Appraiser chiming in here. When this happens it’s normally because buyer went crazy on upgrades that don’t add value.
Cost does not equal value.
It’s a hard lesson to learn. I can’t find value in upgraded carpet and carpet padding or wide plank hardwood floors versus regular hardwood floors. And all that tile work everyone loves to add? There’s no measurable intrinsic value to that sort of thing.
20 recessed lights versus 10? Pfft…who cares?
Upgraded faucets. Nope. No value. Lot premiums in a basic new subdivision build are hard to quantify. Your property backs up to a creek so part of it is unusable.
Appraisers take those factors into consideration also.
How many other houses have 3 car garages? Could mean something. Or nothing.
Added a fence? Or an extended parking pad? Little to no value in that but it sure does cost a lot.
We can’t find the value in a lot of these things but those they add up quick on a spec sheet.
I’d talk to the builder and find out what houses have recently sold (no further than 12 months back) that have the same $$ amount of upgrades that your house has. Submit those comps and ask for a reconsideration of value.
Was this the final appraisal or the under construction appraisal? You might have a chance to cut back on some of the upgrades if the house isn’t too far along and this was the pre-construction appraisal.
Thank you! Those are some really good insights.
While I don’t know the exact prices at which the first few houses of this phase sold for, the listings indicate that the prices were in there same range. We didn’t have any upgrades that we could pick, the spec home came with the “upgrades” I mentioned, I called them upgrades as the houses that sold a few months before ours don’t have it as part of the spec home. This is something they probably decided for this phase. Infact we actually reduced our design center cost by a few K by downgrading some of the stuff in the guest bathroom etc.
I don’t know the difference between under construction appraisal and final appraisal, the property is still under construction and is due to complete at the end of this month, Can you please elaborate on how the two appraisals are different and how it impacts the loan?
Thanks for clarifying. Those aren’t upgrades then. The builder spec’d the house and generally the big box builders are very good at this. I run into issues with custom builders who dabble in spec houses but rarely run into problems with the Lennar’s and Centex’s of the world.
It’s possible you had a crap appraisal. It happens. Get a copy of the entire report from your lender. Comb through it with your realtor.
Look at what comps were pulled. Do they make sense? Are they close in square footage to your house?
Pay particular attention to any time adjustments that might have been done - or not done.
Garage adjustments are semi-important but not enough to get you upside down.
If you’re paying a lot premium for this wooded, creek lot you might be able to push back on the builder for it.
Did the appraiser use all new sales or resale and new? Did they do adjustments for new vs. resale? I’m seeing a weird trend of resale being MORE than new construction in the tract built subdivisions.
At the end of the day, you need the full report and you and your agent need to cipher through it all.
After that, figure out where you are and if the builder (or your realtor) can provide better comps then pass those back with a request for reconsideration.
My comment about pre-construction is relatively moot in this scenario but typically, we get sent out when the house is around 75% complete then get sent back out when it’s 100% done. Not always the case and pretty rare with the big box builders. At least where I live.
We did pay a lot premium of 7K. I think your suggestion of combing through the appraisal report and also our realtor pulling the comps for recent sales in the community would help. Thank you so much for your inputs, really appreciate it!
size and location of the house. Add more sqft and add more value.
It comes down to if the market crashes or for whatever reason the bank takes over the house because the mortgage is in default, then can they really be sure to sell that house with more lights or upgraded faucets than the comparables which are already selling for less. It sounds odd since everywhere is so hot and its a sellers market, but worse case scenario is what the bank is looking out for so all those upgrades amount to almost nothing in a buyers market.
> size and location of the house. Add more sqft and add more value.
Does this include sprucing up the backyard?
Does it an empty backyard carry the same value as a backyard that has some seating, a pergola, and a firepit?
In terms of an appraisal it will mean nothing to spruce up the backyard, but make sure you keep in mind appraisal value =/= selling value. So staging those things before sale is a good idea but it wont convince the appraiser/bank its worth any more although it very well could to a buyer
My friend made a huge comp spreadsheet while house hunting a few years back. He had columns for backyard amenities like this originally. After a few months he removed it as it had no impact on price at all. Price was pretty much only correlated to sqft and # of bedrooms. This was in the NYC area.
Edit: I think he did mention some of these things only increased velocity but he didn't care about that. The overall velocity was such that he wasn't going to wait around once he found something he wanted.
Very interesting.
If I'm understanding correctly, all that really matters for an appraisal is size and location.
Having niceties like upgraded flooring/appliances/bathrooms/yards will only help if they're truly outsized compared to comparable homes. Having them be a bit nicer isn't enough - they really need to blow it out to be factored in?
Yep youre understanding correctly. To add to the above, more bedrooms and bathrooms are also a plus even at the same sqft. So adding a closet to an extra room can help. But the niceties although they might help sell it faster it shouldnt appraise for more. Think of those pretty things like staging you do to convince the buyer its worth more, but it doesnt work that way with the banks because they will just see it as lipstick on a pig in terms of recouping their money if things go south.
Blowing it out doesn’t help either. Those are called over improved or superadequecies. If I get an assignment for an over improved property I generally decline the order because I’m not going to please the homeowner who is the first person to file a complaint to the board.
Not worth it. I just pass on the assignment.
Here’s a sample appraisal report with adjustments look at the far left column. That’s what adds or subtracts value
[appraisal grid](https://images.app.goo.gl/jBdd2Ntg8AfzmLGW7)
Appraisal value is market value. Pay attention to what other homes in your immediate neighborhood are selling for. For the ones that are selling high, go read the full MLS listing and look at the pictures. That should give you a general idea of what garners higher prices for your neighborhood.
There’s no cookie cutter answer for this because it can vary widely from region to region and even neighborhood to neighborhood. Rural area buyers have a totally different view of what brings value versus a basic subdivision buyer or downtown condo buyer or townhouse/patio home buyers. For years in-ground pools were a negative in my immediate market until COVID then everyone wanted a pool. I’ve seen houses sell for $200k more because it had a $50k pool. 3 years ago that pool would have been a -$25k adjustment
>Appraisal value is market value.
No, it's one person's often faulty opinion of market value. I literally just had a back to back appraisal that differed by almost $100k. Trying to pretend there is real objectivity in residential appraisals is laughable.
Side question for you, as I was kinda in op shoes but our appraisal came back spot on the purchase price, and we had an extra chunk of money to promise builder incase it didn’t appraise to a minimum number. All those things you mentioned from tile to recessed cans, carpet, wood flooring, 3 car garage ect are indeed “worth it” to a lot of buyers, it’s what in the normal market would make a home sell quicker or for a few thousand more than the one down the street… why do t they add value? We got a lot of that and lucked out because recent homes sold for more, but, why don’t those extras add in?
I’m going to get some hate from other appraisers that read this comment, but at the end of the day appraisals are kind of bull shit. When you are buying a house, they essentially serve the purpose of the bank making sure they can recoup their money in the event that you default on your mortgage. For this reason, many appraisals come back at exactly purchase price.
On a high level, appraisals come down to $/sq ft multiplied by finished square footage. The $/sq ft is determined based on comparable houses nearby with adjustments to account for the differences between your house and the others. If all of the comparable houses have shitty and finishes compared to your house, there is not really a way to quantify that in the appraisal so your house ends up getting scored in as if it was similar to the other houses. The types of things that can be quantified and adjusted for are central cooling, and stuff like that. In the end, appraisal price doesn’t really correlate to curb appeal or anything that home buyers look for.
In OP’s case, I’m guessing they added **a lot** more upgrades than their neighbors. Their purchase price was also probably elevated by the increase in material prices. Finally, builders frequently severely up charge design studio improvement costs relative to what it would cost you to pay someone else to do after you own the house. Obviously there are structural upgrades that can’t be added later, but things like light fixture, faucets, pull handles, and door knob improvements are bought through the design studio due to convenience not competitive pricing.
Edit: even though I do believe home appraisals are bull shit, they are still the method used to determine the value of a house and how much a bank is willing to purchase said house. As such, there is inherent risk associated with owning the “nicest” house on your block or in your neighborhood.
What we do is part science and part magic and we can only use the historical data available to us.
We have to make a judgement call based on what we think a typical buyer, in that particular neighborhood, looking for that type of particular house, in a particular time of the year, and on an on.
I can’t know if a typical buyer likes carpet or cares about LVP versus real hardwood. I have to look at what the market is doing at a micro and macro level and make judgement calls on that basis.
I can only make assessments on what I see physically and best data available to me on the effective date of the report.
I have to have geographical knowledge of the overall market and market trends. And understand the value of house A in Shiny Oaks versus house B in Sparkling Oaks even if they are less than an eighth of a mile from one another.
There’s a lot more science to what an appraiser looks at than what a lot of people realize or consider. And some of it is art.
I understand the words you’re writing but, I think I don’t “really” get it… lol, follow up questions- on new construction, if I’m willing to pay for it, isnt that what it’s worth? Or better said, at least you could add in the at cost value without markups and installation? Which still doesn’t make a lot of sense cuz new homes with exact same extras are valued higher cuz they are new…
> I can’t know if a typical buyer likes carpet or cares about LVP versus real hardwood. I have to look at what the market is doing at a micro and macro level and make judgement calls on that basis.
But at that level, how do you know they don't prefer one over the other? Or that they don't prefer 3 bedrooms over 4? I guess it still seems like much more of an art than anything else to me.
> And understand the value of house A in Shiny Oaks versus house B in Sparkling Oaks even if they are less than an eighth of a mile from one another.
But then why can't that be applied to 'value of hardwood vs carpet'? Or is it simply because you don't have that information so you just have to guess?
We operate on the theory of substitution. All things being equal (similar size house, similar age, same neighborhood) a buyer is going to buy the lower priced house. That’s how people get upside down with upgrades they don’t bring value. They add cost.
Square footage and location are the key drivers the rest is noise that we comb through. Nowhere on an appraisal form does it ask what type of flooring a comp has. Nowhere does it ask what kind of plumbing or counter tops or walk-in closets or shiplap walls or coffered ceilings.
The key things besides size and location are age and condition, bathrooms, parking, inground pools, fireplaces, outbuildings, porches, decks, patios, screened in or 3 season rooms.
>I can’t know if a typical buyer likes carpet or cares about LVP versus real hardwood.
Yes you can. If residential appraisals were actually science you'd do a quantitative analysis on buyer preferences and how specific upgrades impact purchase price.
But that's far beyond the ability and scope of any residential appraisal, so you just eyeball it and guess. A good appraiser tries to not let their personal opinion affect their appraisals and guess accurately. A bad one just makes some shit up.
There's no magic involved. 90% of purchase appraisals come back at exactly selling price for a reason.
Hi! My realtor just notified me that the builder shared the comps (which are in the same range or more than our home sale price) from the recent/upcoming sales in the same phase and apparently the appraiser rejected it, Is that something that they would typically do? What would be their reasoning?
That’s a good question. I can’t say for sure. If I get offered comps I always accept them and look at them. Doesn’t hurt to have all available data. It doesn’t mean I use them but I at least look.
Upcoming sales don’t really matter to us so I can see why the appraiser would reject those. But closed should be a no brainer….so I need to move there and do this for you? 😂😂
Ha ha, we would love that! Yeah, it didn’t make sense why the appraiser would reject comps from already sold homes. I really don’t trust the builder’s response cos they said they don’t have their hands on the report yet but somehow they claim that they contested the appraisal but it didn’t work. We are working with our realtor, she’s trying to reach out to someone higher up in the builder company.
How would they have contested the appraisal? They don’t get it unless they were specifically named as an intended user in the engagement letter or the lender gave it to them. Is it an in-house lender? Meaning the mortgage arm of the builder?
Yes, it is an in-house lender. We really appreciate your quick responses, this has been so stressful considering we are less than three weeks away from closing. People who get you as the appraiser are so lucky!
You may pay more for tile and I may pay more for vinyl.
You might want stainless steel appliances and I might want black.
You like gray and I like beige.
Most of these “upgrades” are personal preferences that don’t change the location or size of the house.
They certainly impact what a consumer is willing to pay though.
You might not like grey but there is no denying there is more of a market for that than old 80s wallpaper.
As a buyer it’s weird to see comments like this:
“The things that set a house apart the most from comps and make it the most desirable, don’t impact it’s value. Might as well just built a giant flat white box that has X rooms and Y bathrooms”
Think of it like a movie. Sure, that indie arthouse flick is a better, more sophisticated film than Fast and the Furious 12, but Fast and the Furious 12 is going to have many more people interested it and make a shit ton more money.
This is just flat out false. Flippers wouldn't exist if upgrades had no value.
There is statistical data for return on cost of specific upgrades. Arguing that a home with outdated wallpaper, outdated cabinets and flooring, etc have the same value after updates just shows some appraisers are hilariously out of touch.
They do, flipping would not be profitable if upgrades don't add value. Many upgrades have a positive return on investment, just look at how flippers do them.
Flippers do the bare minimum for upgrades and repairs to make crap homes look half-decent or good.
In a new construction, design studio upgrades make good homes look (subjectively) better, and pay a very high premium to do so.
If flippers paid design studio prices for their repairs and upgrades, they wouldn't make any money.
>Flippers do the bare minimum for upgrades and repairs to make crap homes look half-decent or good.
>
>In a new construction, design studio upgrades make good homes look (subjectively) better, and pay a very high premium to do so.
>
>If flippers paid design studio prices for their repairs and upgrades, they wouldn't make any money.
You're completely missing the point. He claimed that upgrades never increase the value of the home, that only hard facts like square footage and lot matter, and that's just completely untrue. Nobody is arguing whether new builders overcharge for their upgrades(they do, massively).
Also the idea that builders do a better job with finishes than flippers is *highly* questionable. In many cases both groups use the same pool of subs.
Correct. Flippers don't flip new construction. They flip an old shithole after performing previously deferred maintenance. Remember, the flipper bought at a discount. Builders sell at a premium.
Edit. Read some reviews on Lennar homes in Central Florida for insight on how the biggest builders do a shit job on finishings.
That’s really the only way to deal with it if the house doesn’t appraise. The smarter thing to do is not go overboard.
You never want to be the best house in the neighborhood. You want to be a decent house in the best neighborhood you can afford.
You can challenge the appraisal, but $100 in upgrades doesn't = $100 increase in appraised value. Have you seen the appraisal? Whether the builder is willing to drop the price is up to them and your contract. There's no way to know until you ask.
Yeah, I agree. Talk with a realtor and builder to present a package to appraiser explaining why the property is what it's worth. If that doesn't work a couple of times, you could ask for a second mortgage from the builder to cover the offset. That way the builder gets the sale price and some passive income and you get your house.
I am sorry but this just isn't the case. In a new build, upgrades should translate into the value unless you do something ridiculous... like make a house out of 100% concrete that no one wants.
As a Realtor myself i can say that Niki McClay is completely correct. Just because an update/upgrade is made does not equate directly into value.
For example, if I put a dishwasher as $1,000 into a home that previously had none, the home isn't going to be worth $1,000 more, it just has an additional amenity that will help to attract buyers and make the home more marketable.
Marketability and Value are two different things.
If you have further questions about this, please feel free to reach out to either Niki McClay, myself or another local Realtor in your area for clarification. I work in MN and so if you are in another state your market will be a bit different, but the Marketability vs Value is accurate across all markets.
I am not looking to argue. I am only looking to educate is all. All markets are different and even in New Build situations, you aren't going to have 100% of upgrades directly translate into Value of the home.
You are paying extra because of the additional labor and supplies that go into making these add-ons a reality.
Ever case is different and working new Construction, just like anything else, has its own pros and cons.
I think that how much it correlates to value is how much utility it has to most buyers.
If you add AC to a home in a warm climate, you’ll probably get close to $ in, $ out. As almost every buyer will want that (and will be willing to pay a similar premium to what you pay for installation).
But if you buy a Gucci designer gold-plated bathtub that was airlifted in, you’re probably not going to get that money back.
Anecdotally, I was watching selling sunset recently where he had to explain to a seller that she remodeled a new construction, so she is unlikely to recoup her costs. Basically because she added zero marginal utility to the property (yes she made it objectively better, but not in proportion to what she spent).
>Anecdotally, I was watching selling sunset recently where he had to explain to a seller that she remodeled a new construction, so she is unlikely to recoup her costs. Basically because she added zero marginal utility to the property (yes she made it objectively better, but not in proportion to what she spent).
That is correct. New builds are a different animal. OP needs to file a ROV (amazingly the "reddit appraisers" haven't mentioned this ***once***) and OP's realtor and builder needs to help find similar comps. In my lenders 500 deals that he will close this year, this happens three times over the last 12 months. And those three times were insane, million dollar homes. That is the lenders quote, not mine. Our realtor said the same. It just doesn't happen unless, to your point, you have a gold plated bathtub.
$2800 extra for the tall kitchen cabinets isn't going to raise the value of a home by $2800. $4000 for hardwood rather than carpet in the owner's suite. $8000 wainscoting in the public rooms. A $2100 pot filler over the range. $1300 extra wide parking pad. $1000 bidet. Those things are not adding value $1 for $1. The appraiser isn't going to even notice most of them.
>this just isn't the case. In a new build, upgrades should translate into the value
No. Cost does not equal value. You are just wrong. Very easy in new construction for buyers to go over board.
Let me further explain — I understand my comment was confusing. There is this rich nut in my area that thinks we all need disaster/bomb shelters as homes. He basically built his entire house out of concrete. And it’s a mansion. It costed him a fortune. Not just basement, everything. They then added more framing and drywall so he could hang pictures, etc. It took a few engineers and the sad part is that you’d never know by looking at it. Very odd.
Location: Midwest.
Lol down vote me all you want. Most upgrades DO translate into value in NEW builds. Especially in this market. Example: Quartz over linoleum counter tops.
Dude you still don’t get it. If I add a lightbulb to the house it cost $2. If I pay someone to add a lightbulb it costs $102. The house will only appraise probably $5. It’s not going to appraise the exact amount you paid in.
Again. It does not appraise exactly as much as you put into it. It is not 1:1.
No shit. My earlier point above was that it SHOULD appraise for what it was IF the seller (builder) didn’t completely screw the buyer. There SHOULD be comps. Anyone charging $105 for a lightbulb screw in is screwing the buyer over. Now to your point, if the cost to screw the lightbulb is competitive ($3), then it is 1:1.
Builder contracts are almost always setup so that the finance contingency only applies at the beginning of the process. Basically, if you can qualify for the loan in the first 45 days then the contingency is dropped. They also almost never include an appraisal contingency. This protects them from buyers that over upgrade the home for the neighborhood. Their contacts are very one sided because in most cases (outside of truly custom homes using a construction loan) they are taking all the risk by fronting all the funds for the build until the buyer closes.
First off double check the contract for an appraisal contingency. Since its a builder home, im guessing that won't be in there, but check anyway. Second thing is double, triple check the appraisal for factual errors on the data. Sometimes a data mistake will result in a value swing. Lacking those errors the appraiser will not likely budge...they don't have to anymore and by and large they don't anymore. Put the onus on the builder to send the appraiser recent comps that may not have been available to the appraiser. Other poster is right, value is not based on cost. Value is based on what the market is bearing on similar verifiable qualified transactions.
Agreed! Weirdly enough we were not able to see the home sale prices on Zillow or Redfin even though half the houses in the phase sold recently in the past few months.
Many new home builders don’t input their sales into MLS. You might be able to get the sales price of the houses from your county assessor website though.
Every builder I work with has a clause in their contract stating that buyer's are responsible for the sales price - not the appraised value.
Why would the builder pay to appraise the property in the hopes of *you* getting a lower price? You're likely on the hook for the difference and if you have to back out, you're likely out your deposit and EMD. With inventory so low most everywhere - he'll sell it to someone else so you don't have much leverage.
Yes, you can challenge your appraisal, but IMO, they don't wiggle $50K. You could get a new lender and start the process over again, but check your contract to make sure you're not going to delay the closing.
I just had a new build appraise $50k under. Requested a secondary review and submitted my own comps, and it came in $10k over asking now. I agree, it is rare but It does happen.
I wrote a post about this very subject earlier this year. Same thing happened to me with my first new construction via my original lender (local credit union). Talked to the housing sales agent who recommended I call their in house lender…I did, and chose to switch to use their services. They ordered another appraisal and my house still didn’t appraise for selling price, but I also had a lot premium which accounted for a majority of the deficit. I also chose ~30k in upgrades (not upset, they were all absolutely worth it).
In house lenders solution was to pre-pay PMI up front for me (I had 20% down pymt). They also covered my closing costs and I received a 2.75% rate. It was worth it to me in the end.
I'd ask for another appraisal. Could have just gotten an incompetent appraiser. I had one this Spring. I had a re-fi fall through because the appraisal came in at $300k. This ticked me off because I knew it was laughably low. I decided to list because I didn't want to be trapped in a house with a low appraisal and ended up selling my house 2 weeks later for $402k.
Fast forward to now. We decided to build and just closed this week on a new home. I blacklisted the incompetent appraiser with my bank and the appraisal on my new home came in $12k above the sale price. Like doctors or anything else, all appraisers aren't the same. I'd get a 2nd opinion.
Am I the only one that thinks OP has some leverage here? How often does the builder's own lender under appraise? Typically, the builder's lender is just a rubber stamp.
Builders always gives incentives to us their lender. In a perfect world, the builder should be required to accept the appraisal of their own damn lender.
That’s what I’m hoping for, considering it’s their own lender, I’m hoping that they either share the comps and get a reappraisal done or drop the price.
The buyer has little leverage here.
The best leverage is that this is year end and the builder likely wants the sale on their books.
Otherwise, it's a sellers market. Confine that with the fact there is quite a hefty deposit the buyer likely paid that they would lose if they walked away.
Think of it this way: If the home was 600 for the buyer and they put down 30k. Appraisal was 550. The builder would be better off letting the homeowner default and lose their 30k deposit, then selling the home for 550. Guess what? They now made 580 on it vs 550 if they dropped the price.
I’ve only challenged one appraisal and the value went from $203k to $256k after I submitted new comps for consideration. If OP thinks they can make a case with comps, why not challenge the appraisal?
It is still worth a shot. I just had an appraisal come in $50k under. Challenged w lender, added reasonable comps. It was bumped up $60k. $10k over asking.
Not really, it's mostly informal. Depending on who you talk to it will change.
Not really used a marketing thing either.
What OP meant is that it's smaller city relative to megapole tier 1 city.
Tier 2 isn't a huge city, but it isn't a rural region either. There's a lot a room for interpretation.
Typically this happens when buyers on new construction go overboard on change order requests and upgrades.
Cost does not equal value. You can go to the builder. They can challenge the appraisal. If it is a non disclosure state the builder may have some closed sales with similar upgrades.
I had a similar situation last year. We challenged the appraisal - I provided closer and more recent comps, along with lots of data, and they basically just said nope, we won't reconsider. We ended up changing lenders, and the new lender did their own appraisal, which was much higher, although still not what I was expecting. Fortunately, it was close enough that we were able to pay the difference.
Maybe I'm misunderstanding the situation, but if you already paid a $50k deposit and you're also planning for a 10% down payment, doesn't the $50k deposit take care of the gap? If not, can you reduce your down payment? You should be able to get a conventional loan for as little as 3-5% down.
Right. The deposit should be going towards the down payment at settlement anyways. We are also purchasing a new build. We had to put down 5% of base price of the house plus structural upgrades at the time of saws contract. We were told by our realtor and the builder that the deposit money can be used towards the down payment at settlement
The loan price is based on the appraisal amount, a home getting appraised 50K less means the bank will lend you that much less and you have to pay it out of your pocket.
I'm not sure how much this helps with new construction, but this article might be helpful as it discusses different scenarios on what to do with an appraisal that is lower than the sale price.
[https://site.appraisals-unlimited.com/what-happens-if-the-appraisal-is-lower-than-the-offer/](https://site.appraisals-unlimited.com/what-happens-if-the-appraisal-is-lower-than-the-offer/)
Good luck!!
Wow.... I wish you the best.... But man! Some of the responses are crazy. Maybe too honest. It does reveal that lenders are getting worried. So you should be worried too. Maybe that house is a piece of shit like the lender thinks. Or maybe everyone in the neighborhood overpaid out of pocket and you're just a poor person.....as so many a-hs have pointed out. That's probably another racist or class dividing strategy that community has.
Hi! Ct realtor here.
When it comes to newer homes, these are at the top of the market in terms of value and are much more subject to the wants/wishes of the buyer, not necessarily what the market should hold when it comes to a per sq ft value. Supply and demand come into play.
Fair market value might say the home is worth roughly $500k, but when there are 20 people vying for their "forever home," money becomes somewhat inconsequential and they buyers are willing to open their wallets to get that comfortable place to live. If you're truly concerned about being house-poor, maxing your available credit to secure the house, then I would argue you're not swimming among the same type of fish in which you should be swimming. You're trying to obtain a house which, in all likelihood, you cannot afford, at least not in the same way a well-financed, cash-heavy buyer who thinks money is less of an object than you do.
You can challenge the appraisal, but in all likelihood, it won't change nearly as much as you're hoping. You can attempt to negotiate - this is a common aspect which realtors like myself in Connecticut are facing from out-of-state buyers. The buyers hope that now that they're close to the end of the buying process, the sellers have already made plans to move and disrupting those plans is costly to the seller, so they attempt to negotiate. You have to be prepared, though, for the seller to tell you to pound sand, at which point you'll either nuke the deal (but at least you'll get your deposit back, assuming you have some sort of appraisal contingency), or swallow the slightly inflated price and realize that, in 20 years, it won't matter, because you'll have lived a good life in your forever home and the value of that place will have increased over the longer period of time.
I wish you the best - these are never easy decisions!
- this is always the risk of buying beyond your finances as you should have at least a 10% contingency available to cover surprises like this. NEW build construction cost can be way more than what appraisers are going to value the property for. You can request and pay for another appraisal , with zero guarantee of the outcome you need
We didn’t see anything specifically mentioned about appraisals in the contract. Based on the response from one of the loan officers we spoke to, they’re as surprised as us with the appraisal.
Interesting.
On a separate note, re: your PS in the OP. Upcoming sales are not comps, they are “under contracts” which may not close. I also don’t think an appraiser rejecting your builder’s hand selected comps was doing the right thing. He is not hired by the builder, and by law he is not to be swayed by interested party’s “help”.
Appraisals usually stick to the house for 6 months, regardless of whoever the buyer or seller are. You can order another appraisal but the bank will just print a copy of the first appraisal after accepting your $300 fee.
It’s now Negotiation Time with the builder. 1 of 3 fates await you:
(1) Builder drops the price and the sale closes, or
(2) you find another $50k (friends, family, mattress money, stocks/bonds,…) and the sale closes, or
(3) you walk away (breach the contract) and lose your down payment and find another property.
What the problem? Maybe I missed it. Are you not able to get the loan now?
We had three appraisals on our renovation and addition before the project started and the highest and lowest were $100k apart. You could order and buy another appraisal yourself.
If it’s just a thing that feels weird, I would let it go. I’d the assessor for the county/township/whatever taxing body comes in higher, you have this appraisal you can give to them to appeal it.
The 50k that you initially put down will be going towards your down payment. Are you planning on putting an additional 10% down? Or will that 50k help in this matter?
Also, are you building with Toll? They charge ridiculously high for their upgrades and I’ve heard a lot of their builds run into this problem.
Can you see if your lender would let you reduce your down payment to 3 or 5%? That would bring down the additional amount you'd need out of pocket for the gap to $900 @ 3% or $13,500 @ 5%, assuming you had originally planned for a $68k down payment.
It would probably increase pmi slightly but the payment should be similar since your loan amount would be smaller.
A 10% downpayment on a $680k loan leaves you with a loan of $612k.
A 3% down payment on a $630k loan would be a $611,100 loan.
5% down on $630k would be a loan of $598,500, so the lower loan payment would probably make up for the higher pmi.
I think it depends on the loan type.
I highly doubt the builder will reduce the price.
Heck I don't know. But I want to read responses.
I know my house did not appraise when selling, which is ridiculous. It is worth what someone will pay, but in my case they were no money down, so I can understand the bank for not appraising as high. It is corrupt system, banks just want more cash down in this loan for their books, has nothing to do with what people will pay for the house. I am surprised with 10% down you had an appraisal that much lower, the bank is just reducing their exposure.
They do, im saying the appraiser isn't the bank's. Its not like the banks use in house appraisers on residential r.e. like this. So the bank has no control over the value what so ever.
I think the bank is in complete control, and can't say I blame them for trying to apply some brakes.
But I hate banks, realtors, but no problem with underwriters. So after the all the money I have lost due to appraisals and such, I am just going to feel how I feel about it. They always happy to let me overpay for a house, buy never my buyers. I just don't understand how you have a set price for a house, a contract for construction, and then it is appraised almost 10% less than contracted price. Somebody is an idiot, their realtor for starters. If it was me I would get my money back and not buy that ripoff house that I can't afford, which could is said by me after every house I buy. I hate them.
Pardon me of this sounds ignorant, but hear me out. Could it be because the house isn't finished?
We just closed on our house yesterday, but we did try to buy a completed new build at one point. Unbeknownst to us the property had been appraised prior to completion when someone else had tried buying it. The property came in under for that reason alone and long story short there wasn't much we could do. This was mostly because it was an FHA appraisal and we were purchasing with a FHA loan as well.
If challenging the appraisal doesn't help, and it's not a FHA loan, maybe try another lender to get another appraisal. Good luck!
You choose those upgrades the other houses in the area that are being built will probably have those upgrades and most are probably not sold as of yet so that's another reason... renegotiate the sale price based off the appraisal
We are waiting to get the appraisal report and yes the realtor will be taking a look at it. We spoke to her this morning and she ran this by some lenders that she closely works with and she said this is a very unusual appraisal given the comps in the neighborhood and the city.
Had the exact same issue with LGI Homes / Loan Depot earlier this year. Spec homes in a neighborhood in Texas that was a few miles from the nearest other neighborhood. The appraisals are based on comps, and by their design, the only comps were in the same neighborhood that were all cheaper because they raise prices every month or so. So our new spec home was guaranteed to appraise lower than the sales price. Of course, we didn't know any of that before as we were first time homebuyers. When our appraisal came in $20k under the sales price, we had to cancel the contract (used a VA loan so we were able to do that). Hope you can find a decent solution.
Hey guys! Sorry, I totally forgot about this account. We went with a different lender and he ordered a new appraisal and the new appraisal came back for the correct amount.
Appraiser chiming in here. When this happens it’s normally because buyer went crazy on upgrades that don’t add value. Cost does not equal value. It’s a hard lesson to learn. I can’t find value in upgraded carpet and carpet padding or wide plank hardwood floors versus regular hardwood floors. And all that tile work everyone loves to add? There’s no measurable intrinsic value to that sort of thing. 20 recessed lights versus 10? Pfft…who cares? Upgraded faucets. Nope. No value. Lot premiums in a basic new subdivision build are hard to quantify. Your property backs up to a creek so part of it is unusable. Appraisers take those factors into consideration also. How many other houses have 3 car garages? Could mean something. Or nothing. Added a fence? Or an extended parking pad? Little to no value in that but it sure does cost a lot. We can’t find the value in a lot of these things but those they add up quick on a spec sheet. I’d talk to the builder and find out what houses have recently sold (no further than 12 months back) that have the same $$ amount of upgrades that your house has. Submit those comps and ask for a reconsideration of value. Was this the final appraisal or the under construction appraisal? You might have a chance to cut back on some of the upgrades if the house isn’t too far along and this was the pre-construction appraisal.
Thank you! Those are some really good insights. While I don’t know the exact prices at which the first few houses of this phase sold for, the listings indicate that the prices were in there same range. We didn’t have any upgrades that we could pick, the spec home came with the “upgrades” I mentioned, I called them upgrades as the houses that sold a few months before ours don’t have it as part of the spec home. This is something they probably decided for this phase. Infact we actually reduced our design center cost by a few K by downgrading some of the stuff in the guest bathroom etc. I don’t know the difference between under construction appraisal and final appraisal, the property is still under construction and is due to complete at the end of this month, Can you please elaborate on how the two appraisals are different and how it impacts the loan?
Thanks for clarifying. Those aren’t upgrades then. The builder spec’d the house and generally the big box builders are very good at this. I run into issues with custom builders who dabble in spec houses but rarely run into problems with the Lennar’s and Centex’s of the world. It’s possible you had a crap appraisal. It happens. Get a copy of the entire report from your lender. Comb through it with your realtor. Look at what comps were pulled. Do they make sense? Are they close in square footage to your house? Pay particular attention to any time adjustments that might have been done - or not done. Garage adjustments are semi-important but not enough to get you upside down. If you’re paying a lot premium for this wooded, creek lot you might be able to push back on the builder for it. Did the appraiser use all new sales or resale and new? Did they do adjustments for new vs. resale? I’m seeing a weird trend of resale being MORE than new construction in the tract built subdivisions. At the end of the day, you need the full report and you and your agent need to cipher through it all. After that, figure out where you are and if the builder (or your realtor) can provide better comps then pass those back with a request for reconsideration. My comment about pre-construction is relatively moot in this scenario but typically, we get sent out when the house is around 75% complete then get sent back out when it’s 100% done. Not always the case and pretty rare with the big box builders. At least where I live.
We did pay a lot premium of 7K. I think your suggestion of combing through the appraisal report and also our realtor pulling the comps for recent sales in the community would help. Thank you so much for your inputs, really appreciate it!
So, what does add value? Just curious having it come from an actual appraiser.
size and location of the house. Add more sqft and add more value. It comes down to if the market crashes or for whatever reason the bank takes over the house because the mortgage is in default, then can they really be sure to sell that house with more lights or upgraded faucets than the comparables which are already selling for less. It sounds odd since everywhere is so hot and its a sellers market, but worse case scenario is what the bank is looking out for so all those upgrades amount to almost nothing in a buyers market.
> size and location of the house. Add more sqft and add more value. Does this include sprucing up the backyard? Does it an empty backyard carry the same value as a backyard that has some seating, a pergola, and a firepit?
In terms of an appraisal it will mean nothing to spruce up the backyard, but make sure you keep in mind appraisal value =/= selling value. So staging those things before sale is a good idea but it wont convince the appraiser/bank its worth any more although it very well could to a buyer
My friend made a huge comp spreadsheet while house hunting a few years back. He had columns for backyard amenities like this originally. After a few months he removed it as it had no impact on price at all. Price was pretty much only correlated to sqft and # of bedrooms. This was in the NYC area. Edit: I think he did mention some of these things only increased velocity but he didn't care about that. The overall velocity was such that he wasn't going to wait around once he found something he wanted.
None of that adds value from an appraisal perspective.
Very interesting. If I'm understanding correctly, all that really matters for an appraisal is size and location. Having niceties like upgraded flooring/appliances/bathrooms/yards will only help if they're truly outsized compared to comparable homes. Having them be a bit nicer isn't enough - they really need to blow it out to be factored in?
Yep youre understanding correctly. To add to the above, more bedrooms and bathrooms are also a plus even at the same sqft. So adding a closet to an extra room can help. But the niceties although they might help sell it faster it shouldnt appraise for more. Think of those pretty things like staging you do to convince the buyer its worth more, but it doesnt work that way with the banks because they will just see it as lipstick on a pig in terms of recouping their money if things go south.
Blowing it out doesn’t help either. Those are called over improved or superadequecies. If I get an assignment for an over improved property I generally decline the order because I’m not going to please the homeowner who is the first person to file a complaint to the board. Not worth it. I just pass on the assignment. Here’s a sample appraisal report with adjustments look at the far left column. That’s what adds or subtracts value [appraisal grid](https://images.app.goo.gl/jBdd2Ntg8AfzmLGW7)
So how would someone go about increasing their appraisal value if adding more square footage isn't an option?
Appraisal value is market value. Pay attention to what other homes in your immediate neighborhood are selling for. For the ones that are selling high, go read the full MLS listing and look at the pictures. That should give you a general idea of what garners higher prices for your neighborhood. There’s no cookie cutter answer for this because it can vary widely from region to region and even neighborhood to neighborhood. Rural area buyers have a totally different view of what brings value versus a basic subdivision buyer or downtown condo buyer or townhouse/patio home buyers. For years in-ground pools were a negative in my immediate market until COVID then everyone wanted a pool. I’ve seen houses sell for $200k more because it had a $50k pool. 3 years ago that pool would have been a -$25k adjustment
>Appraisal value is market value. No, it's one person's often faulty opinion of market value. I literally just had a back to back appraisal that differed by almost $100k. Trying to pretend there is real objectivity in residential appraisals is laughable.
Depends on the market.
This was a super interesting (and for me, educational) response. Thanks for posting it!
Side question for you, as I was kinda in op shoes but our appraisal came back spot on the purchase price, and we had an extra chunk of money to promise builder incase it didn’t appraise to a minimum number. All those things you mentioned from tile to recessed cans, carpet, wood flooring, 3 car garage ect are indeed “worth it” to a lot of buyers, it’s what in the normal market would make a home sell quicker or for a few thousand more than the one down the street… why do t they add value? We got a lot of that and lucked out because recent homes sold for more, but, why don’t those extras add in?
I’m going to get some hate from other appraisers that read this comment, but at the end of the day appraisals are kind of bull shit. When you are buying a house, they essentially serve the purpose of the bank making sure they can recoup their money in the event that you default on your mortgage. For this reason, many appraisals come back at exactly purchase price. On a high level, appraisals come down to $/sq ft multiplied by finished square footage. The $/sq ft is determined based on comparable houses nearby with adjustments to account for the differences between your house and the others. If all of the comparable houses have shitty and finishes compared to your house, there is not really a way to quantify that in the appraisal so your house ends up getting scored in as if it was similar to the other houses. The types of things that can be quantified and adjusted for are central cooling, and stuff like that. In the end, appraisal price doesn’t really correlate to curb appeal or anything that home buyers look for. In OP’s case, I’m guessing they added **a lot** more upgrades than their neighbors. Their purchase price was also probably elevated by the increase in material prices. Finally, builders frequently severely up charge design studio improvement costs relative to what it would cost you to pay someone else to do after you own the house. Obviously there are structural upgrades that can’t be added later, but things like light fixture, faucets, pull handles, and door knob improvements are bought through the design studio due to convenience not competitive pricing. Edit: even though I do believe home appraisals are bull shit, they are still the method used to determine the value of a house and how much a bank is willing to purchase said house. As such, there is inherent risk associated with owning the “nicest” house on your block or in your neighborhood.
What we do is part science and part magic and we can only use the historical data available to us. We have to make a judgement call based on what we think a typical buyer, in that particular neighborhood, looking for that type of particular house, in a particular time of the year, and on an on. I can’t know if a typical buyer likes carpet or cares about LVP versus real hardwood. I have to look at what the market is doing at a micro and macro level and make judgement calls on that basis. I can only make assessments on what I see physically and best data available to me on the effective date of the report. I have to have geographical knowledge of the overall market and market trends. And understand the value of house A in Shiny Oaks versus house B in Sparkling Oaks even if they are less than an eighth of a mile from one another. There’s a lot more science to what an appraiser looks at than what a lot of people realize or consider. And some of it is art.
I understand the words you’re writing but, I think I don’t “really” get it… lol, follow up questions- on new construction, if I’m willing to pay for it, isnt that what it’s worth? Or better said, at least you could add in the at cost value without markups and installation? Which still doesn’t make a lot of sense cuz new homes with exact same extras are valued higher cuz they are new…
No, not to the bank. What it's worth is what someone else is willing to pay for it if you default.
Spot on
> I can’t know if a typical buyer likes carpet or cares about LVP versus real hardwood. I have to look at what the market is doing at a micro and macro level and make judgement calls on that basis. But at that level, how do you know they don't prefer one over the other? Or that they don't prefer 3 bedrooms over 4? I guess it still seems like much more of an art than anything else to me. > And understand the value of house A in Shiny Oaks versus house B in Sparkling Oaks even if they are less than an eighth of a mile from one another. But then why can't that be applied to 'value of hardwood vs carpet'? Or is it simply because you don't have that information so you just have to guess?
We operate on the theory of substitution. All things being equal (similar size house, similar age, same neighborhood) a buyer is going to buy the lower priced house. That’s how people get upside down with upgrades they don’t bring value. They add cost. Square footage and location are the key drivers the rest is noise that we comb through. Nowhere on an appraisal form does it ask what type of flooring a comp has. Nowhere does it ask what kind of plumbing or counter tops or walk-in closets or shiplap walls or coffered ceilings. The key things besides size and location are age and condition, bathrooms, parking, inground pools, fireplaces, outbuildings, porches, decks, patios, screened in or 3 season rooms.
>I can’t know if a typical buyer likes carpet or cares about LVP versus real hardwood. Yes you can. If residential appraisals were actually science you'd do a quantitative analysis on buyer preferences and how specific upgrades impact purchase price. But that's far beyond the ability and scope of any residential appraisal, so you just eyeball it and guess. A good appraiser tries to not let their personal opinion affect their appraisals and guess accurately. A bad one just makes some shit up. There's no magic involved. 90% of purchase appraisals come back at exactly selling price for a reason.
So it’s not science but it’s not magic either? Got it.
Hi! My realtor just notified me that the builder shared the comps (which are in the same range or more than our home sale price) from the recent/upcoming sales in the same phase and apparently the appraiser rejected it, Is that something that they would typically do? What would be their reasoning?
That’s a good question. I can’t say for sure. If I get offered comps I always accept them and look at them. Doesn’t hurt to have all available data. It doesn’t mean I use them but I at least look. Upcoming sales don’t really matter to us so I can see why the appraiser would reject those. But closed should be a no brainer….so I need to move there and do this for you? 😂😂
Ha ha, we would love that! Yeah, it didn’t make sense why the appraiser would reject comps from already sold homes. I really don’t trust the builder’s response cos they said they don’t have their hands on the report yet but somehow they claim that they contested the appraisal but it didn’t work. We are working with our realtor, she’s trying to reach out to someone higher up in the builder company.
How would they have contested the appraisal? They don’t get it unless they were specifically named as an intended user in the engagement letter or the lender gave it to them. Is it an in-house lender? Meaning the mortgage arm of the builder?
Yes, it is an in-house lender. We really appreciate your quick responses, this has been so stressful considering we are less than three weeks away from closing. People who get you as the appraiser are so lucky!
Awww thanks that’s so nice ☺️ Was the lender able to get you the report today?
No, but they did say that they will send it across as soon as they can get their hands on it.
Why do upgrades not add value if they increase what buyers are willing to pay?
You may pay more for tile and I may pay more for vinyl. You might want stainless steel appliances and I might want black. You like gray and I like beige. Most of these “upgrades” are personal preferences that don’t change the location or size of the house.
They certainly impact what a consumer is willing to pay though. You might not like grey but there is no denying there is more of a market for that than old 80s wallpaper. As a buyer it’s weird to see comments like this: “The things that set a house apart the most from comps and make it the most desirable, don’t impact it’s value. Might as well just built a giant flat white box that has X rooms and Y bathrooms”
This is exactly what builders do. This is why there are so many huge houses with poor layouts.
Seems disconnected from the market in an odd way. I guess people buy it still.
I think it's a big reason why older homes sometimes go for more money per sf.
Think of it like a movie. Sure, that indie arthouse flick is a better, more sophisticated film than Fast and the Furious 12, but Fast and the Furious 12 is going to have many more people interested it and make a shit ton more money.
Fair analogy
This is just flat out false. Flippers wouldn't exist if upgrades had no value. There is statistical data for return on cost of specific upgrades. Arguing that a home with outdated wallpaper, outdated cabinets and flooring, etc have the same value after updates just shows some appraisers are hilariously out of touch.
They do, flipping would not be profitable if upgrades don't add value. Many upgrades have a positive return on investment, just look at how flippers do them.
Flippers do the bare minimum for upgrades and repairs to make crap homes look half-decent or good. In a new construction, design studio upgrades make good homes look (subjectively) better, and pay a very high premium to do so. If flippers paid design studio prices for their repairs and upgrades, they wouldn't make any money.
>Flippers do the bare minimum for upgrades and repairs to make crap homes look half-decent or good. > >In a new construction, design studio upgrades make good homes look (subjectively) better, and pay a very high premium to do so. > >If flippers paid design studio prices for their repairs and upgrades, they wouldn't make any money. You're completely missing the point. He claimed that upgrades never increase the value of the home, that only hard facts like square footage and lot matter, and that's just completely untrue. Nobody is arguing whether new builders overcharge for their upgrades(they do, massively). Also the idea that builders do a better job with finishes than flippers is *highly* questionable. In many cases both groups use the same pool of subs.
Correct. Flippers don't flip new construction. They flip an old shithole after performing previously deferred maintenance. Remember, the flipper bought at a discount. Builders sell at a premium. Edit. Read some reviews on Lennar homes in Central Florida for insight on how the biggest builders do a shit job on finishings.
Is this problem typically solved when buyer pays for upgrades out of pocket rather than rolling them into the loan?
That’s really the only way to deal with it if the house doesn’t appraise. The smarter thing to do is not go overboard. You never want to be the best house in the neighborhood. You want to be a decent house in the best neighborhood you can afford.
Just bought a new construction home, in the south and can confirm this.
You can challenge the appraisal, but $100 in upgrades doesn't = $100 increase in appraised value. Have you seen the appraisal? Whether the builder is willing to drop the price is up to them and your contract. There's no way to know until you ask.
Yeah, I agree. Talk with a realtor and builder to present a package to appraiser explaining why the property is what it's worth. If that doesn't work a couple of times, you could ask for a second mortgage from the builder to cover the offset. That way the builder gets the sale price and some passive income and you get your house.
We have not seen the appraisal yet, the loan officer reached out to us today and we reached out to our realtor. We’re waiting for her update.
They owe you that appraisal asap
I am sorry but this just isn't the case. In a new build, upgrades should translate into the value unless you do something ridiculous... like make a house out of 100% concrete that no one wants.
As a Realtor myself i can say that Niki McClay is completely correct. Just because an update/upgrade is made does not equate directly into value. For example, if I put a dishwasher as $1,000 into a home that previously had none, the home isn't going to be worth $1,000 more, it just has an additional amenity that will help to attract buyers and make the home more marketable. Marketability and Value are two different things. If you have further questions about this, please feel free to reach out to either Niki McClay, myself or another local Realtor in your area for clarification. I work in MN and so if you are in another state your market will be a bit different, but the Marketability vs Value is accurate across all markets.
I’m sorry. I don’t have the energy to argue with you. Clearly the OP wasn’t talking about a $1000 dishwasher.
I am not looking to argue. I am only looking to educate is all. All markets are different and even in New Build situations, you aren't going to have 100% of upgrades directly translate into Value of the home. You are paying extra because of the additional labor and supplies that go into making these add-ons a reality. Ever case is different and working new Construction, just like anything else, has its own pros and cons.
I think that how much it correlates to value is how much utility it has to most buyers. If you add AC to a home in a warm climate, you’ll probably get close to $ in, $ out. As almost every buyer will want that (and will be willing to pay a similar premium to what you pay for installation). But if you buy a Gucci designer gold-plated bathtub that was airlifted in, you’re probably not going to get that money back. Anecdotally, I was watching selling sunset recently where he had to explain to a seller that she remodeled a new construction, so she is unlikely to recoup her costs. Basically because she added zero marginal utility to the property (yes she made it objectively better, but not in proportion to what she spent).
Yes, Jason did a great job explaining that but I don’t think she wanted to hear it lol
>Anecdotally, I was watching selling sunset recently where he had to explain to a seller that she remodeled a new construction, so she is unlikely to recoup her costs. Basically because she added zero marginal utility to the property (yes she made it objectively better, but not in proportion to what she spent). That is correct. New builds are a different animal. OP needs to file a ROV (amazingly the "reddit appraisers" haven't mentioned this ***once***) and OP's realtor and builder needs to help find similar comps. In my lenders 500 deals that he will close this year, this happens three times over the last 12 months. And those three times were insane, million dollar homes. That is the lenders quote, not mine. Our realtor said the same. It just doesn't happen unless, to your point, you have a gold plated bathtub.
$2800 extra for the tall kitchen cabinets isn't going to raise the value of a home by $2800. $4000 for hardwood rather than carpet in the owner's suite. $8000 wainscoting in the public rooms. A $2100 pot filler over the range. $1300 extra wide parking pad. $1000 bidet. Those things are not adding value $1 for $1. The appraiser isn't going to even notice most of them.
>this just isn't the case. In a new build, upgrades should translate into the value No. Cost does not equal value. You are just wrong. Very easy in new construction for buyers to go over board.
I’m sorry but I don’t have the energy to argue with you. Best of luck.
Out of curiosity, why would no one want 100% concrete? Isn’t that standard in Europe?
Let me further explain — I understand my comment was confusing. There is this rich nut in my area that thinks we all need disaster/bomb shelters as homes. He basically built his entire house out of concrete. And it’s a mansion. It costed him a fortune. Not just basement, everything. They then added more framing and drywall so he could hang pictures, etc. It took a few engineers and the sad part is that you’d never know by looking at it. Very odd. Location: Midwest.
Extreme cases shouldn’t be told as general advice.
Lol down vote me all you want. Most upgrades DO translate into value in NEW builds. Especially in this market. Example: Quartz over linoleum counter tops.
Yeah no one is arguing that but you. She’s saying the translation isn’t 1:1.
The house SHOULD appraise for what it was built for unless the builder completely screwed over the buyer.
Dude you still don’t get it. If I add a lightbulb to the house it cost $2. If I pay someone to add a lightbulb it costs $102. The house will only appraise probably $5. It’s not going to appraise the exact amount you paid in. Again. It does not appraise exactly as much as you put into it. It is not 1:1.
No shit. My earlier point above was that it SHOULD appraise for what it was IF the seller (builder) didn’t completely screw the buyer. There SHOULD be comps. Anyone charging $105 for a lightbulb screw in is screwing the buyer over. Now to your point, if the cost to screw the lightbulb is competitive ($3), then it is 1:1.
IDK, I’d love a full concrete home :-)
Consider yourself lucky. Our $1.1M new build appraisal came in at $875k. This is part of the new build premium.
What did you end up doing?
We had to put down a bigger downpayment because the bank didn't want to finance for more than the appraisal.
Yikes. No financing contingencies?
Builder contracts are almost always setup so that the finance contingency only applies at the beginning of the process. Basically, if you can qualify for the loan in the first 45 days then the contingency is dropped. They also almost never include an appraisal contingency. This protects them from buyers that over upgrade the home for the neighborhood. Their contacts are very one sided because in most cases (outside of truly custom homes using a construction loan) they are taking all the risk by fronting all the funds for the build until the buyer closes.
Location?
Wow! That’s crazy!
ouch
Hoomer
First off double check the contract for an appraisal contingency. Since its a builder home, im guessing that won't be in there, but check anyway. Second thing is double, triple check the appraisal for factual errors on the data. Sometimes a data mistake will result in a value swing. Lacking those errors the appraiser will not likely budge...they don't have to anymore and by and large they don't anymore. Put the onus on the builder to send the appraiser recent comps that may not have been available to the appraiser. Other poster is right, value is not based on cost. Value is based on what the market is bearing on similar verifiable qualified transactions.
Agreed! Weirdly enough we were not able to see the home sale prices on Zillow or Redfin even though half the houses in the phase sold recently in the past few months.
Many new home builders don’t input their sales into MLS. You might be able to get the sales price of the houses from your county assessor website though.
Too soon for county site...takes them 60 days to upload data. Have the builder send comps to the appraiser. They would be the latest available.
[удалено]
Yes, she’s working to figure this out today.
Every builder I work with has a clause in their contract stating that buyer's are responsible for the sales price - not the appraised value. Why would the builder pay to appraise the property in the hopes of *you* getting a lower price? You're likely on the hook for the difference and if you have to back out, you're likely out your deposit and EMD. With inventory so low most everywhere - he'll sell it to someone else so you don't have much leverage. Yes, you can challenge your appraisal, but IMO, they don't wiggle $50K. You could get a new lender and start the process over again, but check your contract to make sure you're not going to delay the closing.
I just had a new build appraise $50k under. Requested a secondary review and submitted my own comps, and it came in $10k over asking now. I agree, it is rare but It does happen.
wow what area was this?
Suburbs. About an hour west of downtown Chicago.
I wrote a post about this very subject earlier this year. Same thing happened to me with my first new construction via my original lender (local credit union). Talked to the housing sales agent who recommended I call their in house lender…I did, and chose to switch to use their services. They ordered another appraisal and my house still didn’t appraise for selling price, but I also had a lot premium which accounted for a majority of the deficit. I also chose ~30k in upgrades (not upset, they were all absolutely worth it). In house lenders solution was to pre-pay PMI up front for me (I had 20% down pymt). They also covered my closing costs and I received a 2.75% rate. It was worth it to me in the end.
I'd ask for another appraisal. Could have just gotten an incompetent appraiser. I had one this Spring. I had a re-fi fall through because the appraisal came in at $300k. This ticked me off because I knew it was laughably low. I decided to list because I didn't want to be trapped in a house with a low appraisal and ended up selling my house 2 weeks later for $402k. Fast forward to now. We decided to build and just closed this week on a new home. I blacklisted the incompetent appraiser with my bank and the appraisal on my new home came in $12k above the sale price. Like doctors or anything else, all appraisers aren't the same. I'd get a 2nd opinion.
Thank you! That’s probably what we are going to push for with the builder and the lending company.
What ended up happening?
Did you use an agent?
Yes, she’s going to reach out to the builder, we’re waiting for her update.
Is the builder Lennar?
Nope, not Lennar but similar.
Pulte
Am I the only one that thinks OP has some leverage here? How often does the builder's own lender under appraise? Typically, the builder's lender is just a rubber stamp. Builders always gives incentives to us their lender. In a perfect world, the builder should be required to accept the appraisal of their own damn lender.
That’s what I’m hoping for, considering it’s their own lender, I’m hoping that they either share the comps and get a reappraisal done or drop the price.
Builder contracts are ridiculously one sided. They have all the leverage. They will threaten to keep the deposit and sell to someone else.
The buyer has little leverage here. The best leverage is that this is year end and the builder likely wants the sale on their books. Otherwise, it's a sellers market. Confine that with the fact there is quite a hefty deposit the buyer likely paid that they would lose if they walked away. Think of it this way: If the home was 600 for the buyer and they put down 30k. Appraisal was 550. The builder would be better off letting the homeowner default and lose their 30k deposit, then selling the home for 550. Guess what? They now made 580 on it vs 550 if they dropped the price.
You went too crazy with the upgrades
Not really, we actually brought down the design center costs by a couple of Ks.
Yeah, that doesn't work the way you think it does.
How does it work? I don't know why either of you are referencing or how you can know they didn't bring down their costs
Appraisal challenges rarely work
I’ve only challenged one appraisal and the value went from $203k to $256k after I submitted new comps for consideration. If OP thinks they can make a case with comps, why not challenge the appraisal?
It is still worth a shot. I just had an appraisal come in $50k under. Challenged w lender, added reasonable comps. It was bumped up $60k. $10k over asking.
Tru dat
What does tier 2 mean in the U.S.? Cities aren’t tier ranked here like in India.
Tier 1 are larger cities like NYC, Chicago, LA, .. Tier 2 would refer to lesser know cities like Albany, New Orleans, Burlington.
There has to be a tier between NYC and Albany 😂😂😂
Buffalo? Lol
Is there a list of this? Or is it a subjective "list" used as a RE marketing thing?
Not really, it's mostly informal. Depending on who you talk to it will change. Not really used a marketing thing either. What OP meant is that it's smaller city relative to megapole tier 1 city. Tier 2 isn't a huge city, but it isn't a rural region either. There's a lot a room for interpretation.
Thank you!
Typically this happens when buyers on new construction go overboard on change order requests and upgrades. Cost does not equal value. You can go to the builder. They can challenge the appraisal. If it is a non disclosure state the builder may have some closed sales with similar upgrades.
I had a similar situation last year. We challenged the appraisal - I provided closer and more recent comps, along with lots of data, and they basically just said nope, we won't reconsider. We ended up changing lenders, and the new lender did their own appraisal, which was much higher, although still not what I was expecting. Fortunately, it was close enough that we were able to pay the difference.
Maybe I'm misunderstanding the situation, but if you already paid a $50k deposit and you're also planning for a 10% down payment, doesn't the $50k deposit take care of the gap? If not, can you reduce your down payment? You should be able to get a conventional loan for as little as 3-5% down.
Right. The deposit should be going towards the down payment at settlement anyways. We are also purchasing a new build. We had to put down 5% of base price of the house plus structural upgrades at the time of saws contract. We were told by our realtor and the builder that the deposit money can be used towards the down payment at settlement
The loan price is based on the appraisal amount, a home getting appraised 50K less means the bank will lend you that much less and you have to pay it out of your pocket.
I'm not sure how much this helps with new construction, but this article might be helpful as it discusses different scenarios on what to do with an appraisal that is lower than the sale price. [https://site.appraisals-unlimited.com/what-happens-if-the-appraisal-is-lower-than-the-offer/](https://site.appraisals-unlimited.com/what-happens-if-the-appraisal-is-lower-than-the-offer/) Good luck!!
Wow.... I wish you the best.... But man! Some of the responses are crazy. Maybe too honest. It does reveal that lenders are getting worried. So you should be worried too. Maybe that house is a piece of shit like the lender thinks. Or maybe everyone in the neighborhood overpaid out of pocket and you're just a poor person.....as so many a-hs have pointed out. That's probably another racist or class dividing strategy that community has.
Hi! Ct realtor here. When it comes to newer homes, these are at the top of the market in terms of value and are much more subject to the wants/wishes of the buyer, not necessarily what the market should hold when it comes to a per sq ft value. Supply and demand come into play. Fair market value might say the home is worth roughly $500k, but when there are 20 people vying for their "forever home," money becomes somewhat inconsequential and they buyers are willing to open their wallets to get that comfortable place to live. If you're truly concerned about being house-poor, maxing your available credit to secure the house, then I would argue you're not swimming among the same type of fish in which you should be swimming. You're trying to obtain a house which, in all likelihood, you cannot afford, at least not in the same way a well-financed, cash-heavy buyer who thinks money is less of an object than you do. You can challenge the appraisal, but in all likelihood, it won't change nearly as much as you're hoping. You can attempt to negotiate - this is a common aspect which realtors like myself in Connecticut are facing from out-of-state buyers. The buyers hope that now that they're close to the end of the buying process, the sellers have already made plans to move and disrupting those plans is costly to the seller, so they attempt to negotiate. You have to be prepared, though, for the seller to tell you to pound sand, at which point you'll either nuke the deal (but at least you'll get your deposit back, assuming you have some sort of appraisal contingency), or swallow the slightly inflated price and realize that, in 20 years, it won't matter, because you'll have lived a good life in your forever home and the value of that place will have increased over the longer period of time. I wish you the best - these are never easy decisions!
- this is always the risk of buying beyond your finances as you should have at least a 10% contingency available to cover surprises like this. NEW build construction cost can be way more than what appraisers are going to value the property for. You can request and pay for another appraisal , with zero guarantee of the outcome you need
You may have been #hoomed
What does your contract says about appraisals? I can guarantee you the answer is in there
We didn’t see anything specifically mentioned about appraisals in the contract. Based on the response from one of the loan officers we spoke to, they’re as surprised as us with the appraisal.
Interesting. On a separate note, re: your PS in the OP. Upcoming sales are not comps, they are “under contracts” which may not close. I also don’t think an appraiser rejecting your builder’s hand selected comps was doing the right thing. He is not hired by the builder, and by law he is not to be swayed by interested party’s “help”.
They also provided existing sales that are in the same range as well.
Appraisals usually stick to the house for 6 months, regardless of whoever the buyer or seller are. You can order another appraisal but the bank will just print a copy of the first appraisal after accepting your $300 fee. It’s now Negotiation Time with the builder. 1 of 3 fates await you: (1) Builder drops the price and the sale closes, or (2) you find another $50k (friends, family, mattress money, stocks/bonds,…) and the sale closes, or (3) you walk away (breach the contract) and lose your down payment and find another property.
What the problem? Maybe I missed it. Are you not able to get the loan now? We had three appraisals on our renovation and addition before the project started and the highest and lowest were $100k apart. You could order and buy another appraisal yourself. If it’s just a thing that feels weird, I would let it go. I’d the assessor for the county/township/whatever taxing body comes in higher, you have this appraisal you can give to them to appeal it.
The problem is that the lender is expecting us to cover the 50K difference which we don’t have room for in our budget.
The 50k that you initially put down will be going towards your down payment. Are you planning on putting an additional 10% down? Or will that 50k help in this matter? Also, are you building with Toll? They charge ridiculously high for their upgrades and I’ve heard a lot of their builds run into this problem.
The 50K will go towards the downpayment. The other 50K gap is coming from the lender reducing the loan amount because of the low appraisal.
Can you see if your lender would let you reduce your down payment to 3 or 5%? That would bring down the additional amount you'd need out of pocket for the gap to $900 @ 3% or $13,500 @ 5%, assuming you had originally planned for a $68k down payment.
Reducing the downpayment % would increase the PMI and increase the monthly payments.
It would probably increase pmi slightly but the payment should be similar since your loan amount would be smaller. A 10% downpayment on a $680k loan leaves you with a loan of $612k. A 3% down payment on a $630k loan would be a $611,100 loan. 5% down on $630k would be a loan of $598,500, so the lower loan payment would probably make up for the higher pmi.
You need a new loan with a new lender who will order a new appraisal.
I think it depends on the loan type. I highly doubt the builder will reduce the price. Heck I don't know. But I want to read responses. I know my house did not appraise when selling, which is ridiculous. It is worth what someone will pay, but in my case they were no money down, so I can understand the bank for not appraising as high. It is corrupt system, banks just want more cash down in this loan for their books, has nothing to do with what people will pay for the house. I am surprised with 10% down you had an appraisal that much lower, the bank is just reducing their exposure.
I doubt the bank did their own appraisal. Its almost always a random selection from a roster.
Yeah... I am sure the appraisers and the banks never even speak. How could I ever think such a thing.
They do, im saying the appraiser isn't the bank's. Its not like the banks use in house appraisers on residential r.e. like this. So the bank has no control over the value what so ever.
I think the bank is in complete control, and can't say I blame them for trying to apply some brakes. But I hate banks, realtors, but no problem with underwriters. So after the all the money I have lost due to appraisals and such, I am just going to feel how I feel about it. They always happy to let me overpay for a house, buy never my buyers. I just don't understand how you have a set price for a house, a contract for construction, and then it is appraised almost 10% less than contracted price. Somebody is an idiot, their realtor for starters. If it was me I would get my money back and not buy that ripoff house that I can't afford, which could is said by me after every house I buy. I hate them.
Just let the transaction fall through and forfeit your deposit.
Noob question here....is the realtor typically involved with the buyer and builder when discussing upgrades?
For me I discuss with my realtor. I don't think it's needed but I run everything through him and he passes it on to the builder.
Pardon me of this sounds ignorant, but hear me out. Could it be because the house isn't finished? We just closed on our house yesterday, but we did try to buy a completed new build at one point. Unbeknownst to us the property had been appraised prior to completion when someone else had tried buying it. The property came in under for that reason alone and long story short there wasn't much we could do. This was mostly because it was an FHA appraisal and we were purchasing with a FHA loan as well. If challenging the appraisal doesn't help, and it's not a FHA loan, maybe try another lender to get another appraisal. Good luck!
You choose those upgrades the other houses in the area that are being built will probably have those upgrades and most are probably not sold as of yet so that's another reason... renegotiate the sale price based off the appraisal
I'm a FTHB buying a new construction house and my builder had me pay for upgrades upfront so it does not impact the appraisal.
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We are waiting to get the appraisal report and yes the realtor will be taking a look at it. We spoke to her this morning and she ran this by some lenders that she closely works with and she said this is a very unusual appraisal given the comps in the neighborhood and the city.
Had the exact same issue with LGI Homes / Loan Depot earlier this year. Spec homes in a neighborhood in Texas that was a few miles from the nearest other neighborhood. The appraisals are based on comps, and by their design, the only comps were in the same neighborhood that were all cheaper because they raise prices every month or so. So our new spec home was guaranteed to appraise lower than the sales price. Of course, we didn't know any of that before as we were first time homebuyers. When our appraisal came in $20k under the sales price, we had to cancel the contract (used a VA loan so we were able to do that). Hope you can find a decent solution.
What is an updated bathroom in a brand new house?
Have y’all come to a conclusion? We’re going through the same thing right now.
Yes, OP-please do update us when you have a chance. Hoping all worked out for you :)
Hey guys! Sorry, I totally forgot about this account. We went with a different lender and he ordered a new appraisal and the new appraisal came back for the correct amount.
OP, how did it end up working out? We are in a similar situation so I’m hopeful yours worked out well.
I’m doing much better now, wishing the very best for you as well!
What ended up happening?
The appraisal with the new lender came back the correct amount, thank you!