New Custom Built Home Appraisal
How to Avoid the Dreaded “D.D.S.”
What is D.D.S.? It stands for “Dented Dream Syndrome”
You may well be asking “What has that go to do with me? I am looking to you guys to build me a new home, not diagnose a medical condition!” OK, fair question but bear with me. Now imagine this… your excellent credit score and debt-to-income ratio has enabled you to qualify for a construction loan that will enable us to build your choice of a home that truly represents your dream.
You have selected the exterior and interior upgrades you want and have added decks, porches and, if a bonus ranch or Cape style home, you have also decided to have us finish and complete the upper level… perhaps to provide additional rooms or that long-desired “Man or Woman Cave”. Better yet, all of those upgrades are still within your total budget which comprises the amount approved by your Lender plus the cash amount you are bringing to the table.
What can possibly go wrong to dent the dream? In one word the answer is the APPRAISAL!
Your Bank may well have approved you for $XXX loan amount but, at the end of the day, their willingness to actual finance your new home in that amount comes down to the ability of your Lender’s appraiser to find other homes of similar size, specifications and features within 1/2mile-3 miles of your neighborhood (or within 5-10 miles if a rural property) that have SOLD within the past 6-9 months. Some Lenders only require three similar comps while others may want as many as four or even five “similar” sold comps.
Between the date that you have been approved for $xxxx and the date that your loan actually closes there is a window of between 30 and 60 days. It is within that window that your Lender conducts their Title searches of the land you already own or intend to purchase, and provide their Appraisal service with copies of the drawings and specifications of your selected home including our Construction Worksheets.
Bear this in mind… ALL LENDERS PROVIDE A PERCENTAGE LOAN AMOUNT BASED ON THE LESSER OF “AS COMPLETED VALUE” OR COST TO COMPLETE.
What could that mean to you? The cost of your selected home with all of the options and upgrades added in plus cost of site-works, finishing costs, Permits and fees results in a Final Contract price of $xxx,xxx That total price does not exceed the loan amount you have been approved for. It could happen that the Lender’s Appraiser issues a document stating that in his/her opinion, “As Completed Value” is LESS THAN THE COST TO BUILD AND COMPLETE YOUR HOUSE.
This situation could be an early symptom of “D.D.S”! What can be done?
1: Maybe you are in a cash position to “shrug it off” and simply have the ability to cover the difference by increasing your down-payment which might mean as little as a couple of thousand dollars up to several thousands.
2: Request a second opinion on the Lender’s Appraiser’s valuation approach. Perhaps the appraiser overlooked some points of “value benefit”…maybe the Appraiser’s comp search was not extensive enough…maybe the basis of the Appraiser’s “opinion” would not be shared by another appraiser. We would like to receive a copy of any “negative” appraisal for our review and comment. However, a second appraisal will cost you another $450.
3: Carefully review the “sold comps” that the Lender’s appraiser used. Maybe the situation is centered on the presence of features, upgrade and options on your proposed home that are NOT consistent with other homes of similar size and characteristics that have SOLD in the past few months. In other words, the Appraiser concluded that your proposed new home would be considered “Over-Built” for the neighborhood.. In that case, you have the option of eliminating some of or all of those added features that cannot be “value-supported” so that Cost to Complete is in line with the Lender’s Appraisal.
4: OUR RECOMMENDATION TO AVOID THE POTENTIAL FOR “D.D.S” IS VERY SIMPLE. Once you have selected your CMSSC Custom home with your preferred options and upgrades with lot/land included, ask us to refer you to refer you to an independent appraiser who you will instruct to provide an “As Completed Valuation” as if a Lender had ordered it. While this will cost you $450 and not necessarily guarantee that his/her opinion will ultimately match that of the Lender’s appraisal, it will certainly be very helpful in guiding your selection decision.
5: You can also help yourself avoid the potential for D.D.S. If the lot/land on which you intend to build is within an area/neighborhood that is dominated by “low value” double-wides/trailer or older and smaller ranch homes don’t expect that ANY appraiser will be able to find recent comps that can support a custom home value of $200,000 or more unless there are exceptional mitigating circumstances. This is sometimes the case with areas that are undergoing “transformation and upgrade” as might be the case with revitalizing urban/downtown neighborhoods.
Any questions? I am here to help you realize your dream so either email me at firstname.lastname@example.org or call 843-364-5413.