What can I do to improve appraisal value while keeping building costs low?

[ellapescada]

What if there are no comparables?

We are approved for a construction loan (based on building to appraisal cost ratio being 80% ). I am trying very hard to design a home that has a low construction cost and a relatively high appraisal value. I am trying to find out how our future home will appraise (pre-construction) so I know how nice of a house to design.

I have read some books on appraisals, and and my question is this.

How is the land (several acres) and future house appraised if there are no comparables?

Several fine homes have been built in the area over the last few years, but the owners built them, so they were never for sale. According to Zillow (and my knowledge of the area too), there have been NO sales in this neighborhood for a few years except for 1, and that was a house that was very small and old. None of the nice homes are visible from the street and no sales of nice homes have happened, because they were built and lived in immidiately. There are neighborhoods a few miles away with sales but they are very different neighborhoods than this one. So how will the appraisal happen? The bank will want to know what they could sell the house for if we foreclosed.

Thank you very much!

 

[ellapescada]

Hello! I posted another thread too. I hope that's okay.

We are building a house and need to make sure the appraisal value is 20% higher than the construction cost. Family is contracting and we have a lot of land to increase the appraisal value, so it is possible to do this, but I know it will be a challenge. I have been researching how to increase appraisal value while keeping construction costs low, but haven't found any answers!!! If you know of any resources that would help me I would love to know them! Here are my questions.

1 Can I call an appraiser and hire him or her to help me design a house that would appraise for a high value? If so, what kind of appraiser do I call?

2 What kind of items or design qualities in a home give it a high appraisal? For example, bathrooms and kitchens are important. Is the material of the bathtub important? Is a nice entryway important? What else increases appraisal value?

3 What are wastes of money? For example, I read that an expensive oven is a bad idea, because it won't appraise well, compared to what it cost to buy it. What other items are wastes of money?

4 What general tips do you have for a home builder, to keep costs down while raising appraisal value?

Thank you very much for taking the time to answer this for me!

 

[Restrain]

The worst thing you can do is overbuild for the market. I don't know where in Missouri you are located, but the first thing I would do is look at the surrounding homes. I would bet that the primary homes in your area are one-story brick/frame residences, primarily "ranch-style", with or without basements.

As to site size, it should be comparable to the market. That is, if most homes are on 1-5 acres, that is the comparable site size. If you have a large acreage tract, say 20 acres or so, that will make it much more difficult to appraise and through the system.

Go talk with a real estate agent that serves the overall market. See what is listed for sale. If some are vacant, tour them and see what the construction is like. Then, talk with a local builder. I know you are talking about building on your site, but, in this market, it may well be better to buy a different home on a different property and sell the land you have.

But, before you build, if you decide to do that, spend 400-500 for an appraisal, based on the plans and specs. We can't tell you what to build because you know your wants needs. But, there is a reason that new home starts are at a half-century low, and that's because there is a glut on the market. Just remember this one thing. The available homes on the market can set the upper end of the value.

I know this doesn't directly answer your question, but your question is very general. I just hope it helps

 

[Cob]

The last thing I would be doing right about now in this real estate market would be to build a house, at this point in time in almost every market cost to build when you factor in everything, will more than likely be higher than an appraisal will be on the property.

It's just not a good time to be building, I hope everything comes out okay for you, but the way things are you are asking for the moon and the stars, you want to build it as cheap as possible and keep cost down, but you also want the highest value.

This is where you will have a slight problem.

1 Can I call an appraiser and hire him or her to help me design a house that would appraise for a high value? If so, what kind of appraiser do I call?


Appraisers do not "design" houses they appraise them, and if they did, they would not design houses for people to "get the highest value" either. If you are wanting to build a home in this real estate climate, you better have deep pockets to fund everything.

I guess what I'm trying to tell you is if you are building a home, you should be building because you have the funds and can afford it, you shouldn't be building it and expecting it to appraiser for an unrealistic amount for your market area, or you will more than likely be very disappointed with whatever appraisal you get back.

Most appraisals are not completed with the cost value being considered the most, but they are completed comparing sales in the area and what most people are willing to pay for a property.

 

[TEL2002]

Are you building this house to be your 'I'm gonna live here forever' house, or do you anticipate selling the home in a couple of years? If the latter, I would just buy an existing home.

Do NOT overbuild or underbuild for the neighborhood.

Appraisers consider quality as well as quantity and condition of construction.

Are you planning to get foreclosed? If you think the 'odds' favor a foreclosure, you might want to rethink this entire construction idea. NO matter what, keep your loan low....the economy is still not great. Think in terms of 25% (max) of your monthly income going out for house payments.

 

[ellapescada]

Thanks for the replies. I appreciate your suggestions very much. I am thinking about your comments already.


I do know this is a terrible time to build. We are not doing it as an investment, but rather because this is where we want our home to be- near our family, on our family land of 6 generations. With the land equity we can afford to build but we want to keep a 0% down payment so we need to be careful not to overbuild, as one of you put it.


My goal is to build a house that is structurally very fine so that as we get older and have more money we can make the inside as nice as we would want. We are relatively young so most couples would buy a house smaller house now and then sell it and move up, but we are ready for our forever home. That means we have to keep costs low while allowing room to improve over the years.

So, given all those details (which are below this paragraph), where would you all think it's a good idea to spend money, and where should we avoid spending it to get the most appraisal bang for our buck? Also, how do you think the comparables will relate to our house, being that none of them are ever sold, they are just lived in?

I wasn't sure it it was appropriate to post details, but it seems like it is, so to specify... the norm in this neighborhood is that the land has been passed down through the generations. This is the case for us as for the rest of the neighborhood. It used to be a farm area but as the city has grown outward, it is transitioning very slowly into a residential area. I would not expect this transition to be complete until 50 years from now. It is a just few miles outside the city limits but most of the land has live stock on about 40 acres with an old 2 bedroom house that the grandparents lived in, and now the developing real estate is over $500,000 homes built 5 acres behind the old homes. This is why I am not sure how the comparables approach will take place. We want to build a home for about $250 that looks very fine.

All the homes you see from the road are the old, 2 bedroom homes. The nice homes are built 5 acres behind them, and are not visible. Plus they are never built to sell, they are built by the family who owns the land. So would the ceiling be the homes that are visable or the homes built behind them?

 

[ellapescada]

I should also mention I am not hoping an appraiser gives a falsely high appraisal. On the contrary, I am hoping to know up front what NOT to do while designing our house because I know how terrible the market is right now.

 

[ellapescada]

Yikes, I should also specify that we do not plan to lose our house! We want to keep a low house payment (we were budgeting 28% of our take home income and we have no other bills). I am paying attention to the appraisal because it will determine the amount of loan we are eligible for once our construction loan converts into a mortgage on the secondary market, and I don't want to get blindsided .

 

[Webbed Feet]

Yikes, I should also specify that we do not plan to lose our house! We want to keep a low house payment (we were budgeting 28% of our take home income and we have no other bills). I am paying attention to the appraisal because it will determine the amount of loan we are eligible for once our construction loan converts into a mortgage on the secondary market, and I don't want to get blindsided .

Don't worry.....

<.....snip.....> We want to build a home for about $250 that looks very fine.

<.....snip.....>

I don't think you'll have issues finding a lender. In fact, for a 30% equity position in your land and a 18% interest rate, I will personally very happily lend you the $250 bucks. I won't even ask for plans and specs of what you might build for that.

 

[ellapescada]

lol Did I really say $250? Well, I am known for sticking to what I can afford . In fact, all my family is telling me to lighten up on watching the cost on this house. Clearly I meant $250,000.

As a comparison, a $100,000 house in our area is a medium quality 3 bed 2 bath with a fireplace 1500 square foot house. Therefore, by budgeting just under $250,000 ($250,000 when we go over as I am told we will), we are aiming for a nice house. I am wondering how to keep the appraisal high and the cost low on a house in that range.