they came in $215k+ too low AGAIN.

Could you clarify? Confused.

How much are we actually talking here? There is a big difference between a $5 million home and a $500 thousand home coming up $215k short on appraisal.

Houses often don't appraise for their cost to build, so money in the deal isn't really unusual.

Talk to the person that did the appraisal.

Aren't appraisers chosen by the lender? As he person across the street which lender they used and start there.

@judianna20Apologies, I’m referring to posts I’ve made in the past. We had the same thing happen with different plans and a different builder, must have been almost 2 years ago now. We switched architects and started from scratch to reduce square footage and build cost. New plans are 600+ sq ft smaller but build cost ended up higher. I’m sure due in large part to current market conditions but we decided to move forward anyway. We still need to move and there has been nothing existing on the market that we want to buy since I started looking 4-5 years ago.

@bry911Build cost was right at $1M not including $145k lot purchase price.

@sushipup1Yes, we also used the same lender as the people across the street. I do not know if we had the same appraiser as them.

@Charles Ross Homes Our builder only does custom homes and he’s only had this happen one other time. The builder, lender, appraiser – everyone involved locally says new homes “always” appraise around here. The appraiser did both the sales comp and cost approach. We got a $65k bump for quality of construction on the 2 less expensive comps. I did find a few things that aren’t exactly accurate but nowhere near enough to meaningfully close the gap.

The undervalued lot rings true for us as well. Land and lots are extremely hard to come by around here. Our 6 acre lot cost us $145k 3 years ago and I haven’t seen anything remotely similar even come on the market since then. I do see we didn’t get near the acreage adjustment (looks to be about $6k an acre) in the sales comp section. We did get $150k for the lot in the cost approach FWIW. I had hoped the land would come close to offsetting the custom build premium.

I’m almost positive that the neighbor’s house was more like $700-$800k tops to build. The build cost of our plans is probably the real issue, if I’m brutally honest with myself. I just can’t figure out why. Both sets of plans that failed appraisal were architect-drawn and I think there is inherently something about them that makes them significantly (20%) more expensive to build over other custom plans. I don’t really know what it is or how to avoid it. When I walked through the neighbor’s home (custom plans drawn by a local draftsperson), the detail, built-ins, selections, finishes, #beds/baths, number of windows, sq ft., etc. were essentially the same as ours. I will concede that we have a few upgrades that might add a bit (maybe $20k) over theirs but by far the biggest cost difference is in things like the lumber package. I don’t think this is due to the current lumber and other supply issues since this was also the case for our previous plans in 2019 plus the neighbor also built with the inflated prices. We keep being told our plans “are just more expensive to build”. I think our only option may be to ask the builder if he has plans he has built for about $800k that we could tweak. Maybe our area just does not support my beloved architected plans. There certainly aren’t any good comps so I think we are stuck as long we want to build here.

There are 5% - 10% down construction loans. They are significantly more challenging to find, but it might be worth a try.

Charles Ross Homes is correct. As a retired appraiser, I'm limited by the available comparable homes. New, truly custom construction is one of the hardest comparable to try to find. If you have one across the street and it went to closing within the year, provide it to the appraiser. It will not be in the MLS database. Your appraiser may be able to use it to update the valuation. That's a big if. Rarely will the cost to build custom equal or exceed the market value. Rising markets make this even harder because closed comparables will lag in value very quickly. Right now the market is definitely out of balance in the favor of the seller. Custom construction requires the owner to accept bringing lots of extra cash to the project. Banks don't make money on speculation.

Have you reviewed your appraisal for mistakes? My project was appraised a few weeks ago. When I reviewed it my appraisal, I thought that it was low relative to neighborhood comps. I discovered that the appraisal indicated that the home was a 3 bedroom 3.5 bath; however, it's actually a 4 bedroom 4.5 bath + the appraiser used what I thought was a bad comp. So, I appealed it through the lender by offering better comps and pointing out the discrepant room count, indicating that my lot is 50% larger than the comps, and I have more garages.

The original appraisal exceeded my projected build cost by about $300k, but I'd still need to come in with almost $60k cash to close. I've not yet heard back back, but early indications are that I could see a $200k bump which means that I won't need to bring any money to closing because my LTV will be met.

1. Get a copy of your appraisal from the your lender.

2. You need to know what comps were used and validate that they're good.

3. Check the report for errors

4. If you think the appraisal is wrong, then contact the appraiser whose contact info should be in the report, but be armed with a convincing argument that demonstrates that a second look is warranted--that is, you just can't say "I think my valuation is low becuase my house is the best ever. So you need to increase the value."

In my appeal, I included a spreadsheet like the one below with comps that I felt were better than those in the report:

@homechef59 Are you saying the new construction across the street could be used as a comp? Since the same builder and lender did that house, can I ask that they use it even though it never sold on the market? If it is as comparable to ours and built for what I think it did (at least $200k less) then I'm not sure that would be in our favor. Wouldn't hurt to ask the builder though.

@patrickalston How on earth did your appraisal EXCEED your cost to build by such a large amount (or at all)? We had just hoped to appraise at cost, over would be a dream come true. I must know your secret :-).

Yes, I've combed through my appraisal. That is where my comments above are coming from. As stated above, there are a few errors and potential errors but I don't think they would add up to anywhere close to what we need. What I did not mention and to your good point is that one of the comps isn't great. It is a town over and not in the very desirable school district we are in. There is about a 20% upcharge in home cost to live here if a person can even find a place. The appraiser is in the town on the other side of us so I don't know if he knew to account for that (or really how he would without closer comps). That said, that may be the best he could find, there aren't a lot of comps to choose from around here.

I will see if it makes sense to get the questionable comp thrown out and replace it with the neighbor's new construction.

@dalcolli asked, How on earth did your appraisal EXCEED your cost to build by such a large amount (or at all)? We had just hoped to appraise at cost, over would be a dream come true. I must know your secret :-).

It's no secret. It all about location, location, location. I'm building in one of the fastest growing cities in the country in one its most desireable communities. I also have the right builder, the right architect, at the right price. I picked the right lot, on the right street which I purchased a year ago for $90k which today appraises for $250k + the comps on the street where I'm building are significantly higher than the projected cost to build.

I only purchase larger corner lots or lots with no neighbors (e.g., next to a park or protected space) because space/separation and views are at least as important as the building that sits upon it.

My builder charges a flat fee and everything else is a pass-through (no markup).

The architect is partnered with the builder and also charges a reasonable flat fee.

When I see the skyroceting prices for mediocre production homes that sold for $150k a few years ago selling today for $500k, I knew that it must be less expensive to build custom. Last year, I felt that lot prices in the neighborhood were low. So, I purchased two. The second lot is larger and cost less.

It's also about luck, timing, and risk tolerance.

Yes. The construction across the street can be used as a comp if it has closed in the last few months. At the very least, even if it is out of date, it can be used as a supporting comparable. The trick is getting the information. The appraiser may not even know of it's existence because it wasn't placed in the MLS. There is no way for the appraiser to know that your builder did the house across the street. It is material information that could potentially support your appraisal. It could also hurt it, too. Provide the basic information to your lender and see if it helps.

Our home also appraised for far higher than our costs. The market in Vancouver is just one that supports small bungalows being town down and replaced with custom homes. We ended up not needing all the money the construction mortgage offered us and when we refinanced we gave 200k back

So I guess the only people replying about their own appraisals are way more than cost to build. That doesn't make me feel better lol. Is there nobody with a similar experience? Misery loves company :-).

We under appraised by a smidge at the 2nd close. I knew that would happen though because I ended up choosing a bunch of stuff that will never appraise, including fancy counters and a really nice kitchen. I went into it expecting to bring extra cash to close anyway, and was pleasantly surprised when the market helped me out with a crazy sale just 2 houses up the street.

To make you feel better…. ours came in significantly under cost to build. The problem is that we are building a custom home on a 197 acre farm and there just aren’t many comps to choose from. And they usually have an older farm house on them. And building is expensive. And And… you get the idea.

So we met with builder and architect and cut a few things (not enough). But, enough that other collateral would cover.

Oh. the appraisal took over 2 months to complete too. And then another month to appraise the collateral!

Wheeeee building is fun! lol :)

If you're having trouble finding the last sold date for a potential comp in your neighborhood, look for it on Realtor.com and look at the property's history. It'll look like this example:

New construction typically doesn't appraise unless there is an active market of newly constructed similar homes and even with that their costs are 12-18 months older than yours (compare start times). Often the equity in the lot purchase can bridge all or part of the difference but 2020-21 has been unique in cost escalation. Lumber has taken all the attention but here is plenty more and we've already forgotten the 3 year code cycle changes that went into effect Jan 1 2020. In CA it was significant.

Most walkout basements are considered appraisable living space here and cost plenty. Designed efficiently "with the slope" they are cost effective" but dug into the hill with 10-12" retaining walls can easily add $50-100K in foundation costs.

On top of that custom clients are often driven by upgraded finishes that further impact costs.

For example:

• Hard flooring vs carpet or LVP
• $12 hardwood vs $8 hardwood
• Tile flooring over wood framing
• Wolf/Subzero vs Monogram
• $30K plumbing fixtures vs $15K
• Stone
• Oversized fireplaces ($20K vs $6K)
• Wood or aluminum windows
• Oversized garages, expensive garage doors
• Not paying attention to slab and tile budgets.
• Cabinet grade and quantity.

I can usually make a page long list on every home. If you adjust 60 line items a little bit either way its usually six figures.

If possible, cut some extras that aren't in the comps as they shouldn't impact value (with consulting the loan officer) and/or pay more cash into the loan or add the extras back later. (consult w builder).

My preference is to put it all in the contract now and adjust with more funding or eliminate these altogether. Adding back later is costly and time consuming. My goal is to get the dream off paper and into construction.

We've had a lot of sales activity in our area creating higher appraisals for clients approaching completion and permanent loans. Its also reflected in higher lot values so those buying lots today may face similar problems.

In a decade it may all seem moot.

Resales are typically better buys that include landscaping, pools etc.

Thanks all, I do feel a bit better and I appreciate all the info. I did just find out from the neighbor that they had a different appraiser and theirs came in just where they needed it to even though they felt the appraiser was conservative. Definitely going to pursue a second opinion with their house a comp.

You cannot opinion shop an appraisal. That's part of the mortgage reform. You can offer up comps that you feel are closer matches than they used, but you can’t get a new appraiser. Well, not with that bank. A different bank will order their own appraisal. That comes with more risks.

@User Funny thing, that is exactly why we went with another bank this time and we still got that same appraiser!

I have a realtor friend pulling comps for me now. She has gotten an appraisal from this same appraiser thrown out before because it was so bad so it is possible.

Yes, it is possible to get an appraisal thrown out as per my post above where an out-of-the-area appraiser was hired who had no knowledge of the local market and who undervalued the client's waterfront property by around $200K.

Lumber futures are down, but lumber is still pretty much being bid at an all-time high. Wait 1-2 months and have tour builder redo his bid. Should narrow that gap considerably!

While dimensional lumber is coming down in price, the price of panels (OSB and plywood) is not. Whether the gap is narrowed depends on the amount of dimensional lumber vs. panels for your project.

Have you asked your builder if your plans are particularly expensive to build and can that "part" be changed? I put the part in quotes because it likely can't be separated from the whole.

We have an expensive house to build but did well on appraisal because of timing and local market forces (tear down bungalow).

Our plan is/was part of the house as 2 stories and part as 1 story. Not the relatively inexpensive story and a half but more like 2 parts of a house. It really came home when we went to an open house 3 doors down that was finished a year ago (custom build, divorce - always a good caution). Anyway - they were so efficient with space - they even built over the garage. While that isn't really a super desirable thing to do, it did mean their square footage was 30% larger than ours for a similar footprint.

Appraisals really love square footage. This house had it in spades - it was also listed and closed for 90% more than our build+land costs. No idea on appraisal but I am sure the massive square footage number helped. And timing of course.

We are still a few months out from finishing, but our final appraisal should be higher than the pre-construction one. The RE prices in the area we are building have gone way up and people are paying a premium for 20-30 year old houses that need work. We got hit with some increases in materials, but had already ordered many products and gotten bids accepted before stuff got really crazy. I'll try to remember to come back to this thread when we get to that stage!

"While dimensional lumber is coming down in price"

All other materials are still going up. Roofing companies have a price increase set for either Sept or Oct cannot remember which. Metal is still strong and rising, not quite meteorically but definitely not heading south.

@David Cary He did say "your house is really spread out, it is a pretty unique design". We didn't do anything really out there IMHO but it is architect-designed and not like the super compact, several rooms deep max sq ft stock or draftsperson plans most people around here build. I do fear the the cost per sq ft is too high relative to local comps. We approached these plans with the goal of reducing build cost and reduced square feet a bunch (build cost still ended up higher). We need every bit, there are no rooms we don't already use in our current home.

Overall construction costs will still be 15-20% higher than mid 2020.

A "spread out" design will cost more to build. Windows, added exterior finishes, corners, longer plumbing runs, etc. Design is an upgrade that has a cost. A box is less money. Quantity vs quality footage.

There is value to you if you live in it, but right now it doesn't translate into resale value.

"Your house is really spread out, it is a pretty unique design" is the builder-speak equivalent of "well, the architect didn't have a clue what this home would cost to build, did they?"

The best way to ensure your home is buildable on your particular site and within your intended budget is to get your builder on board as early in the design process as possible. "Real time " cost information provided by the builder can help inform the design process, reduce the likelihood and expense of re-design work, and the possibility of paying for a plan that never gets built.