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Will your appraised value come in low? By Rosslyn Hills Estate We are in an environment where home values have been decreasing in many areas over the past 12-18 months. The effect of this is now hurting the appraised values on you if you are trying to get approved for financing. Lender’s today base the percentage they can lend (Loan-to-Value) on the LOWER of appraised value or costs of construction. The costs of construction are determined by adding the current market value of the land plus the contracted costs of construction. The cost of construction is then compared to the appraised value of the project and using the lower amount. The challenge is that the homes used to compare to are from sales in the past 6-12 months where values are down 5-20% in many areas. Thus lenders are forced to use the appraised value as the basis for the loan-to-value they can lend. There a couple ways for you to get an idea on where the value may come in on the appraisal. First, one can contact a real estate agent who has access to the listing system in the area where you are building. I would suggest asking the appraiser to find homes that have sold in the past 6-9 months that have similar square footage (above grade), bedroom & bath count, and acreage located within 10-15 miles of where you are building. Second one can go to www.domain.com.au and do a search of home listings within 10-15 miles. The search parameters should be similar to the ones mentioned when searching with a realtor. If the results from one or both of these preliminary searches show values lower than the costs of construction it can be expected the value will likely come in lower that expected. You will then need to be prepared to have additional down payment.

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Contributed by Simon on November 16, 2009, at 3:18 PM UTC.

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