Common New Construction Appraisal Problems and Solutions

Securing a construction loan for a new project often requires an appraisal to estimate the value of the finished property. Unlike existing structures, a new construction appraisal relies on plans, budgets, and land values, making it unique and prone to specific challenges. For anyone entering the appraisal process, understanding common issues can help in navigating the potential pitfalls of this critical step. Understanding the Appraisal Process An appraisal provides more than just property value; it gives lenders insight into the viability of the project as collateral. A typical report covers the property’s projected value, site and design specifications, budget estimates, and neighborhood comparisons. With new construction, the appraiser must assess value based on what is planned rather than what exists, adding an extra layer of complexity. Key Steps in the Appraisal Process

1. Gather Required Documents: Include property details, construction plans, and budget breakdowns.
2. Submit Documents to Your Lender: Letting your lender handle the appraiser selection ensures compliance and saves time.
3. Lender Engages Appraiser: Only the lender can officially order the appraisal, helping to maintain objectivity.
4. Site Visit: Often just land at this stage, the appraiser may visit to assess the lot and surrounding area.
5. Reviewing the Appraisal Report: Examine the report for accuracy and completeness, discussing any concerns with your lender.

Common Appraisal Challenges and Solutions

1. Appraisal Delays

Issue: With high demand and limited availability of qualified appraisers, delays are frequent.
Solution: Discuss with your lender early in the loan process to understand their timeline. Make sure all required documents are submitted on time to avoid further delays.

2. Low Appraised Value

Issue: Appraisals may come back with a lower-than-expected value, often because they rely on comparables that don’t match the unique aspects of your project.
Solution: If you believe the valuation is inaccurate, work with your lender to provide additional relevant comparable or details about the project. The lender can communicate your points to the appraiser for possible adjustments.

3. Report Errors

Issue: Errors in the report, like incorrect square footage or omitted features, can affect the appraisal outcome. Solution: Carefully review the report for mistakes and provide the lender with documentation of any errors. They can facilitate corrections by the appraiser. A reliable lender with experience in construction loans is essential. They not only coordinate with appraisers but often have established processes to review reports for accuracy, helping prevent issues before they impact your loan.

Navigating new construction appraisals can be challenging but understanding these common problems and how to address them can ease the process and support a successful project. Have questions? Give us a call, we are always happy to help.