Quality Vs. Quantity and Appraisals

We will always promote quality over quantity at Hammer Builders. Although the economy is starting to turn around and property values may actually be up a few percentage points from a couple years back, appraisal values on new construction can sometimes be a challenge. This is particularly true if you build quality into your homes. As a general rule higher end features and finishes and energy efficient sustainable components are overlooked in appraisals more often than not.

Upgrades and higher end features such as hardwood floors, upgraded cabinets, granite countertops, fine trim finishes, etc. are sometimes an issue with appraisal values as appraisers often are not giving value for these items. Part of the reason for this is that it is usually hard for the appraiser to know exactly what materials were used in the comps they are using to value the subject. Buyers will have to understand that if they select upgrades, they may not be completely valued in the appraisal.

New homes with energy efficient features save home owners money on utility bills every month. Buyers look for these features in a home. Energy efficiency is a huge selling point and usually a big reason a buyer will choose one house over another. If you are building a green, high-performance home, make sure the appraiser is designated to appraise energy efficient homes. You should then provide the appraiser with all the specifications and benefits built into the home. The homes built by Hammer Builders are FOCUS on Energy certified and tested by an independent, third-party company documenting the energy efficiency and value. Some dollar value has to be added for this when comparing it to a 15-year-old home. The new home should have value added not only because of the difference in physical condition, but also because of the added value of energy efficiency. Some appraisers do add value for energy efficient features, but many don’t. The appraisal industry is working on the energy efficiency value issue. These features are fairly new to the market and it will take a while for the industry to have policies and standards in place for all appraisers to consistently value these “valuable” features. In five years this will not even be an issue and appropriate values will be given for these features. It is my opinion that five years from now (or less) a home that is certified (FOCUS on Energy, Green Built, etc) will have $10K to $20K more appraisal value than one that is not (with all other features being fairly equal).

There are some things we can do to make sure the appraisal is handled fairly. It has been thought that builders and real estate agents can no longer communicate with appraisers (since the mortgage debacle). This is not true. Builders and Realtors can, and should, provide appraisers with any information they have that will help value the home and the lot.

Also, lenders are not required to use appraisal management companies (AMCs) or to select appraisers at random. Appraisers should be chosen based on experience and qualifications. You can actually go to your lender and ask for an appraiser that understands new construction and that is completely familiar with the values of sustainable (green) building and energy efficiency features.

If you do receive a report from an appraiser with what you feel is a low value, review the report carefully. If an appraisal contains errors contact the lender with your concerns and notify them that you are going to discuss the errors with the appraiser. The lender can and should request a second appraisal if the original contains errors or was conducted improperly. You need to give the lender all the supporting information you provided to the appraiser, particularly as it relates to appropriate comps that support the appraised value. If those were not considered in the appraisal, the appraiser will have to justify that decision.

In many markets, including ours, the price and data for custom/contract built homes is not listed on the Realtors’ Multiple Listing Service (MLS). This data is captured for most “Spec homes” that are built and listed for sale on the MLS. For the past several years there have not been many “spec homes” on the market because of market conditions. Most new construction recently consists of contract built homes, so much of the useful information on recently sold new construction is not being used for appraisals currently being done.  Builders should create a data sheet for each contract home they build with information similar to what is listed on the MLS and make that information available to appraisers.

It is all good as long as we are educated and able to handle the challenge, if a challenge presents itself.  That is what we are here for.  Please contact us with questions or more information on building an energy efficient, well-designed home.

Some information taken from Housing Zone, Top 10 Ways to Avoid Low Appraisals, by Pat Curry