Appraised values of new construction

7 Replies

I’m interested in using the preferred lender of the builder for a new construction duplex. My concern is if the property does not appraise for sales price what options do have besides paying the difference. Is the best option just to ask a local realtor but that would only be their option. Is there any way to recoup my earnest money?

@Tracey St.Julian

Most builder contracts I’ve seen stipulate that you cover any difference between appraised value and purchase price.  If you don’t and walk away, the contract likely also says you will forfeit the earnest money.

Always read your contract and/or seek legal counsel to understand your obligations.

Is this a one off build or are they building multiple?  If its a community or large builder they probably know where the appraisal will come in and since you're using their lender you should be ok.  Last thing anyone wants is the financing to fall thru.

@Tracey St.Julian usually a builder that builds an entire neighborhood of houses that are similar in fashion will try to get their first property sold in cash.  Once that first property is sold, then they have their comps for the rest of the neighborhood.  So if this is a neighborhood of properties then the value should be pretty stable.  However, your contract will likely state that you will make up the difference if there are any shortages.  Sometimes this occurs if the property has every upgrade available.  Meaning, a knob is not going to change the value of a home.  So upgrading all the knobs in the home for $1,000 will probably give you $0 in value.  

If this build is a custom or "one off" property then consult those comps to evaluate what the value will be.  Then you'll know the risk you are looking at on this property.

@Tracey St.Julian

Your contract should spell out what happens in the event of an appraisal shortfall from the contract price. As others have stated, you'll likely be required to come up with the difference or forfeit your EMD. I'd reach out to your agent or the listing agent and get some clarification on this.