Wednesday, August 1, 2012

Appraisal Woes Update

  Our SR called us late Monday and said that Ryan Homes would be able to lower the build price to help close the gap between the build cost and the appraisal, but obviously not the whole $27,000.  We have presented a counter offer to their solution and are waiting to hear back, hopefully on Thursday.  It is good to see that Ryan Homes is willing to work this all out, but it worrisome that it’s a problem to begin with.

  As my wife had mentioned in the previous post, we were expecting this to happen, but not because Ryan Homes warned us.  In fact, I was the one who brought it up to both our SR and the NVR mortgage rep at the initial contract signing and the mortgage application.  The response from both of them was, "It almost never happens."  Well, Ryan Homes’ definition of "almost” must be different from everyone else.  We are not the first customers to whom this has happened, not even the first in our community to have a low appraisal, and we likely won't be the last.

  I think the low appraisal happened because of a few factors.  First off, the housing market sucks.  Home prices declined here in Ohio just like the rest of the country, and the homes in the $300+K range took a big hit.  Ryan Homes did not "adjust" the home prices to reflect this change, at least not to the same percentage, and it’s understandable why they didn't.  There is a difference between "cost" and "value", and it can be a large difference.  The cost of building materials and labor has not gone down along with the home "values".  Should Ryan Home start to use even cheaper materials or squeeze their sub contractors?  Maybe, but at the same time I don't want to buy a home with even lower quality materials or labor.  Maybe Ryan Homes should lower their expected profit margin, and maybe they already have done that, but I don't expect them to start building homes at a loss.

  My wife and I are adding a lot of options to this house, many of which do not add value, such as the whole house audio system (including outdoor speakers) and surround sound in the media room.  This home is also going to be approximately 4400sqft of finished area, but only a 4 bedroom with 2 full and 2 half baths on less than a half acre.  Homes in our area with similar finished sq ft are often 5 bedroom with 3-4 full bath and sitting on more land and that’s what buyers expect, so that doesn't help with our appraisal either.