Getting An Appraisal On New Construction

Appraisals On Milwaukee New ConstructionHow Do Mortgage Companies Value A Property That Has Not Been Built Yet?

The task of determining the value on new construction projects does pose some challenges. There may not be comparables that ideally represent your home.

Appraisals on homes that haven’t been built or are under construction generally require the contractor and home buyer to supply more documentation in order to get a more accurate estimate of the property’s value.

For some, building a new home can be both exciting and overwhelming. Watching a project transform from an idea to a completed home with a front yard, white picket fence and a custom red front door is a rewarding experience.

Even if you are paying attention to all of the information from the beginning, there are still several details that have a tendency to catch even experienced builders off guard. Things don’t always go as planned, cabinets and corners line up differently than the initial drawing could show, flooring doesn’t match the wall colors, or the city inspector wants further engineering on a wall that requires modifications. While the last minute updates may cost you more money, they might also have an impact on the value of the property.

What Does An Appraiser Need For New Construction?


The plans or construction drawings are usually done by your builder or architect. It lays out the floor plan of your home, sizes of rooms and square footage of your home.

They should include a floor plan layout, front elevation, rear elevation, side elevations, mechanical and electrical details.

Specifications / Descriptions Of Material:

A “Spec” sheet has the type of construction materials you will be using. For example, whether your home will be built with standard 2 x 4′s or 2 x 6′s.

It also contains the type of insulation, roofing and exterior products that will be used in the construction, as well as floors, countertops and appliances for the inside dressing.

Cost Breakdown:

The document that breaks down all of the costs associated with the construction, including land, building materials and labor.

A lender can generally provide you with blank forms for the spec and cost breakdown if your builder does not have them.

Plot Plan:

Shows where your home will sit on the site, any accessory buildings, well and septic locations, if applicable, and the finish grade elevations and direction of the drainage.

Once the lender has obtained the above information from you, they will forward a copy to the appraiser. It is the appraiser’s job to determine what the future value of the home will be once it is completed.

The appraiser will use a combination of the cost approach and the market approach to value, which uses existing sales of homes similar in size, quality, construction and location to determine a fair market value for the home. The more complete and detailed your plans, specifications and cost breakdowns are, the more accurate your appraisal will be.

Once your home is complete, the appraiser will be asked to go out and inspect the home. They will report back to the lender what they have found, whether your home was completed according to the plans and specifications originally given, and if the value is the same as originally given in the report.

Sometimes the value has to be adjusted due to changes that were made during construction which may have affected the value of the home.

Frequently Asked Questions

Below are some popular FAQ's regarding appraisals on new construction properties.

  • Q

    Where can I obtain a set of plans?

    Most builders have basic plans they work from, and make modifications specific to their clients’ needs. When building a custom home the architect who provided your plans will be able to provide a copy for the lender as well.

  • Q

    Is there a form I can use for the list of specifications?

    Yes, HUD has a generic form that most lenders use and it will give the appraiser most of the details they need to complete your appraisal. Anything not listed on this form can be added by you separately on an additional sheet.

  • Q

    Can I use my contract with the builder for the cost breakdown sheet?

    In most cases, the lender will accept the contract, however, they will want the builder to provide a detailed cost breakdown to ensure that the builder has accurately bid your home.

Shopping For A Hazard Insurance Company

Wisconsin Home Insurance CompanyHazard Insurance in Milwaukee

Hazard Insurance can be a great thing to have for many homeowners, as it does protect homeowners against damages that may be caused by fires, severe storms, earthquakes or other natural disasters that could hit home.

Mother nature is unpredictable, and it is wise to expect the unexpected a lot of times, especially when it boils down to a person’s investment. You can never be too prepared!

Wisconsin Hazard Insurance Overview

To attain a Hazard Insurance for a property, the property owner is usually required to pay for at least a year’s worth of premiums during the time of closing. However, this may depend on the specific details of the policy.

What Hazard Insurance Covers

Hazard insurance is commonly purchased as a supplement of basic homeowners insurance, covers the structure of the home as well as its values if a covered disaster happens. Many hazard insurance policies also protects a homeowner’s personal liability in case someone is injured due to an accident on your property.

Requirements For Hazard Insurance

Most lenders in general will not only require you to obtain hazard insurance but may also require for you to pay the first premium at the time of closing. Many lenders may require the first year’s premium at closing, out of which the first month’s premium is paid and the rest is deposited in an escrow account. For each consecutive month, the hazard insurance premium is paid from the escrow account.

Hazard Insurance vs. Mortgage Insurance

Hazard insurance is not the same as mortgage insurance. Hazard insurance pays for property damage, medical expense claims for accidents on the property, repairs to the structure and any additional living expenses if you should take a loss by a covered event. A mortgage insurance plan protects the lender. It is designed to take care of the mortgage should you default on the payments.

How Much Hazard Insurance You Should Have

The amount of hazard insurance coverage you pay for typically depends on the value of your house and valuables. Your lender will require at least enough to fully rebuild the home in the event it is destroyed. You’ll want to add coverage to include personal items, such as clothing, televisions and other things that contribute to your daily life. Your insurance agent can help you determine the replacement value of your belongings and how much personal liability coverage you need in addition to the replacement cost of the structure.

Where You Can Get Hazard Insurance

Your lender might recommend an agent; however, you can get your policy from the insurance company of your choice, as long as the policy’s minimum coverages meet or exceed the lender’s requirement.

Keep in mind that as long as your policy specifically states what type of disasters/events it covers, you should be protected from any damages and/or losses, should they ever occur.

What Is A Deficiency Judgement?

What Is A Deficiency JudgementA deficiency judgement is where the mortgage lender files in court to require the borrower pay them the difference between what they owed on their mortgage and what the property sold for in a short sale or a foreclosure.

The deficiency amount varies but can be a very significant amount of money, even hundreds of thousands of dollars if your Wisconsin short sale is not properly negotiated.

The deficiency judgment is the difference of the loan amount as well as it may include any legal fees, court costs, interests, penalties and other associated costs that were incurred while the property was being liquidated.

About Deficiency Judgments in Milwaukee

Here is an example of a deficiency amount:

Original Loan Amount: $200,000
Price Home Sold For: – $125,000
Deficiency Amount: = $75,000

Some states are recourse states and others are non-recourse states. If the property is located in a recourse state this means the bank experiencing the deficiency has the right to pursue the borrower after the property is sold. If the property is in a non-recourse state then they cannot pursue a deficiency if they sell the property.

States may have time limits on how long they have to pursue the deficiency. It is important for you to educate yourself on the laws for your state.

However, in many cases, a good REALTOR® can frequently get that deficiency waived for you through the Short Sale negotiation process, even if state law does not automatically protect you.

Short Sale Or Foreclosure, What You Need To Know

Short Sale vs ForeclosureIs It Better To Short Sale or Foreclose On Your Milwaukee Property?

Whether you have fallen behind on your mortgage payments, are attempting to negotiate a loan modification with your lender or contemplating a strategic default, the ultimate goal should be to find a solution other than foreclosure.

In most instances, Servicers and Lenders do not want to foreclose on delinquent borrowers as the first option due to the amount of time and money that they may potentially lose going through the legal process and eventually getting the property re-sold.

The Difference Between Short Sale vs. Foreclosure

Depending on your particular situation and hardship circumstances, here are a few potential options your lender might propose to prevent foreclosure, provided you opened the lines of communication early in the process.


Time off from making current payments, or from catching up on past due balances. Lenders might agree to wait before taking legal action against you and let you work out a repayment plan that is affordable for you.

Forgiving a Payment:

If you can agree on a way that you will be current after missing a payment or two (without the means to pay it back), the lender might give you a break and waive your obligation. This is called debt forgiveness, and it rarely happens.

Repayment Plan:

Spread out the missed payments over a longer term. For example, if your payment is, say, $1,200 a month, the lender might let you add $100 a month to each payment for a year until you are caught up. This is called a repayment plan.

Loan Modification:

A Loan Modification is basically changing the terms of your loan. If your mortgage is an adjustable rate loan, the lender might freeze the interest rate before it increases or change the interest rate to a more manageable rate for you. A lender might also extend the amortization period.


If you have sufficient equity and meet the lender’s lending guidelines, the lender might increase your loan balance to include the back payments and re-amortize the loan. However, if you do not have equity and your mortgage is “underwater” due to a drop in value, there is a possibility for a government loan option called the Home Affordable Refinance Program (HARP), provided you are not currently behind on your mortgage.

Partial Claim:

Certain government loans contain provisions that let borrowers who meet specific criteria apply for another loan, which will pay back the missed payments. This is called a partial claim.

Differences Between A Property Comp vs Appraisal

Determining Property Values in MilwaukeeUnderstanding the Difference Between an Appraisal vs Neighborhood Listing Prices

Appraisals in Milwaukee are meant to be a realistic determination of the value of a home if it were to sell in the current market, in its current condition.

Why is there such a difference between the appraised value of my home and the listing price of my neighbors home?

This is a great question, and you don’t have to be a mortgage professional or a real estate agent to understand the answer. The distinction lies in the purpose of the two valuations and who is responsible for creating them.


The purpose of an appraisal is that an independent non-interested third party verifies the “most likely” sale price based on the market value and condition of the home. Appraisals are meant to be a realistic determination of the value of a home if it were to sell in the current market, in its current condition.

In addition, appraisers are governed by rules intended to standardize the process of determining a home’s value. They have standards of practice to follow and in most states are required to be licensed.

Some of the key factors appraisers look at are: location, above ground size, room count, bathroom count, style of home, condition of property, amenities, and market conditions such as how long it takes for home to sell and if values are increasing, decreasing or steady.

Appraisers are also asked to look only at comparable sales within a certain distance, usually one mile except in rural areas, and within a specified period of time, which is 3 months in the current market.

Listing Prices:

Listing prices on the other hand are influenced by the real estate agent, and set by interested and often emotional sellers. When a seller hires a real estate agent the agent will discuss the market and show the seller what has sold in the area. The agent will make a recommendation of a list price.

Sellers are not held by any rules when they list a home. In some cases, sellers take what they paid for the house, add what they have spent on improvements and even add amount for profit. Often times, sellers will list their home based on the amount needed to pay for the real estate agent, closing costs and cover the amount of the mortgages.

Extra low prices are generally the result of an extra motivated seller that has to sell and move in a rush, so they’ll list their property below market comps in order to be the most competitive.

Throw in bank owned homes (foreclosed properties), and listing prices may be all over the place without a logical explanation due to an asset manager making decisions from another part of the country.

The Verdict

While list price is usually not a good indication of what a home in your neighborhood is worth, appraisals are not an exact science that will determine the true value of your home either.

Some will argue that a home is worth what people will pay for it, so there’s obviously a little room for personal interpretation. Either way, the bank securing that piece of real estate for a mortgage loan generally always has the final opinion that matters the most.