condition. An older comp in a less pristine condition gets adjusted upward.
Warranty: New construction includes builder warranties that older homes don't. This adds value—probably 1-2% adjustment.
Systems Age: All systems are brand new. An older comparable's systems might need replacement in 5-10 years. New construction homes have 10+ years before major expenses. This supports higher values.
Customization: Some buyers customize during construction. Depending on the customization, value increases. A loaded option package might add 3-5%.
Phasing and Amenities: Early phases might lack full community amenities (pool, fitness center, etc.) that later phases will have. This affects appraisal adjustments.
Risk Factors in New Communities
I need to assess unique risks:
Market Saturation: If a builder is developing too many homes too fast, market absorption could slow, pressuring prices. Tustin Legacy's development pace seems reasonable so far.
Predatory Builder Practices: Some new communities have problematic builders who cut corners. Luckily, Tustin Legacy has reputable builders (builders from major national firms). That reduces risk.
HOA Costs: New community HOA costs can be high initially for capital improvements. I research these and note them. High HOAs suppress future resale value.
Infrastructure Completion: If roads, utilities, or community amenities are incomplete, value is dampened until they're finished. Tustin Legacy is progressing well on this front.
Why Tustin Legacy Prices Are Where They Are
Homes in Tustin Legacy are pricing 8-12% above comparable new construction in nearby areas. Why?
Location: Tustin Legacy has superior planning and design compared to some alternatives.
Schools: It's in good school districts.
Newness Premium: Buyers pay for new, even when older homes in the area are comparable. The new construction premium is real and persistent.
Community Cohesion: Master-planned communities have amenities and design cohesion that appeal to families.
Supply Perception: Buyers believe they're getting in early on a good thing, which supports enthusiasm and pricing.
Looking Ahead
As Tustin Legacy matures, the appraisal challenge will shift. Early phases will become "older" phases. Later phases will command premiums. The community will establish a clearer value hierarchy.
By 2020, I expect Tustin Legacy will have 500+ sales, creating a robust comparable database. Appraisals will be more straightforward.
For now, new community appraisals require more judgment and detailed analysis. But that's manageable. The principle is the same: determine what informed buyers have paid for similar homes, adjust for differences, arrive at fair market value.
Tustin Legacy is emerging as a solid community with strong early sales momentum. For appraisers, it's a new frontier—but one with increasingly solid data support.
---
Appraising in Tustin Legacy or another new community? I've got experience navigating new community appraisals. Contact me for a professional valuation.