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Appraisals aren't an exact science. 8K seems like a pretty small differnce to me. And you may not be able to cancel the deal over it. If it isn't spelled out in your contract and it isn't an issue for your lender you may have no choice.
Did you finance these upgrades? We just built new too and put 3k in upgrades (better carpet padding, larger kitchen cabinets, closing a wall in, water/sewer lines ran differently to move a sink, etc). We didn't finance our upgrades simply because we knew we could pay cash for them and were worried closing the wall and sewer lines would not positively affect the value of the house.
Our appraisal came in 6k over our purchase price and only 3,000 over our "actual" price. Like others have said, it sounds like many of your upgrades didn't actually increase value. And upgrades, as I'm sure you know, tend to be very overpriced. What you pay $5,000 for is only $2,500 of value.... builder needs to make a buck.
We dealt with our builder for 10 months already and I can tell you hardly any will budge on anything. They won't willingly agree they are selling a house for more than its value.
Sounds like you need to fork over the money, or walk.
If your contract allows you, walk... and then be available when the builder wants to move it off his books. Some of the better deals have always been built homes where there was an issue with getting it closed. The builder gets stuck with an inventory home they most certainly do not want.
If you're willing to take the risk of losing the house completely, it might get you the home even cheaper then the appraisal.
Did you finance these upgrades? We just built new too and put 3k in upgrades (better carpet padding, larger kitchen cabinets, closing a wall in, water/sewer lines ran differently to move a sink, etc). We didn't finance our upgrades simply because we knew we could pay cash for them and were worried closing the wall and sewer lines would not positively affect the value of the house.
Our appraisal came in 6k over our purchase price and only 3,000 over our "actual" price. Like others have said, it sounds like many of your upgrades didn't actually increase value. And upgrades, as I'm sure you know, tend to be very overpriced. What you pay $5,000 for is only $2,500 of value.... builder needs to make a buck.
We dealt with our builder for 10 months already and I can tell you hardly any will budge on anything. They won't willingly agree they are selling a house for more than its value.
Sounds like you need to fork over the money, or walk.
This post is a perfect example of the misunderstandings that occur between builders and buyers. Sorry PG2005, I don't mean to pick on you personally, because you weren't hostile in your post, but some things you said struck me as common misunderstandings.
My parents are builders and I have worked in their office for almost 10 years, so I have an insider's view, while not being a builder myself. I can tell you that yes, "What you pay $5,000 for is only $2,500 of value", but I can also tell you it probably cost the builder around $4,500 to do, plus his time to make sure the subcontractors did it correctly, since it wasn't on the original plan.
I can also tell you that yes, the builder wants to make a profit, a builder's inventory is his time spent, and they do spend a lot of time building a house. But they also have overhead, and they don't make as much profit as you might think. Most builders probably make less per hour than you do, and I make that statement not knowing what you do for a living. My parents both work 80+ hours a week, every week. Their idea of a vacation is to take a 3 day weekend, and even then they work hours on the phone while gone.
I can also say that right now in our market, it is nearly impossible to make ANY profit on a build job. The cost of materials and labor right now is MORE than the appraisors will give us for value on a finished house. So we would have to be willing to build at a LOSS if we were to build. For that reason, we have had to turn away several jobs over the last year. I'm not even including builder's profit in that. We had one job that we asked for an upfront appraisal on before we started, and discovered it would cost us $30,000 more to build the house than we could get value for (before builder's profit). In other words, we would have to sell at a $30,000 LOSS to build this person the house they wanted. Needless to say, we turned it down. We had another one that lost $70,000 in appraised value from the time we started it until the day it closed. The buyer came up with the difference in cash.
That is what builders are up against right now. Basically, we can only build for someone who is putting a large amount down, or paying cash completely. Or we can build the really low end, cheap stuff, which we don't do.
So yes, we will agree that we are selling you a product for more than its current value, but we have no choice in the matter. Its that, or not build the house at all. On the deals we have done so far this year, we have made about the same as the builder as the selling agent made on the deal, so that gives you an idea of the margin.
This isn't meant to be a "Woe are the builders" post, but there is a reason that so many have gone under in the last 2 years. They aren't "not budging" because they are greedy, they aren't budging because they don't have any wiggle room built in.
I wasn't giving details... just making the point that $5,000 of upgrades isn't necessarily worth $5,000 because there is labor, profit, time, etc built in which does not reflect in value of house. I also don't think I have a total misunderstanding of building a new home as this is not the first.
I understand your need to explain the practices of builders. However, markets are different everywhere and not all have taken such massive dips in profit/prices. Not all builders are small, family run companies either.
When it comes down to it, the fact that the OP made upgrades that aren't necessarily of "value" to others is most likely contributing to the difference in appraisal versus sales price, althought maybe not the only issue here. Not sure where I am off point here?
I wasn't giving details... just making the point that $5,000 of upgrades isn't necessarily worth $5,000 because there is labor, profit, time, etc built in which does not reflect in value of house. I also don't think I have a total misunderstanding of building a new home as this is not the first.
I understand your need to explain the practices of builders. However, markets are different everywhere and not all have taken such massive dips in profit/prices. Not all builders are small, family run companies either.
When it comes down to it, the fact that the OP made upgrades that aren't necessarily of "value" to others is most likely contributing to the difference in appraisal versus sales price, althought maybe not the only issue here. Not sure where I am off point here?
I don't disagree with anything you said. I'm just pointing out that there is another side to it (I like to play devil's advocate). There are reasons most won't budge, and it isn't because they are trying to rip you off. Another reason they won't come off the price is because it will hurt them for comps the next time they build the same plan.
I understand that markets are different everywhere. In our area, it is partly a decrease in value, but moreso it is the fact that building costs have not come down proportionately. Not all places have taken hits like ours, but many have.
I guess my point in my post was that (reputable) builders in today's market are also just trying to survive and still be in business when the market recovers. They aren't trying to purposely make you pay more than your house is worth, they just want to recover what they spent building it, and make a small profit on their time.
All of the builders in our area (including the national ones such as, Ryan, KB, and Toll) require any upgrades to be paid outside of the contract price. They will allow financed options, but only if the appraisal supports it......but with HVCC, the new appraisal regs, we aren't seeing too many appraisals allowing closing costs to be rolled into the purchase (unless they add square footage).
They aren't "not budging" because they are greedy, they aren't budging because they don't have any wiggle room built in.
I am sure that everything you say is true. We just looked at a new home vs a resale at $1.2 million and concluded that in the resale we were getting upgrades in the resale that would cost around $250K if the builder put them in. It's not the builder's greed, it's just the way the market is right now.
However, that does not change the fact that it is typically cheaper to get upgrades from someone other than the builder.
I am sure that everything you say is true. We just looked at a new home vs a resale at $1.2 million and concluded that in the resale we were getting upgrades in the resale that would cost around $250K if the builder put them in. It's not the builder's greed, it's just the way the market is right now.
However, that does not change the fact that it is typically cheaper to get upgrades from someone other than the builder.
I'm not sure if this was sarcasm or not. The first sentence leads me to believe that it is. Of course I don't think I'm right about everything. But it is entirely possible that in that price range, the "value" of a resale could be $250k less than the "cost to build" the same house.
And as to it being cheaper to get upgrades somewhere else, it totally depends on the upgrade. In some cases, I absolutely agree with you. If you are putting in a sound system or a pool in the backyard, it will almost certainly be cheaper to get it after the fact. If you want extra insulation blown into the attic, you are trading not paying the builder's markup with not getting the builder's discount, so its a tossup, and will probably cost about the same, but you might save some. If you are wanting a non-load bearing wall to be changed to half height, you would have been better off doing that during construction, after the fact will almost certainly cost more. If you are wanting to upgrade to 2x6 exterior walls instead of 2x4 walls, well, you are better off starting over with a new house, honestly.
Also, if you mean doing something like buying upgraded carpet from a 3rd party to be installed by your builder during construction, the builder may not agree to use the product since they don't have a relationship with the source, or proof that that company has insurance, etc. If they do install it, the builder will usually refuse to warrant any part of it. And they may still charge you a premium for the change because that is even more of a change from routine. We had someone once who thought he could get a good deal on cabinets, we warned him that it wasn't a good idea, but he insisted and we agreed to let him try, after making him sign off that we advised against it and wouldn't warrant the product. The cabinets came in all wrong (wrong measurements, wrong materials, wrong stain, wrong everything) plus they were weeks late arriving. Fixing the problem ended up costing him far more than our cabinets would have cost, plus it delayed his closing by almost 2 months. More often than not, that tends to be what happens when someone thinks they can "get a deal".
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