Do I need to pay for an appraisal on a new construction I didn't request.?

Asked by Highlander, 92821 Tue Aug 9, 2011

I am buying a new condo. We're currently in escrow. I got a call from my mortgage co. saying I need to pay $400 for an appraisal. I told her that I don't want or need one, but I'll take a copy if they have one. She said each individual owner will need to pay for the appraisal.

Is an appraisal required by the builder? and why do I need to pay for it if I don't want it?

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17
Wendy Carrin…, Agent, Seattle, WA
Tue Dec 20, 2011
The lender typically requires an appraisal to verify the value of the property that will be their security for the loan you are getting. The appraisal cost is part of the Buyer paid loan fees. If you had estimated 2-3% of your loan amount in closing cost fees, this appraisal cost would be a part of those costs. The only ways around this cost is a) Pay cash or b) Find out if you can build the closing costs into your loan usually by way of paying a slightly higher interest rate. Best of Luck!
1 vote
Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Tue Aug 9, 2011
As has been explained, the lender requires an appraisal to warrant the value of the property, as the lender will only lend on the lower of the appraised value or sales price. Just because you are buying a condo for a certain sales price doesn't mean it's worth that much on paper (which is what the lender is concerned with, whereas you appear to be OK with the sales price of the home regardless if an appraisal comes in lower or not).

I'm surprised your lender didn't inform you of this requirement and it's cost when they were explaining the process of buying a home while using a mortgage to you. $400 is fair price for a lender required appraisal in my opinion.

Keep in mind if the home appraises for less than the sales price, the lender will base your down payment requirement on the lower appraised value. This can create a difference that you need to come out of pocket with.

Say for example you are buying the condo for $300k and the down payment requirement for the program you are applying for is 10% ($30k), leaving you with needing to obtain a $270k loan amount.

However if the condo appraises for $295k, then 10% down on that is $29.5k, but it starts off using the $295k appraised value (lower of the two), so your loan amount is $265,500.

If the seller (condo developer or whoever you are buying it from) doesn't agree to reduce the sales price to $295k, then you will need to pay that difference, which is $5k, in addition to your $29.5k down payment that the lender requires.
1 vote
Gerald Ziglar, Agent, Columbus, OH
Tue Dec 20, 2011
Yes. Anytime there is a lender involved, I think you will find this to be the case. I've been selling real estate for 33 years now and I have never known a lender willing to give a loan without the appraisal, even on new builds and yes, the lender does generally require the buyer to pay it. I hope this helps.
Jerry Ziglar
Signature Real Estate
(614) 893-9566
0 votes
Mikel DeFran…, Agent, Canton, MA
Tue Dec 20, 2011
Yes, you need to pay for it as it will be a condition of the bank giving you the money you seek. The bank needs to make sure the property is worth what they are lending before they give out hundreds of thousands of dollars and require you to pay for it ( if you want their money :)
0 votes
Matt Delhoug…, Agent, Chesterfield, MO
Mon Dec 19, 2011
Highlander,

It is a requirement on your loan. The bank is verifying that their asset=your condo, is worth the price that you are buying it for.

Is an appraisal required by builder-no...required by bank-yes. All buyers pay for an appraisal when they get a loan. If you can pay cash for the property you do not have to pay for an appraisal.
0 votes
Gary Geer, Agent, Antioch, IL
Sat Dec 17, 2011
Highlander,
An appraisal is required by your lender. If you were paying cash for the property you would not be required to get the appraisal. Normally the buyer always pays for the appraisal from their lender. If you negotiated with your builider in advance to have him pay for your appraisal then contact the builder. If you used an agent to help negotiate with the builder for you, contact the agent. It's always best to use an agent when dealing direct with the builder or any of his employee's. They all repesent the builders best iterest and not necesarly yours. If you hired an agent you have representation and the agent can guide you through the process.

All the best,
Gary Geer
http://www.GaryGeer.com
0 votes
Karen Parsons…, Agent, Laguna Beach, CA
Thu Aug 18, 2011
Hi there,

The appraisal is for your lender, and if you are using the builder's lender, they probably just ordered it for you. They should have told you all this and I'm sad that you don't have your own agent to help you.

Hope it goes well,

Karen
0 votes
Ingrid Ski R…, Agent, Mission Viejo, CA
Tue Aug 16, 2011
Hello Highlander,

Yes, you do. Anytime you are borrowing money from a bank for property, new construction, land, or a home they do want an appraisal for what they are lending their money on..
Yes, The buyer pays for this unless the lender can do any different which you would need to talk to them about it. Most likely not. How else can I help you? Ingrid Ski Realtor Talk to you soon
0 votes
Ron Thomas, Agent, Fresno, CA
Wed Aug 10, 2011
The Appraisal is requested by YOUR bank to ensure that the House is worth at least as much as you are borrowing on it.

The Buyer usually pays for the appraisal; you have no choice.
You can take it up with your Lender or the Mortgage Agent/Officer, but ......
0 votes
Deborah Garv…, Mortgage Broker Or Lender, San Diego, CA
Wed Aug 10, 2011
Highlander, The appraisal is really not for either the builder or you...it is the evaluation of the condition and value of the condo so the lender knows they are lending money on collateral (the condo) that meets the requirements of the specific lender and mortgage product. For instance, FHA loans allow financing up to 96.5% of the value of the home. Financing is ALWAYS based upon the lower of the sales price or the appraised value.

For instance, if your purchase contract is for $110,000, but the appraisal came in at $100,000, an FHA loan would only allow financing of $96,500...you would have to come to closing with the additonal funds over that amount. The same evaluation is true for all loan products, it is just a matter of determining the maximine allowable loan to value of any product. $400 is a fairly typical charge for an appraisal in California, FHA appraisals are often $450.

Your mortgage professional should have explained all of this to you thoroughly. Best of luck to you!
0 votes
Ingrid Ski R…, Agent, Mission Viejo, CA
Wed Aug 10, 2011
Hello Highlander. Anytime you buy a property or home and will get financing from a lender. The lender will want an appraisal to determine the market value so they will know when they lend out their money the property has the value for it. Bye for now. Ingrid Ski Realtor.
0 votes
Bill Eckler, Agent, Venice, FL
Wed Aug 10, 2011
Highlander,

If you want the home and need to purchase through a mortgage company, you will need to have an appraisal done. It's intended to protect both you and the lender from declining values.

In a soft market, the price you go to contract at after 9 or 10 months may not be sustainable. If your purchase was $400,000 and a new appraisal comes in at $380,000, it's unlikely that either you or your lender will want to spend $20,000 more than the home is currently worth.

In my opinion, the $400 is money well spent......

Good luck,

Bill
0 votes
Keith Jones, Agent, Seal Beach, CA
Tue Aug 9, 2011
Something that I have not heard mentioned is that the appraisal can be of a huge benefit to you, the buyer.

The appraisal establishes whether or not you are paying fair market value. Very useful info if it reveals that you are paying more than market value (overpaying).
Assuming that you are using a standard C.A.R. purchase agreement and assuming that you have a loan and appraisal contingency that you have neither waved nor removed, in the event that the appraisal comes in low, you have the ability to cancel the escrow and you should be entitled to the return of your deposit.
0 votes
Thom Colby, Agent, Irvine, CA
Tue Aug 9, 2011
Highlander -

Others have answered your question - yes, you need an appraisal unless you're paying cash.

I suspect you are a first time buyer and suggest very strongly you get someone to take you through the process of "Homebuying 101". This is the biggest purchase you will ever make so you should make sure you understand every part of the process.

Good luck in your new home !

Thom Colby
Broker
Newport Beach
0 votes
Greg Haraksin, , Fullerton, CA
Tue Aug 9, 2011
Unless you're paying all cash, you are going to need an appraisal.
0 votes
Sally Grenier, Agent, Boulder, CO
Tue Aug 9, 2011
The appraisal is required by the LENDER, not the builder! They are basically loaning money to you to buy this home, so you have to play by their rules. (if you can't pay the loan, then the lender owns property).They want to make sure they are paying fair market value. Beware of spending extra $$ on upgrades. I've been hearing horror stories of new construction homes not appraising. Your Realtor should have mentioned this, but it sounds like youre not using one? Good luck!
0 votes
Walter 'Skip'…, Agent, Brea, CA
Tue Aug 9, 2011
It is your lender, not the builder, that requires the appraisal. All home mortgages require an appraisal and is paid for by the buyer.

Good luck,
Web Reference:  http://ocnorth.com
0 votes
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