Everything hinges on the appraised value of your home. The appraisal determines the amount of your loan; as well as, your upfront cash investment. With that being said, I want to provide you with some insight into the appraisal process.
Appraisal for new custom home construction is not as simple as it is for pre-owned homes. The appraiser can’t just look for comparisons in the neighborhood. Sometimes there just isn’t a neighborhood or relevant comparables (i.e. building on a lot in the country, new neighborhood, etc). Many custom home builders never put their sales on MLS. Therefore, an appraiser will use what is available to them. Which usually means using tract built or production homes as comparisons. This can create a problem. Why you may ask – irrelevant comparables result in a lower appraised value resulting in more money out of your pocket!
Appraisers should understand the difference in quality of construction and price differences for construction. However, many times they do not have enough experience. When an appraiser references a production built home as like quality to a true custom home, it often reflects as a lack of knowledge unless adjustments are made to offset the differences. Let me explain further by providing two examples. There is a major difference between custom cabinets made out of solid wood versus cabinets with wood fronts and particle board for structure. A production builder will base the lighting and plumbing package in the house off a lower grade budget compared to a custom home builder that will allocate an allowance which is generally 3 to 4 times as high for their clients to choose options.
Selecting a knowledgeable lender is key to getting an appraiser that knows what they are doing. Lenders that deal in high end custom homes will have a list of appraisal companies that have knowledge in the luxury home building market. We work with several experienced lenders. If you are looking for a recommendation, give us a call and we will be happy to introduce you to the right one.