Tim,

Indeed an unfortunate situation. Best to check your contract first. You might want to get a real estate attorney involved. You can also always renegotiate or try. How much is the house worth to the builder if you walk away from your deposit? Does it make sense for you to walk away from your deposit? I'm not saying that's a fair thing to do to the builder, but it probably has happened before. What would you have done if it was worth $80,000 more than the contract price? Would you have shared the profit with the builder? I think the best thing to do though is start a dialoge with the builder. Show them your appraisal and ask what their advice is.....

Many sellers will view changes in price dimly, but the reality is that financing is contingent on the property having a sufficient value to act as collateral for the loan. If the value is not sufficient, no loan. No loan, no sale.

So, as the time approaches when you need to finalize financing in anticipation of closing, discuss the matter with your Realtor to determine the best strategy for broaching the discrepancy in value vis a vis your loan with the builder.