Bank Assessment, Cost to build

tdubbsJune 4, 2012

Hi All,

We've been excited to build a modular home ever since we purchased 6.5 acres of land last year. We chose a builder, finished the plans, and went out to get estimates for all the contracting work, excavation,electrical,plumbing,etc. We're planning on building a 2400sft colonial, with 2 car garage.

We had all sorts of numbers come back, some double others, it was crazy. We decided on our contractors, and went to the bank for our mortgage application process. As part of the mortgage process, the bank has an outside company do an assessment for the finished value of the home. They do this two ways, cost to build, and comparison to three other homes of comparable specs that have sold recently.

We received the assessment back, and were shocked. The assessment came back for exactly what we were asking for from the bank, which was less than the cost to build! If we go through with building, the home would be worth less than we had into it to build it. The assessment was based on the comparable home sales in the area, most of which were selling for a loss, and they even had to go back over a year, and a town over to get the comparable homes. 2 of the comparable homes were owned by the same owner, who sold one at a loss to purchase the second comparable home.

We're not sure what to do now! Our builder thought one of the quotes was high, so he recommended someone he uses, and his quote came back even higher. Our pricing is relatively good, and I've searched since and can't find better pricing for contractors. We're thinking about getting another assessment ($300) but I fear the same results as they all use the same fannie mae forms.

Has anyone else run into this? I found this article -

Any idea on how we should proceed? If we wait a year mortgage rates will only most likely go up. We feel like we're in a no win situation.

Appreciate any help!


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Are you sure the homes they used were actually comparable, specifically in the area of the acreage included? A 2400 sq ft home on a half-acre lot does NOT have the same value as the same home on 6 acres. Also, they are not supposed to use short sales as comparables - but if the sales were merely at a loss and not a short sale there is little you can do. But that an owner found it necessary to sell at a loss says something about the market, and home values, where you plan to build. A house is only really worth what somebody else will pay for it, no matter how much it cost to build.

I'd suggest trying to get a new assessment from a non-bank affiliated assessor, if you can. Banks don't want to either loan money or give a high valuation on homes these days. They fear further erosion in property values, and their concern is justified. It may well be that you bought land at an inflated pre-2008 price, and now you will have to accept the loss in land value reflected in the value of the finished home.

My husband wants to know how long you intend to remain in this home. He's right to ask. If this is your permanent home, a lower assessment is a good thing tax-wise. If you have plans to sell and turn a profit, think again. Homes are no longer "investments" that will appreciate in value at an outrageous pace. They will appreciate at the much lower historic rate, if at all.

    Bookmark   June 12, 2012 at 9:11PM
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It is almost always more costly to build then buy and if you are not planning on staying long term it's not worth it. Will the bank give you the loan? If they will and this is your dream house who cares that it is assesed low?

    Bookmark   June 14, 2012 at 8:13PM
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Conventional wisdom is that is is less expensive to build than buy. This may not be true in this declining housing market.

    Bookmark   June 18, 2012 at 9:22PM
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It is not cheaper to build in today's market in most of the country. I built in 2006 and wouldn't dream of doing it now unless I was building it myself. It would still be more expensive than buying something not exactly like I want but remodeling it. The problem is now that you've committed to purchasing land it's difficult to back out of the process. I hope it works out for you, but the comp situation is not going to change anytime soon.


    Bookmark   September 13, 2012 at 8:18PM
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