New House Question

[One4OU]

My wife and I are just about to close on a house we had built. The house looks fantastic and is everything that we could imagine.

I am a financial guy by nature and I can not seem to wrap my thoughts around what I think in regards to the appraisel of the house.

Here is the deal:

The new house appraised for $12k less than the cost of the house.

I have had thoughts on both sides.

One thought is that the appraisel isnt a big deal. The new house is like a new car rolling of the car lot and losing value right away.We plan on being there for at least the next 20 years, even though I wish the spread was a little less.

Second thought is the builder needs to offer some type of compensation to get our house closer in value in line with purchase price. Issue is we do have a contract.

Miscellaneous thoughts are appraisels are still cooked so if the builder wanted to get a second appraisel then it will only increase property tax, but it kind of stinks being upside down from the get go.

Would appreciate any thoughts or ideas on this.


TIA

[Frozen Sooner]

Does the contract have a liquidated damages clause? IIRC, purchase contracts provide that you lose your earnest money if you walk away but nothing else. Depending on your earnest money, you may be able to talk to seller into bringing the price down, but you have to be willing to walk and lose your sunk costs.

[Half a Hundred]

It's not lupus.

Sorry, got nothin' else.

[Boomer.....]

I wouldn't worry about it. The housing markets are down and will go back up eventually. Since you are in it for the long hall, wait it out and enjoy the lower property tax.

[One4OU]

Does the contract have a liquidated damages clause? IIRC, purchase contracts provide that you lose your earnest money if you walk away but nothing else. Depending on your earnest money, you may be able to talk to seller into bringing the price down, but you have to be willing to walk and lose your sunk costs.

I would have to go back and look at the contract but we put a up large down payment so that would not be an option.

[Taxman71]

Ditto. Appraisers are under fire right now for give low values. This, of course, is their response for shouldering some of the blame for the mortgage crisis. So, you have 2 issues: (1) is your house worth what you paid for it or the appraised value? Undoubtedly, it is worth what you paid for it as that is definition of Fair Market Value. (2) Can you squeeze the builder/seller for a price reduction or add-ons? That is purely contractual. While some contracts state the price shall be reduced if appraised below the price, not all do. Plus, the builder/seller will want a different appraiser before he takes the hit even if such a provision is in the contract.

I just sold a house a couple months back and the appraisal (for the bridge loan) was $20k less than the contract sales price (it was already under contract by the time the appraiser had time to do the appraisal). So, yeah, all appraisers are not created equal.

[1890MilesToNorman]

The lower appraisal will help you out on the tax bill. If you are going to live there for a while I wouldn't worry about it. The market will rebound in time. (maybe)

[Mjcpr]

Where is the house?

[One4OU]

Where is the house?

The house is in a suburb east of Kansas City.

[delhalew]

Ditto. Appraisers are under fire right now for give low values. This, of course, is their response for shouldering some of the blame for the mortgage crisis. So, you have 2 issues: (1) is your house worth what you paid for it or the appraised value? Undoubtedly, it is worth what you paid for it as that is definition of Fair Market Value. (2) Can you squeeze the builder/seller for a price reduction or add-ons? That is purely contractual. While some contracts state the price shall be reduced if appraised below the price, not all do. Plus, the builder/seller will want a different appraiser before he takes the hit even if such a provision is in the contract.

I just sold a house a couple months back and the appraisal (for the bridge loan) was $20k less than the contract sales price (it was already under contract by the time the appraiser had time to do the appraisal). So, yeah, all appraisers are not created equal.

^ My thoughts exactly.

[Veritas]

My wife and I are just about to close on a house we had built. The house looks fantastic and is everything that we could imagine.

I am a financial guy by nature and I can not seem to wrap my thoughts around what I think in regards to the appraisel of the house.

Here is the deal:

The new house appraised for $12k less than the cost of the house.

I have had thoughts on both sides.

One thought is that the appraisel isnt a big deal. The new house is like a new car rolling of the car lot and losing value right away.We plan on being there for at least the next 20 years, even though I wish the spread was a little less.

Second thought is the builder needs to offer some type of compensation to get our house closer in value in line with purchase price. Issue is we do have a contract.

Miscellaneous thoughts are appraisels are still cooked so if the builder wanted to get a second appraisel then it will only increase property tax, but it kind of stinks being upside down from the get go.

Would appreciate any thoughts or ideas on this.


TIA

A few things here. My brother-in-law is a real estate appraiser, and becoming and appraiser is no casual enterprise. He had to go to tons of expensive classes and work basically as an apprentice for a period of time. The whole process took like a year.

So as far as appraisals being "cooked," the probability of that is really low. Appraisers can't just walk in, look around, and pull a figure out of their ***. They have to base the price off of "comps" which means IIRC properties in the immediate area that can be used as a basis for comparison. It's a pretty scientific process and there's much less subjective judgment than you might imagine.

Second thing. Statistically there is a very very tiny chance that you will live in the house in twenty years. The average is just about seven years. Life is pretty dynamic, man...look back seven years. How much **** has happened that has altered the arc of your life? Probably quite a bit.

How much are you spending? If you're spending $500K, 12K isn't that big a deal. But if you're spending $150K, 12K is a pretty significant percentage. Even if you're spending $250K, 12K is a decent gap.

It sounds like you're both pretty emotionally engaged with the house (at least your wife is). I don't know how you are, but when I get emotional about a purchase I get stupid and overlook significant factors...like the fact that I might be paying more than I should.

My take? That burr in your saddle is the cold, calculating angel on your shoulder tapping his calculator on your head and going "wait up a second bucko." IMO you should listen to him.

[stoopified]

The house is in a suburb east of Kansas City.

Well that explains EVERYTHING.

[SoonerAficionadOU]

Appraisals take into account more than just the house, as well. If it is an incomplete neighborhood, the appraised value of all houses in the area will suffer until the neighborhood is complete because, like you obviously decided, why buy a used house when I could build a new one for the same price? When you consider it that way, a 12k discount for buying a used house is actually pretty small.

When the neighborhood is finished building, the appraisal will re-align, so don't worry too much. Plus, the initial appraisal just lowered your taxes by about $300/year ((12k-20%)*3%), so go upgrade your cable or something.

[sooner ngintunr]

An appraisal should have nothing to do with the taxes, taxes would be assessed by the county assessor and would be based on the purchase price of the home (for the first year).

Appraisals are done for the bank in order to get a loan. I'd be worried about the bank funding your loan, if the appraisal doesn't match or exceed the contract price, they will not loan you the money.

just my 2 cents

[Taxman71]

Ditto again. The county assessor won't ever see the lender's appraisal, only the purchase price reflected on the deed.

[Okla-homey]

I wouldn't buy or finance a house for less than its appraised value. period. But that's just me. I'm merely a simple country lawyer.

[sooner ngintunr]

I wouldn't buy or finance a house for less than its appraised value. period. But that's just me. I'm merely a simple country lawyer.

huh? You mean more than its appraised value?

I'm stoked when the initial appraisal comes back for more than what I bought the house for.

[Frozen Sooner]

huh? You mean more than its appraised value?

I'm stoked when the initial appraisal comes back for more than what I bought the house for.

Hey, Homey's not out to cheat anyone.

[sooner ngintunr]

heh, buying on the cheap aint cheatin no one.

His is a recipe for failure, as far as RE goes.

Probably a real nice guy though

[olevetonahill]

We aint hearing the whole story here folks