Real Estate

Appraisal on new build

  • Last Updated:
  • Aug 14th, 2019 7:08 pm
[OP]
Newbie
Aug 12, 2019
3 posts

Appraisal on new build

Hi all.

I searched around a bit but couldn't find this asked. Apologies if it's a common question.

My wife and I are considering building in a community we like. Everything is going well. Pre-approval is good, etc. My question, before I consider handing over the down payment, is about the appraisal the lender does once the house is completed. Is it common for it not to line up with what the builder is selling it to me for? It's a reputable builder in the city so not concerned about them being sketchy.

At first thought I considered it just kind of a formality, but if the appraisal goes sideways, then it's me on the hook to figure it out? I am sure the builder will happily take my down payment and sell it to someone else if I can't figure out the difference.

Anyways seems like there is some knowledgeable folks on here so figured i'd ask.

Thanks for your time!
5 replies
Deal Addict
Jan 15, 2017
2421 posts
1742 upvotes
What city are you building in?

Does it happen? Yes. Is it common? I wouldn't say it is common, but it can happen.

The thing to remember is that your new build will be appraised against comparable re-sells, not other new builds. There are 3 things that usually cause a lower appraised value vs the price paid - an overall down turn in the real estate market, an overpriced builder model and an overly upgraded home where the upgrades do not improve the overall value of the home.

An overly upgraded home can easily be rectified by being careful with upgrades and ensure that you understand which upgrades definitely add value and which add little overall value to the home. It can be difficult to counter a down turn in the market - but one strategy to protect against it is to select a closing date that is not too far in the future. The longer the closing date the higher the risk.

Examining builder models against the resale market is very important. Some builders have across the board price increases that may result in some models being priced too high to actually sell. Remember, just because the builder is offering a model at a certain price, it doesn't mean that any one is actually buying it at that price. A builder may very well offer 30 different models at different price points but may find itself actually selling only 10-12 of these models. Some models may actually never sell at all. I had one builder salesperson tell me that for one community a whole series of towns just didn't sell and the builder had to dropped them on subsequent releases.
[OP]
Newbie
Aug 12, 2019
3 posts
Thanks skeet! All things to consider.

Building in Calgary. The market is pretty flat right now, so not overly worried about it dropping much more but the upgrade point is good to consider though as we have a bunch of upgrades in. Will have to ponder whether they are adding value or not.

The other thing, because of the flat market, these builders seem a bit desperate and there is some heavy discounts in the offer right now.

I imagine there isn't a condition you could put in to the agreement that if the house doesn't appraise out, we get the down payment back? Can't see the builder going for that!

Thanks again for your time!
Deal Fanatic
User avatar
Mar 23, 2008
9535 posts
5949 upvotes
Edmonton
reefman wrote:
Aug 14th, 2019 5:27 pm
Thanks skeet! All things to consider.

Building in Calgary. The market is pretty flat right now, so not overly worried about it dropping much more but the upgrade point is good to consider though as we have a bunch of upgrades in. Will have to ponder whether they are adding value or not.

The other thing, because of the flat market, these builders seem a bit desperate and there is some heavy discounts in the offer right now.

I imagine there isn't a condition you could put in to the agreement that if the house doesn't appraise out, we get the down payment back? Can't see the builder going for that!

Thanks again for your time!
There was a number of threads in here over the last dip in the GTA market where people got burned by a lower appraisal, so it can be an issue. Having said that, I suspect Calgary is at a low point in their market, and you’re more likely to see the price go up than go down. But probably not significant amounts either way.

If you’re right on the cusp of your budget, then the only safe solution is buying a spec house that’s already built, so you know the price and it can be appraised now. But a builder isn’t likely to take the risk on your behalf. Doesn’t hurt to ask, though.

C
[OP]
Newbie
Aug 12, 2019
3 posts
Thanks CNeufeld! Excellent info!

Good points about Calgary. And we do have some wiggle room with the budget so not screwed if something goes a bit sideways.

And ya, can't see a builder putting their butts on the line for us.

Thanks again!
Deal Addict
Jan 13, 2014
1316 posts
372 upvotes
Calgary
Hi, I have built two new homes in the past 1 year and also bought and sold multiple times in calgary. Plus i worked in the new home building market (Spec and custom). Generally the lender's appraisal would come in line with what builder has and rarely in my 8 year of banking career i have seen it gone down once (15k difference) which was rectified by a second appraisal. I wont worry about it but if you can PM me the area, builder, move in time frame and house price i can give you a rough idea. Good luck! and if youre in Cornerstone then you might be my new neighbor lol.

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