New-Construction Appraisals: How They Work—and How to Avoid a Low Value

If you’re building a home or buying a new build, the appraisal can feel like a black box that shows up late in the process and has outsized power over your budget. I’ve sat at too many jobsite tables where everyone believed the numbers would pencil out, only to get a report that comes in short. The good news: new-construction appraisals are predictable once you understand how they’re built, and there’s a lot you can do to set yourself up for a strong value. Let’s unpack how they work, where they go wrong, and the practical steps builders, buyers, and agents can take to avoid a low appraisal.

How a New-Construction Appraisal Actually Works

What “subject to completion” means

Unlike a resale appraisal, a new-construction appraisal is often completed before the house exists. The appraiser values the property “subject to completion per plans and specs.” In plain English: they’re valuing what you’re going to build, not what’s there today.

• The appraiser reviews your construction plans, specs, finish schedules, and site plan.
• They analyze comparable sales and market data to estimate what the finished home should be worth.
• When the home is complete, the appraiser (or another appraiser) returns for a final inspection (commonly on Form 1004D) to certify the property was built as described.

Who orders the appraisal and when

• Lender orders via an Appraisal Management Company (AMC) or panel. Federal regulations prevent you (and your agent or builder) from handpicking the appraiser.
• Timing depends on loan type:
• Construction-to-perm loans: the “as-completed” appraisal is ordered after you have final plans, specs, and a signed builder contract. A final inspection occurs before conversion to permanent financing.
• Standard mortgage for a finished new home: the appraisal is ordered after your contract is signed and selections are finalized enough to represent the product you’re buying.

Typical turn times: 7–14 days in many markets, longer (2–4 weeks) in rural or high-volume seasons. Expect higher fees and longer lead times for complex properties or markets with appraiser shortages.

What the appraiser uses to value a new build

Appraisers typically use three approaches, then reconcile to a final value:

1. Sales Comparison Approach (the backbone) – Compares the subject to recent sales (“comps”). – Prefers closed sales of new or nearly new homes in the same subdivision or competing neighborhoods. – If no new-build comps exist, appraisers expand the radius/timeframe or use older resale comps with adjustments for age/condition/quality.

1. Cost Approach (supporting evidence) – Estimates current cost to build the home, adds site improvements, and includes entrepreneurial profit, then adds land value and subtracts depreciation (usually minimal or zero for brand-new). – Uses cost data sources like Marshall & Swift. This is supportive, not usually the primary driver, but matters more when comps are scarce.

1. Income Approach (rare for owner-occupied) – Used if the property will be a rental (e.g., build-to-rent communities). Involves a Rent Schedule (Form 1007) for 1-unit investments.

Documents the appraiser needs (and why they matter)

Don’t make the appraiser hunt for info. A complete package helps them support a stronger value:

• Final plans and elevations (PDF): shows design, dimensions, rooflines, complexity.
• Detailed specifications and finish schedule: flooring types, cabinet grade, countertops, appliances, windows/doors, insulation, HVAC types, roofing, exterior cladding, trim.
• Site plan: setbacks, driveway, grading, retaining walls, drainage, outdoor living features, fencing.
• Options/upgrades list with retail pricing and builder cost breakdown if available.
• Energy/green documentation: HERS rating, mechanical design, insulation R-values, solar specs, third-party certifications (ENERGY STAR, LEED, National Green Building Standard). Include the Appraisal Institute’s Residential Green and Energy Efficient Addendum if relevant.
• Lot premium justification: views, size, cul-de-sac, greenbelt, unique privacy, orientation.
• Neighborhood map and amenity list: trails, pools, schools, proximity to job centers.
• Sales comp support: recent new-build closings in and around the community. Many builder sales never hit the MLS—give the appraiser your closed-sale spreadsheet, settlement statements (redacted), or recorded sale data.
• The full executed purchase contract and addenda: concessions, design credits, buydowns.

This package won’t “sway” the appraiser improperly; it ensures they have the facts to defend the value.

New-build specifics across different scenarios

• Production subdivision (builder community)
• Expect heavy reliance on recent sales within the same plat or phase.
• Lot premiums, community amenities, and builder incentives get close scrutiny.
• Build-on-your-lot / custom home
• Appraiser must value the land plus the to-be-built improvements. Land sales (not house sales) are critical.
• Rural or acreage builds can require a wider radius (10–30 miles) and longer time frame (up to 12–24 months) to find credible comps.
• Townhomes and condos
• Warrantability and project approval matter. Appraisers consider HOA budgets, pre-sale ratios, investor concentrations, commercial space proportions, and completion status of amenities.
• Pending contracts can help with market trend support, but closed sales carry the most weight.

What lenders care about

• Loan-to-Value (LTV) is based on the lower of appraised value or contract price/cost. If your build costs $800,000 but the appraisal is $760,000, the lender uses $760,000 to calculate LTV.
• Appraisal validity windows vary:
• Conventional (Fannie/Freddie): commonly 120 days, sometimes extendable—ask your lender.
• FHA: typically valid 120 days with potential extensions under certain conditions.
• VA: often valid 180 days.
• Expect a final inspection (1004D) to confirm completion, plus reinspections for changes that affect value or safety.

What Actually Drives Value in New Construction

Appraisers aren’t pricing your taste; they’re estimating market reaction. Big contributors:

• Location and lot traits
• Usable lot size, view corridors, adjacency to greenbelts, corner/cul-de-sac sites, and topography.
• Home size and layout
• Gross Living Area (GLA) above grade, bedroom/bath count, functional floor plan (open sightlines, main-level suite, office/flex space).
• Quality level and finishes
• Cabinet construction, countertop material, window and door quality, roofing type, siding (fiber cement vs. vinyl), trim detail, built-ins.
• Kitchens and baths
• Appliance package, vented range hoods, tile work, plumbing fixture quality, vanity design, and shower types.
• Energy and performance
• HERS rating, insulation, air sealing, HVAC equipment, ERVs/HRVs, solar, window U-factors, and overall utility cost savings.
• Outdoor living
• Covered porches, decks, patios, built-in kitchens, flat usable yard space, landscape/hardscape.
• Garage and storage
• Three-car garages, tandem bays, conditioned storage, mudrooms, walk-in pantries.
• Market velocity and supply
• Appraisers must reflect not only features but current supply/demand. In a fast-rising market, pending new-build comps and concessions data help indicate upward pressure.

Reality check: Many designer upgrades have less “contributory value” than you expect. The market may pay $6,000 more for a premium appliance package but not $18,000. Similarly, a $40,000 lot premium for minimal view or a marginally larger lot may not fully translate to value unless comps prove buyers paid for it.

Why New-Construction Appraisals Come In Low

Low values generally fall into a few buckets:

1. Scarce or mismatched comps – New community with few closings; nearby resale homes are older, smaller, or inferior in quality. – Appraiser expands too far geographically but misses the best substitutes, or over-relies on older sales without sufficient time adjustments.

1. Over-optimistic upgrade pricing – Builder or buyer piles on highly personalized or top-tier finishes with weak market payback (e.g., exotic stone, designer lighting packages, $100k in automation). – Outdoor living spaces built to luxury specs in a mid-market area.

1. Lot premium gaps – Premiums for views or positions that the market doesn’t support at the charged amounts. – Mixed signals in the community: some buyers paid premiums, others didn’t, with no clear pattern.

1. Appraiser unfamiliarity or documentation gaps – Out-of-area appraiser lacks local nuance or misses recent non-MLS builder sales. – Incomplete package: no specs, limited evidence of energy performance, absent comp list.

1. Builder concessions muddying the waters – Large incentives (closing costs, rate buydowns, design credits) embedded in price lead appraisers to adjust downward if the effective market price is lower.

1. Market shift between contract and appraisal – Rates jump and demand cools. A contract signed at peak optimism looks frothy 90 days later. – Appraisals lag ultra-current market movements, especially if closed comps reflect last quarter’s exuberance.

1. Measurement errors or misclassification – Wrong GLA (e.g., including finished basement in “above grade”), mislabeling quality/condition, or inadvertently excluding features that contribute value.

How often do appraisals come in low? It varies by cycle. In overheated months during 2021, many markets saw double-digit percentages (some reports put it between 10% and 20%). In a more balanced market, low outcomes typically land closer to 5–10%. The risk spikes for custom/rural builds with thin data and for projects heavy on discretionary upgrades.

The Appraiser’s Adjustment Playbook (What Gets Credit—And What Doesn’t)

• Square footage: Usually the strongest adjustment per foot, but the rate per foot often declines as homes get larger (diminishing returns).
• Bedrooms/baths: Additional full bath adds more value than an extra bedroom once a baseline (3–4 beds) is met.
• Garage bays: Third bay often carries meaningful value, especially in family suburbs.
• Quality/condition: Moving from “builder-grade” to “semi-custom” garners a real bump if supported by comps.
• Outdoor living: Covered patios/decks and functional yard space add value; a deluxe outdoor kitchen in a cold climate may have limited payback.
• Basements: Finished basement space is usually valued less per foot than above-grade. Walkout basements typically appraise stronger than daylight or fully below-grade.
• Energy features: Contributory value hinges on market familiarity and documentation. Owned solar can add value if production and utility savings are clear; leased solar is treated differently and may not add value.
• Views: City or water views appraise well when proven by bracketed comparables. Peekaboo or distant views often get less credit than owners expect.

How to Avoid a Low Appraisal (Builders, Buyers, and Agents)

1) Build a bulletproof appraisal package

Create and share a comprehensive folder before the appraiser steps on site:

• Plans, elevations, and site plan
• Full specs and finish schedules with brand/model callouts
• Options/upgrades itemized with pricing
• Lot premium with a one-page justification (photos, sightlines, map)
• Energy/green documentation (HERS, certifications, HVAC specs, solar production estimates)
• Community sales log: last 6–12 months closings with price, incentives, plan, and lot. Include settlement statements if possible (redact buyer info).
• Pending contract summary sheet to show velocity and trend (clearly marked “pending—not used as comps”).
• A “features that beat competing homes” sheet: main-level suite, 10-foot ceilings, 8-foot doors, covered patio, 3-car garage, 50-amp EV circuit, etc.

Pro tip: Use the Appraisal Institute’s Residential Green and Energy Efficient Addendum if your home includes performance features. Appraisers trained in green valuation will recognize and often rely on it.

2) Price with comps in hand, not vibes

• Before you finalize pricing or design-center splurges, review the latest closed new-builds and the best resales that compete with your product.
• Ask your agent to pull a comp set that brackets your home by size, quality, and location. If your build exceeds top-of-market comps by more than 5–8% without clear justification, be ready for pushback.
• If lot premiums or unique features are key, aim to get at least one or two closings that prove market willingness to pay for them before betting the farm.

3) Be smart about upgrades

• Focus on high-ROI items: kitchen appliance upgrades, quartz/granite counters, primary bath tile/fixtures, covered outdoor living, third garage bay, energy efficiency improvements that cut operating costs.
• Tread lightly on: ultra-luxury fixtures, exotic materials, elaborate built-ins, and custom tech packages. If you love them, great—but don’t assume dollar-for-dollar value.
• Keep custom changes consistent with neighborhood expectations. Over-improving a home beyond its submarket ceiling is a fast path to a low appraisal.

4) Get an appraiser who knows the turf (without violating rules)

You can’t select the appraiser, but you can influence the process:

• Choose a lender who uses a local AMC/panel with a reputation for competent, local appraisers.
• When the appraisal is ordered, have the lender note any property complexities requiring a high-skill appraiser (e.g., acreage, significant energy features, unique views).
• Make the property easily accessible; meet the appraiser on site if allowed and appropriate. Never pressure the appraiser—stick to facts and documentation.

5) Time the appraisal wisely

• Order once plans, specs, and selections are solid. Major late changes can force revision fees or re-reviews.
• If rates are volatile and demand is cooling, try to get your best recent comps closed before the appraisal is scheduled.
• Keep the validity window in mind (commonly around 120 days for conventional). Don’t order so early you risk expiration before completion.

6) Shore up non-MLS sales evidence

If builder sales don’t hit MLS, you must do the appraiser’s homework:

• Maintain a closings log with plan, elevation, lot, sold price, incentives, and notable features.
• Keep settlement statements or recorded sale confirmations on file.
• Capture photos of views, lot positions, and finish levels at the time of sale. These become gold for future appraisals in the same community.

7) Highlight energy and performance value clearly

• Provide the HERS report, duct test reports, window specs, and HVAC design. Show modeled or metered savings versus code-minimum homes.
• For solar, include system size (kW), expected annual production (kWh), ownership status, and warranty. Tools like the PV Value model can estimate contributory value.
• Appraisers need market support—if your market has few green comps, data and documentation help bridge the gap.

8) Separate concessions from price

• If you’re offering large incentives (e.g., $20,000 in closing costs or a 2-1 buydown), document them clearly. Appraisers often adjust for concessions to reach an “effective price.”
• For builders, shifting some funds from headline price into closing-cost credits can backfire on valuation. Aim for a clean price that aligns with comp evidence.

9) Measure twice—literally

• Confirm square footage with a reliable standard (ANSI Z765 for detached homes). Misstated GLA can blow up a value.
• Ensure the appraiser gets the right story on basement finish, walkouts, ceiling heights, and what counts as living area.

10) Prep for a reconsideration of value (ROV) even before you need it

• Keep an “ROV folder” ready: 3–5 additional comps with notes explaining why they’re superior to those used, any factual corrections (GLA, bath counts), and time/market trend graphs if relevant.
• If an appraisal lands low, speed matters. A well-prepared ROV can add thousands—or at least get you a fair shake.

What To Do If Your Appraisal Comes In Low

Step 1: Read the report like a hawk

Look for factual errors:

• Wrong square footage, bed/bath counts
• Missed upgrades or quality level
• Incorrect lot description (view, adjacency, shape)
• Comps that aren’t truly comparable (older, inferior, or much smaller without adequate adjustments)
• Concession handling that depresses effective price unfairly

Make a bullet list of objective corrections—leave emotion out.

Step 2: Build a concise Reconsideration of Value (ROV) package

Work through your lender. Appraisers can’t be pressured, but they can review factual evidence. Include:

• A one-page cover letter with 3–5 specific, factual points (no venting).
• 3–6 alternative or additional comps with brief explanations for each: proximity, recency, size/quality match, concession neutrality.
• Corrections to any errors in the report (attach measurement sketches, spec sheets, or photos as needed).
• Market trend data if appropriate (inventory shifts, price-per-foot trend for new builds in last 3–6 months).

ROV tips:

• Avoid nitpicking adjustments by a few hundred dollars. Focus on material issues that could change the reconciliation outcome.
• Keep the package organized and easy to digest. You want to improve the appraiser’s file, not bury it.

Step 3: Consider a second appraisal (if allowed)

• Some loan programs (especially conventional) may allow a second appraisal if the first is materially flawed or if there were process issues. Lenders have policies; you can’t just shop for a higher number without cause.
• FHA/VA are more restrictive. FHA appraisals stay attached to the case number for a period, and a new one won’t override the first without specific circumstances.

Step 4: Bridge the gap

If the value doesn’t move, you still have options:

• Price reduction: Builder/seller lowers price to appraised value.
• Split the difference: Common in balanced markets and for marginal gaps.
• Buyer brings cash: If LTV still works, the buyer can cover the difference out-of-pocket.
• Restructure incentives: Reduce concessions to support a cleaner price.
• Modify scope: Adjust or remove certain upgrades with weak contributory value, if time allows.
• Appraisal gap coverage: If pre-negotiated, the buyer covers up to a set amount above appraisal.

Step 5: Protect timelines

• Low appraisals can derail rate locks and completion schedules. Keep contingency deadlines realistic (appraisal, financing) and allow time for an ROV.
• Communicate early with all parties—surprises don’t age well in construction.

Special Cases and Nuances

Build-on-your-lot financing

• LTV is based on the lower of appraised value or total cost (land plus construction). If you own the land free and clear, its value becomes equity.
• Provide the appraiser:
• Land purchase documents and recent land sales
• Full construction contract, budget, and plans/specs
• Site improvements list (well, septic, driveway length, clearing, retaining walls)
• Expect wider comp searches and heavier reliance on the cost approach, especially for rural properties.

Rural or acreage homes

• Expect fewer direct comps and larger adjustments. Appraisers may extend the look-back period to 12–24 months and widen the radius.
• Features like shops, barns, and fencing are valued—but not dollar-for-dollar replacement cost. Clean documentation helps.

New condos and townhomes

• Project approval is critical. Lenders look at:
• Presale percentages
• HOA budget reserves and delinquency rates
• Investor concentration and short-term rental rules
• Commercial space ratios
• Appraisers will prefer in-project closed sales. If phase one is just finishing, push to close a few units to establish the comp set.

Energy-efficient and green homes

• Provide third-party verification. The HERS index is the most common. A lower HERS score (i.e., more efficient) supports value if the market responds.
• Owned solar:
• Include system size, production estimate, and warranty.
• Provide local evidence of solar premiums if available.
• Leased solar:
• Often treated as personal property or as an encumbrance; it may not contribute to value.

What Appraisal Fees and Timelines Really Look Like

• Fees
• Standard SFR new-construction appraisal: $700–$1,200 in many markets.
• Complex/rural/custom: $1,200–$2,500+.
• Final inspection (1004D): $125–$250 typically.
• Timelines
• Order-to-inspection: 3–7 business days depending on access and scheduling.
• Completion of report: often 2–5 business days after inspection, longer if complex.
• ROV reviews: 3–10 business days after submission.
• Validity (confirm with lender)
• Conventional: commonly around 120 days.
• FHA: typically 120 days; extensions possible in certain cases.
• VA: often 180 days.

Real-World Scenarios

Scenario 1: The lot premium that didn’t fully stick

• Project: Production home, 2,600 sq ft, upgraded kitchen, covered patio. Builder charged a $40,000 lot premium for a greenbelt view.
• Comps: Two in-neighborhood new-build closings on interior lots at $675k–$690k. One resale backing to a small green space at $705k.
• Appraisal: $705k—recognized some view premium but not the full $40,000 based on available comps.
• Action: Builder documented additional greenbelt sales in a nearby sister community and submitted an ROV. The appraiser adjusted up to $712k—partial win.
• Lesson: If you expect big premiums, line up closings that prove it or be ready for only partial recognition.

Scenario 2: Custom build on acreage with a massive shop

• Project: 3,100 sq ft custom on 5 acres, 1,800 sq ft detached shop, high-performance envelope (HERS 45).
• Comps: Sparse. Three sales within 8–15 miles over the last 14 months. Only one with a large shop; none with similar energy features.
• Appraisal: Heavy reliance on cost approach to support the sales comparison. Contributory value given to the shop but not full cost. Energy features got modest credit due to limited local comps.
• Action: Owner provided additional paired-sales analysis on shop premiums and a PV Value estimate for the 8 kW solar system. ROV increased value by $18k.
• Lesson: In rural/custom cases, your documentation is your leverage. Appraisers can move when the file gets stronger.

Scenario 3: Incentives distorted the picture

• Project: Townhome community offering $20,000 in concessions (rate buydown + closing costs).
• Comps: Several recent closings with varying incentive levels. None of the MLS entries disclosed concessions.
• Appraisal: Came in 2% low; appraiser adjusted downward for incentives he suspected but couldn’t verify.
• Action: Builder supplied a concessions matrix from recent closings with documented amounts. The appraiser reconsidered and moved the final value up to contract.
• Lesson: Incentives need a paper trail. Silence breeds conservative adjustments.

Common Mistakes That Sink New-Construction Appraisals

• Ordering the appraisal before plans/specs are final, then expecting full credit for late-stage upgrades.
• Assuming premium taste equals premium value without comp support.
• Hiding incentives or bundling them in price without documentation.
• Not giving the appraiser non-MLS builder sales or closing statements.
• Letting an out-of-area appraiser fly blind in a nuanced submarket.
• Misstating square footage or treating finished basement space as above-grade.
• Ignoring energy-performance documentation.
• Failing to prep for the ROV process before the report lands.

Step-by-Step: The Smoothest Appraisal Workflow

1. Before pricing – Pull a comp set that brackets your target home by size, quality, and location. – Decide where you’ll lead and where you’ll follow (e.g., go strong on outdoor living, stay moderate on ultra-luxe interior finishes).

1. Before ordering the appraisal – Finalize plans, specs, and the big-ticket selections that define quality level. – Assemble the appraisal package folder (plans, specs, options, energy docs, sales log, lot premium justification). – Confirm lender’s appraisal validity window aligns with your build timeline.

1. During the appraisal – Ensure site access and safety. Provide a single point of contact. – Give the appraiser the package and a quick, fact-based overview. No pressure—just clarity.

1. After the report arrives – Review for factual errors and comp selection. – If needed, submit a concise ROV via the lender with stronger comps and corrections.

1. If value stays low – Choose one or more: price adjustment, split, buyer cash, scope tweaks, or gap coverage. – Protect your deadlines: amend contract timelines if ROV review extends past contingencies.

Quick Valuation Cheat Sheet (ROI Tendencies)

Note: These are general tendencies; local markets vary.

• Strong contributors
• Additional above-grade square footage that maintains good flow
• Third garage bay in suburban/family markets
• Covered outdoor living and flat usable yard
• Upgraded kitchen appliances and counters
• Primary bath tile and fixtures upgrade
• Energy efficiency with documented savings (HERS, solar ownership)

• Moderate contributors
• Designer lighting packages
• Hardwood in secondary bedrooms
• High-end smart home systems

• Weak/variable contributors
• Exotic materials that don’t match neighborhood norms
• Excessive built-ins or millwork beyond market expectations
• Overly expensive landscaping hardscapes in entry-level segments

FAQs

Can I talk to the appraiser?

Yes, but there are strict boundaries. You can provide factual information—plans, specs, comp suggestions—and answer questions. You cannot pressure or attempt to influence the value outcome.

Do change orders affect value?

Only if the appraiser is made aware and they materially change the home’s quality or features relative to comps. Late-stage changes might require an addendum or re-review fee.

How do rate buydowns impact value?

They’re concessions. Appraisers typically adjust for them to estimate the market-equivalent price without extra financial incentives.

Will a finished basement be valued the same as main-floor space?

No. Finished basements are usually valued at a lower rate per square foot than above-grade living area, even if walkout and nicely finished.

What if there are no new-build comps?

Appraisers will use the best available substitutes—resales with similar size/quality—plus cost approach support. Wider search radius and longer time frames are common.

Can I count a bonus room without a closet as a bedroom?

Appraisal standards for a “bedroom” vary by market, but generally require egress, appropriate window size, and ingress to common areas. A closet isn’t universally required but is often expected. Clarify local norms.

Are solar leases a problem?

They can be. Leased systems may not add value and can complicate financing. Owned systems are easier to value.

How long is my appraisal good for?

Typically around 120 days for conventional loans, 120 days for FHA (extensions possible), and around 180 days for VA. Confirm with your lender.

A Practical Checklist You Can Copy

• Before pricing
• Pull a comp set with at least 6–10 recent sales (prioritize new-build closings).
• Decide must-have features vs. nice-to-haves based on ROI.

• Before ordering the appraisal
• Final plans, elevations, specs, and selections locked.
• Appraisal package assembled:
• Plans, specs, options list
• Lot premium rationale
• Energy documentation (HERS, certifications, solar details)
• Sales log with concessions and settlement statement support
• Feature highlight sheet vs. competing homes
• Lender confirms appraisal validity window fits schedule.

• During appraisal
• Provide clean site access; meet the appraiser with the package if permitted.
• Answer factual questions; avoid “pitching” a number.

• If low value hits
• Review report for errors.
• Submit ROV with:
• 3–6 superior comps
• Factual corrections (GLA, baths, view, quality)
• Concession documentation
• Choose gap strategy: price move, split, buyer cash, scope change, gap coverage.

Final Thoughts You Can Use on Your Next Build

Appraisals don’t decide what your home is “worth” in an existential sense—they translate your plans into a market-supported value the lender can live with. That translation gets messy when documentation is thin, comps are scarce, or pricing gets ahead of the market. The antidote is simple: prepare like a pro.

• Package your project so an appraiser can defend it.
• Choose upgrades the market consistently rewards.
• Prove lot premiums and energy features with data.
• Keep a clean record of closings and concessions.
• Be ready with a tight, factual ROV if needed.

Do this, and you won’t just avoid low appraisals—you’ll build a smoother, less stressful path from blueprint to front door.