Help! Appraisal came back too low

kemmc23December 19, 2013

We are building a spec type home and the appraisal just came back and it's almost $20,000 less than the sales price. We aren't really sure where to go from here. We were planning on putting down the 20% to avoid PMI. We really don't have or want to put more down. Anyone have any suggestions on what to do? Has this happened to anyone else? I do think the price is fair for the area, but two houses sold for lower during the slow time. Now prices are picking up, but this appraiser is using the lower prices as comps. help!

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Sophie Wheeler

Be thankful it wasn't 200K lower. That has happened. 20K is nothing in the scheme of things. Put the additional down, or pay the PMI. The PMI will cost you more in the long run.

    Bookmark   December 19, 2013 at 3:35PM
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Did you put anything down on the spec home? I know it is the home you want, but maybe time to get the price lowered? If I sell my he to someone, and an appraisal comes back lower than the selling price, it doesn't meet financing requirements, and they aren't bound to that contract. If it is really the homee you want (and the seller wont reduce the selling price) then look at a 1st and 2nd mortgage, do a 401K loan for the difference, or deal with PMI for a few years and refinance when the appraisal rate will be better, or through a considerable amount at the loan as the appraisal with the same loan will generally need to put you at 30% equity to get rid of PMI.

    Bookmark   December 19, 2013 at 3:40PM
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Yes, more details please. Did you do a two step loan? 12 months of construction and now the conversion is coming in low? Read the appraisal report, where is the low number coming from, perhaps you can decide more based on that.

    Bookmark   December 19, 2013 at 4:45PM
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That happened to our neighbors across the street, although I believe it was a lot more than $20k under.

The builder came up with money to help them as well as their agent, but they will walked away. Could your builder meet you half way at least?

    Bookmark   December 19, 2013 at 7:05PM
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We put money in escrow for the down payment, but we are buying from the builder, so we did not have to get a construction loan. The comps were two houses that my builder built and sold in the beginning of the year. The last comp was from another development/builder where the homes are much closer/smaller lots. They gave that house a $20000 credit for a finished basement along with some other things that I don't really agree with. My agent is going to talk to the appraiser, but I am not sure that will help.

    Bookmark   December 19, 2013 at 8:09PM
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A lot of homes DO appraise for less than they cost to build. It's common, in fact. That doesn't absolve you from paying the builder what you agreed to pay him for the home. You have a contract.

Appraisals are about square footage and location first. The bank is only concerned about what they could sell it for if you defaulted, not that you have super special marble floors from Greece and some fancy Euro shower head. Those things don't add value to the home even though they cost you a pretty penny above the basic offerings. You don't get huge price bumps for upgrades like HGTV would have you believe.

    Bookmark   December 19, 2013 at 8:38PM
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I also have in the contract that the home needs to appraise for the selling price. But I am not sure I want to lose the house. Does anyone know if appraisals can change? Would I be stupid to pay for a house for more than what it is appraised for?

    Bookmark   December 19, 2013 at 8:52PM
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Our house didn't appraise for what we paid for it. That is one of the risks in building. We paid the difference.

Were we stupid for doing that? I don't think so, unless we planned on selling in a short time frame. At this point, we've been in long enough that it would appraise higher (the market has improved and more expensive comps have sold.)

Would you be stupid? It depends. How is your real estate market trending? How long do you really think you'll be in the home? How does the 20k compare to the overall price? (If this is a 100k home? 1 mil home? What percentage of the cost are we actually talking about?)

    Bookmark   December 19, 2013 at 9:17PM
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Can you try starting over with another bank? Same thing happened to a family member. The appraisal came in $100k less than the contract price. I think the price was in the $300k range. They ended up walking away.

    Bookmark   December 19, 2013 at 9:32PM
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Can you re-negotiate the price with the builder? I'm guessing the price would come up similar to other buyers too.

Maybe ask to split the difference.

    Bookmark   December 20, 2013 at 7:47AM
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We built our home ourselves and it cost $533,000 on our split construction mortgage and personal line of credit. The bank first appraised the home at $620,000 but when completed they appraised $860,000! Not sure their thinking sometimes⦠its a crap shoot!

    Bookmark   December 20, 2013 at 12:40PM
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I had a home built for me and ended up in the same boat. But I knew it was likely to under appraise. This wasn't our first home and we had been saving to build for quite some time - so I had money set aside for my fancy kitchen cabs, the exotic granite I "had to" have, the pretty wood and tile floors, etc..

My thinking was exactly like lolauren. I basically ate the difference. When you can buy an existing home for less than what it costs to build new, you're going to see these things happen. You can easily dump $60k in a new kitchen, but you don't get all that "value" back in the appraisal.

Is it worth it? It was to me. I loved being able to pick out every single blessed thing....although the construction process itself did almost kill me. ;)

    Bookmark   December 20, 2013 at 1:35PM
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My place also came back lower then the build cost after it was appraised...but get your hands on the appraisal! I found that the appraiser was using "uncomparable" comparables. I presented to the bank the rational behind why he wasn't using comparable properties, and they supported my reasoning enough to request he do a 2nd assessment with my comments in mind. When THAT assessment came back low (but higher then his first), I offered further examples to the bank and they agreed to cover the cost of 1/2 of a new appraiser...which in the end appraised my place ABOVE what it cost to build because he used properties more akin to my place. Cost me a LOT of time, delayed everything 6 weeks and I spent an extra $250, but totally worth it.

If you're using contracted appraisers, see about getting a 2nd opinion. And review the appraisal to see why it's coming in so low.

    Bookmark   December 20, 2013 at 2:06PM
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If you have an appraisal clause in your contract, then negotiate with your builder. He is the one to lose the sale.

    Bookmark   December 20, 2013 at 11:18PM
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Yep, take the opportunity to renegotiate the sales price. It is possible to get an appraisal changed but its extremely unlikely. A lot of reasoning and math goes into an appraisal so they usually have pretty good reasons for selecting the comps. the way they do, even if it seems off.

    Bookmark   December 21, 2013 at 2:58PM
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