are you purchasing the lot from the builder? make sure you find out the appraisal for the lot and the build, they were separated for ours...the house was fine but they wanted 30K more for the lot than it was worth...we found a new lot to build on
good luck!

We had the same issue, except our lender told us we had to come up with the difference between the cost to build and the appraisal upfront, before the loan would be approved. We could have done that, but it would have wiped us out with no room for overages at all. We built a log home on acreage, and the combination of the two made comps hard to come by. The builder knew of a particular appraiser who had significant experience in the area and experience with log homes, so we were able to get a 2nd appraisal that came in where it needed to, and was accepted by the bank. We went ahead with the build and moved in two weeks ago.

So, will your bank let you get a 2nd appraisal? Does your builder or a neighbor know of an appraiser who is more familiar with the area, and therefore more knowledgeable of comps?

We also ran into this issue, and the bank wanted the difference upfront. We got the appraiser to raise the appraisal by making a case with several arguments, including what we thought were more appropriate comps. The lender was okay with relying on the revised appraisal, which was 50K higher.

Thanx for all of the suggestions. We are buying the lot separate from the builder, and it was appraised for the price we are paying. I guess I should be greatful that the bank is willing to lend the total amt until construction is done. I guess I dont want to have (and pay) for another appraisal just to get a number. Then I would feel that the number is falsely elevated and I am participating in practices that got the housing market in the predicament it is now.... I guess the answer is to cut back.

No, no, no; don't feel the number is artificial. Appraisals are each a judgement call, depending on numerous unseeables, from the house design to future development in the neighborhood. No two people [appraisers] are going to see the same thing in the same way. They are *guessing* what the finished project will look like, how it will fit [or not fit] into the neighborhood, and whether or not it will actually be worth anything close to their guess once it's completed. All guesses, but supported by their experience with similar projects. As t-mac-mo indicates, what you really want is an appraiser with the knowledge and experience to understand the finished value of your project in your location.

Remember the basics: the bank will lend you money only if it is sure that --should anything happen to you-- they will be able to get the money back and still make a profit. If you build a home that costs $500K to build, and when finished would normally be valued at $750K, but want to put it in a neighborhood of houses valued at $500K, I can assure you that no sensible banker is going to loan you more than $400K because he will not expect the finished house to sell for more than its neighbor. (It will, but not by much and not for its perceived actual value.) Now, in that circumstance, the appraiser may guess that the finished house would appraise for $550K -- slightly more than the neighbors, and a lot less than its value in a different neighborhood, and only slightly more than the expected cost... and the bank isn't going to lend $550K because they really, really, want to be sure they make a profit which [from their vieiwpoint] can probably be made if they loan $400K.

Remember that part of the current financial crisis is due to inflated appraisals in real estate transactions. I think it will be much more difficult to get a 2nd appraisal accepted now than it was 2 years ago.

Carolyn ~ Actually, those are two different issues. One is indeed the preponderance of overinflated appraisals which the banks accepted in the recent past (which is causing some banks to be leery of *any* appraisal); while the other issue is whether or not the bank will accept an appraisal developed by a different/second person.

If I were a banker who had been.. ah... sufficiently naive as to accept an overinflated appraisal and based upon that made a loan to someone/s who couldn't meet the payments, it would be understandable to be leery of *any* appraisal and want to use only the appraiser supported by my officials. OTOH, a second appraisal might be reassuring as to evaluated potential worth. In the same genre, if a second appraisal of an unusual build (such as t-mac-mo's log cabin) was made by someone who was verifiably experienced in that unusuality, then I would be somewhat reassured that the evaluation was based upon a verifiable reality rather than a blue-sky guess. However, if I were a banker, I wouldn't want to pay for more than one appraisal (hey-- that cost has to come out of my profit).

So, as a real-life non-banker, I think that if you have reason to think that another appraisal could specifically improve the valuation because of verifiably favorable differences, AND if you are willing to pay-out-pocket for the appraisal, then go for it. Or change banks, making sure to have a different appraiser.

BTW, I would be leery of any dependence upon "fluff" in a contract. Overwhelming experience is that most actual costs exceed contractual expectations by 10% to 25% [not including overages during earthwork].

One thing you didn't mention is whether you are buying an empty lot or a teardown. Our lot has a teardown house on it, so there may be a variety of opinions on what part of the value is attributable to the structure. If it's a teardown, there may be some benefit in shopping around to get another opinion. If it's just a lot and there are straight forward comps, it may not be worth it.

Its a vacant lot in a development that allows us to use any builder. I wanted to go into this transaction with the knowledge that I would have instant equity once the house was completed. Reality check (likely first of many).Thanks skipper 2008. Its comforting that many people are in the same situation. We are going foward. Thanks

We were in the same situation. It turns out the house appraised for the amount we were building, but they used a finished basement when we're doing an unfinished basement. I specifically told them not to. In the end, we had to come up with the difference or finish it cheaply to get the loan closed. I would get absolutely everything in writing prior to closing the loan and make sure the appraisal is where it needs to be. If your appraisal is $500k now, and by the time the house is done the market has depressed 10%, now you're in a world of hurt because your final appraisal will be short instead of right on. Our bank raised our closing costs by $3000 and raised the interest rate 1.5% on the construction loan 24 hours prior to closing. It was a 9-month ordeal to even get to this point so we pressed on. Jerks. (yes, I'm bitter)