The banks will always use comps for existing sales. They need to hedge their risk in case they end up with your house on their books. I'd be more annoyed that the appraiser didn't find a lakefront home. Did they make a large adjustment on the lot for it being lakefront?

Brad- we are in the process of talking with them. they are reviewing it internally to see why the third party appraisal was so different from their own pre-aporaisal.

Houzzi- we asked them to consider the SEV of the land which he had not done.

Janni- sorry couldn't see your name as I was responding. No there was no adjustment/allowance made for the property. There were a lot of questions we had based on comps he chose. We are also planning to talk to other recent new build owners. Several homes are going up right now.

Comps are the normal. The banks appraiser for our project specifically noted that the cost of construction is higher than sales value (due to labor and material costs currently).

If you default, the bank can only get out of the property what someone is willing to pay. Thus, they will only loan that amount. As for lake frontage, that will be accounted for in the comp.

Time to find more money in the bank, a rich relative, collateral value in another property that you own, or cut back what you are building. (or a combination of several of those items.)

Cutting back on what we are building will correlate to new comps, so it sounds like the bottom line is that the cost of a new build has less value in sales in today's market?

If you're building new, it's not uncommon to have to bring more money to the table. All the time. Even when you least expect it.

I'd keep talking with them about the appraisal and hopefully that works for you. But as so many folks mentioned upthread, new builds don't necessarily appraise for much more than an existing house. And it's also not uncommon for a new build to cost a ton more than it would to buy an existing house. The home owner has to make up the difference.

We built new a few years ago now. The only difference for me was that we owned our land. The value of the land offset the "premium" incurred when one builds new but I had a stack of cash in reserve anyway, just in case it didn't appraise well at the final appraisal before the second closing. For months during the build I had visions of a major market down turn and me having to cough up a ton of money....

Yes, That is correct. Though depending on what you cut you may gain on the situation. Fancy finishes, expensive lighting choices, etc. raise the cost to build without raising the value nearly as much.

Doc5md - for me, it was my kitchen. The amount of money you can spend trying to make a kitchen pretty is.....amazing. I about cried when I got the quote for decent quality cabinets and granite. I would have saved so much money had we gone with builder basic.

Now that I'm done I can say it was worth it - but I was lucky enough to have gone into this with my eyes wide open and I knew I'd be paying for a lot of my choices out of pocket.

Appraisal comps are 90% about location and residential (house only) square footage. 10% about amenities like garages or pools. They have zero to do with how much the house costs to build. You can build a 1M lake house in a neighborhood of 150K lake “cabins”. You’re not gonna get a 1M appraisal, ever. You’ll get over 150K, and maybe up to 400K, if the square footage works. But that 600K+ is going to have to come out of pocket.

Your build is the same. Land cost is irrelevant. It can’t be separated from the build once the build happens, so it has no value as “land”. Build cost is irrelevant. Your super special 30K French range for the kitchen isn’t going to add a dime of value. What the bank could sell the house for if they foreclosed is the only relevant figure for a loan. And you can get 80% of that figure as a loan. Not 100%.

It’s surprising that a loan officer would try to reel you in using that obviously incorrect info too.

Are you sure on one of the last pages where they compare all the comps, your house didn't get a + advantage for the lake?

Our house appraised 40k under the purchase price. At 80%, we needed to come up with 32k extra or have less than 20% down.

Thank you everyone. We have modest design choices. We already looked at trusses, other ways to cut corners-literally. Redesigning it isn't a first choice but not off the table.

cp- thank you for choosing in. I value your opinion. I did see adjustments down for suburban comps, and up for extra sqft, etc. In looking at it closer, the two lots may not have been combined in his FMV figure. My DH asked that question. He did look at SEV for both.

I don't think the appraiser is wrong necessarily, but wondered why we were so shocked given our info we had at the time.

Bread, ours is appraising at build cost, which is confusing. It is definitely worth discussing with the FCU, since the loan amount was never in question. we are wanting a mortgage we can afford into retirement

I think these days it's hard to get construction loan if you have to roll in any debt associated with the land. That usually puts your LTV ratio too high.

Sorry for the typos. I was trying to see it in the sun on my phone. Janni- yeah I think that's part of it. So an option would be to not roll in that amt into the construction loan and pay it off separately?

Is there any hope for another appraisal at the end of the build? We plan to put sweat equity into the finish of basement.

I think my initial question was answered. Thanks so much!

One last question- would you expect the value in land to be twice the SEV? e.g $50k SEV, valued at $100k? It was listed separately on the report as 60k.

"So an option would be to not roll in that amt into the construction loan and pay it off separately?"

This doesn't make any difference. The lot and house are combined at construction and money is fungible. In the end, cash has to be used to pay off the lot and build the house, if your cash is used to pay off the lot, then it can't be used to build the house, and vice versa.

"Is there any hope for another appraisal at the end of the build?"

Sure, so long as you can afford to build it now. Also note, that below grade square footage is typically not as valuable. So even with sweat, you may not get equity.

The reason you're shocked may be the loan officer's lack of familiarity with the const loan process or just wishful thinking.

Construction loans are typically maxed at the lesser of 75-80% loan to cost and 80-90 % loan to value inclusive of all costs. Once completed the lender must sell your loan as "conforming". DIY & owner builder projects often require more equity or reserves due to risk.

You may qualify for a higher amount via income; however your property valued at completion isn't worth enough in their opinion to secure that amount. Two different issues.

Generally over time as the lot loan ("land contract") gets paid down you will gain equity in the project that usually makes it the numbers and ratios work. If a few high dollar new homes get built in the mean time your values also may get a boost, helping ratios.

From 95-05 this wasn't much of an issue as values rose quickly creating instant equity, but that is not the case since.

Bottom line, the bank will only lend a percentage of market value. If you need more cash, you have to generate it elsewhere and/or secure it on other assets. Some of my clients wait and save for a year or two.

Thank you Grenz. That explains quite a bit. We feel better prepared with questions.