New Construction Pre-Appraisal - scam?

[Jeff7181]

I'm building a house in an area which was about half developed by different builders a few years ago. My house is the 2nd or 3rd which is being built now by a new builder.

Long story short, the builder ordered a pre-appraisal and sent the appraiser 5 or 6 comps. The appraiser threw out all the comps and came up with a value completely on their own, which ended up being about 5% lower than expected.

So I'm being told I have three options; pay the difference now, find a new lender and have another pre-appraisal done, walk away and be out several hundred dollars for the cost of the pre-appraisal, not to mention the lost time and disappointment of not building the house.

The builder is trying to appeal the appraisal and provide more comps, but the appraiser isn't having any of it and sticking by his original number, so I don't think anything is going to come of that.

I'm new to this and the whole thing seems really suspicious. The lender and builder keep telling me it's not a big deal, they're confident that by the time the house is built in the summer months and once an appraiser can see the house physically that it'll appraise at or above the sale price. If they're so sure of the value they placed on it, why did they do the pre-appraisal?

I can't help thinking of various scenarios, such as the builder doesn't want to build the house with just the 5% I'm putting down, so they set the value high, knew it would appraise low and are counting on me being too attached to the house I just customized to walk away rather than give another 5% down.

Is that a pretty accurate analysis of what could be going on here? Anyone else run into a low pre-appraisal on new construction, and if so, how did it turn out?

 

[zardthebuilder]

there is another option: negotiate with the builder. the builder lowers the price to the appraisal price. or you meet in the middle.

you can also try negotiating with the lender to reduce the fees. some fees are non-negotiable. others are. (my credit unions have always paid the appraisal fees.)

if you believe the house is worth the original price, do you have the means to pay the difference now? if yes, just proceed. if you continue to have a bad feeling, nothing wrong with walking. don't make a huge mistake over several hundred dollars.

years ago, i bought a house before it was constructed. no pre-appraisals. but, after the housing debacle, pre-appraisals might now be required.

my $0.02... you got unlucky and was assigned an appraiser that has an over-inflated ego.

 

[iamwiz82]

Where are you building and what builder?

It's probably worth a negotiation with the builder to lower the price. Can you get out of the contract?

 

[highland145]

Sounds like the builder was trying to pump the price by giving the appraisals. The appraiser may well should stay away from the prices the builder gave.

Were the appraiser's comp properties a fair assessment?

 

[Jeff7181]

The builder's sales consultant that I've been working with talked to the lender and warned them that I've got another lender standing by... so the preferred lender sounds like they're going to reduce their commissions. Also, the sales consultant is supposed to speak with her manager today and see if they're willing to come down on the price at all and/or allow me to pay the difference in installments as the build progresses rather than up front before they break ground. Still waiting to hear back from her...

 

[MagnusTheBrewer]

Sure sounds like they're trying to squeeze more money out of you at the front end.

 

[NoCreativity]

I'm pretty sure the lender is the one who orders the appraisal. The appraiser has no connection to any of the involved parties (builder, lender, realtor, you) so I don't think there is some conspiracy to get more money from you. They are basically a randomly assigned independent party and there really isn't any way to make sure they do their job properly. Your builder probably sent them the comps as an appeal to the low appraisal.

The basic scenario is that you got a shitty appraiser. Being you are in SE MI maybe you got the some one I did .

I had the same crap happen to me. The appraiser didn't use comps that were comparable or within the same area. I built a 2200 sq ft ranch. They used an 1800 sq ft colonial, a 1500 sq ft ranch and a couple other houses that were <1700 sq ft. None of them were within miles of where I built. My appraisal came in 12% lower than purchase price. My realtor, my builder and my bank fought for several weeks with the appraiser to no avail. I ended up putting the extra money down.

When the appraisal came back after the build (to convert from construction to conventional loan) a different appraiser came back with a more realistic number based on comps that were actually comparable, most in the same subdivision.

And if you are using Huntington, good luck. Based on my experience it seemed like I was the first loan they ever processed. Pure incompetence.

 

[Subyman]

5% off really isn't too bad. Working with three parties in any business deal is usually a PITA. I've done appraisals where I got two different appraisals and they were 15% off from each other... Pretty ridiculous IMO.

If you love the house you designed and are 100% want it then go ahead. Really work with the lender on fees and see if the builder will adjust slightly. If all three of you guys give a little then it should be very doable. Just make sure you aren't the only one giving in. They all have a bit to give.

 

[Jeff7181]

Heard back from the sales consultant today - the builder is willing to start the build without us putting the money up front. The lender is paying for the second appraisal and if it comes in low, the lender will cut some of the closing costs and the builder may or may not lower the price of the house a bit and then we'll be expected to come up with any difference at closing.

That's basically the exact outcome I wanted.

 

[edro]

Low appraisals are the new norm.
Seller wants as much as possible, appraiser wants to be as conservative as possible.
Appraisers are taking their jobs seriously now after the housing crisis has passed.