Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I'm having trouble understanding how an appraisal doesn't come in at approximately the same value as the combination of the land and new construction.
Here's the stats:
Acreage - owned outright.
Brand new home and two car garage - yet to be built.
The home is small with very few 'upgrades'. For example: berber carpet instead of the cheaper stuff; tile instead of vinyl, etc. How can there be upwards of $25K difference in value? Again, the land is already owned, with all utilities, water, etc.
When I look at acreage on local realty sites, they are asking three times as much for land with no utilities. I get profit margin and all of that, but really?
I hope I've explained this sufficiently. It is confusing to me.
You're not the first person to be hit with a low appraisal for a construction loan. Seems to be a common occurrence. Are those other acreage listings selling at the high prices or are they just crazy asking prices?
You're not the first person to be hit with a low appraisal for a construction loan. Seems to be a common occurrence. Are those other acreage listings selling at the high prices or are they just crazy asking prices?
I just started comparison shopping recently, so I'm not sure if they are actually selling, or if this is just the initial 'high priced' selling starter. That could be, as we all know, there must be room for reduction. But I was shocked at triple the selling price for vacant land!
We tried to get an independent appraisal, and we told by the broker to not even bother, as it won't be considered anyway.
The appraisal is what it would sell for right now, As Built.
Including land.
It’s just that, because of the current selling prices of comparable resales, the cost to build your home and buy the land,
is greater than what it could be sold for in the supply and demand market.
Apparently there is currently in your local market (and most), a cost to pay for the luxury of building a brand new home.
At times when resale inventory is very low, this can invert, because of the wait-time factor of building.
Your lender may let you make up the difference,
by paying all of the difference between the actual cost and the appraisal amount,
as well as the percentage equity amount of the appraised amount as required for the loan;
maybe your owning the land may help with this calculation of required cash to close?
If you are trying to buy land and build, your loan will be based upon cost of land + construction contract to build, or, the appraised value, whichever is less. However, if you already own the land (for at least 6 months), you can use the appraised value of the completed project and base your loan amount off of that value. Chances are, your value will pay for the pain of building your own home. It may make sense to try to buy and wait on building.
Whatever you do, you must stay within the confines of the neighborhood or area you are building in. You can put in Berber, Italian marble and imported Peruvian flooring, and if that drives the cost of your home over 300K from your highest neighboring value, your home just cost 300K more, it's not worth 300K more. Cost does not necessarily = value, just ask any insurance adjuster.
If you are trying to buy land and build, your loan will be based upon cost of land + construction contract to build, or, the appraised value, whichever is less. However, if you already own the land (for at least 6 months), you can use the appraised value of the completed project and base your loan amount off of that value. Chances are, your value will pay for the pain of building your own home. It may make sense to try to buy and wait on building.
Whatever you do, you must stay within the confines of the neighborhood or area you are building in. You can put in Berber, Italian marble and imported Peruvian flooring, and if that drives the cost of your home over 300K from your highest neighboring value, your home just cost 300K more, it's not worth 300K more. Cost does not necessarily = value, just ask any insurance adjuster.
Well, the whole purpose of buying this piece of land was that we like the location, the taxes are low, it's not in a flood zone, and it was a great price.
Trust me, we're not going for the McMansion with imported anything. Like I said, it's small, (1100 sq. ft.), and is comparable to others around. I do not understand the pricing of vacant land nearby selling for triple the amount of what our acreage is appraised for, complete with utilities and water.
We tried to get an independent appraisal, and we told by the broker to not even bother, as it won't be considered anyway.
Quote:
Originally Posted by sirron
I do not understand the pricing of vacant land nearby selling for triple the amount of what our acreage is appraised for, complete with utilities and water.
So did you get it appraised or not? Those two statements are contradictory.
The simple explanation to your basic question is that it is usually cheaper to buy an existing house than it is to build new. If an appraisal comes in lower that your projected build costs + land, that seems to hold true in your area as well.
The appraisal is what it would sell for right now, As Built.
Including land.
Very well put and to the point.
Think of it like this . . . if you decided that you wanted a new car and went out and bought all the parts separately (steering wheel, engine, seats, tires, etc, etc, etc) and had it assembled that would cost you far more than if you bought the finished product directly from the dealer. It's the same thing with a house. The value is not compromised of the sum of the value of each part but rather the value of the entire package all together.
[quote=jackmichigan;36374011]So did you get it appraised or not? Those two statements are contradictory.
The simple explanation to your basic question is that it is usually cheaper to buy an existing house than it is to build new. If an appraisal comes in lower that your projected build costs + land, that seems to hold true in your area as well.[/quote]
Apologies for the confusion. Our land was appraised by someone picked by the broker. I wanted to get a second opinion, if you will, from another place.
Yeah, we're finding this out. I thought with some acreage already owned, this would help. Thanks for your anwser.
Think of it like this . . . if you decided that you wanted a new car and went out and bought all the parts separately (steering wheel, engine, seats, tires, etc, etc, etc) and had it assembled that would cost you far more than if you bought the finished product directly from the dealer. It's the same thing with a house. The value is not compromised of the sum of the value of each part but rather the value of the entire package all together.
They say you're never too old to learn, and I am proof.
Thanks, Mike, and everyone else for your answers. I actually came across a listing with double the square footage and more land for almost the same price as what ours would have cost!! It is not new, but it doesn't have to be. Decisions, decisions.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Appraisal Shortfall
