There are times when a traditional appraisal just won’t work. Maybe the home hasn’t been built yet, or it's mid-construction with a little more than studs and potential. Either way, if you’re financing your first home, your lender will still need to determine the property's estimated value before they approve your mortgage.

Why does this matter so much? Because as of 2024, new construction homes account for nearly one-third of all homes for sale in the U.S., and that number continues to grow as housing inventory tightens and demand for modern builds rises. With so many buyers entering the market through new builds, understanding the appraisal process upfront can help prevent financial surprises later.

In this blog, we’ll walk you through how a new construction appraisal works, how it’s different from appraising existing homes, and why it plays such a crucial role in the mortgage process.

What Is a New Construction Appraisal and Why Does it Matter? 

A new construction appraisal is a professional estimate of what your newly built home will be worth when it's finished. Unlike a traditional appraisal that evaluates an existing home as it stands, this type of appraisal is based on blueprints, market trends, and comparable homes in the area. It's used to help lenders determine how much they can safely loan for a property that may not yet exist beyond a patch of dirt.

New home appraisals are important for your lender to guarantee that you are paying a fair price for your home. In most cases, appraisals are required before completion of the home, which means the appraiser has to estimate the value based on what the finished home will be.

In short, these appraisals:

• Protect the buyer from financing more than the home is worth
• Helps set the loan-to-value ratio that determines your mortgage terms

However, the good news is that when you choose National HomeCorp as your home builder, you will never overpay for your new home. At NHC, we pride ourselves on the most affordable homes in the market, starting from JUST the $180s. We also have the most transparent building process so that you know exactly what goes into your new home, how long it takes to build, and the quality of work that goes into it. 

Breaking Down the Types of New Construction Appraisals 

Different stages of your new build might require different appraisal types. Here are the main ones that you’ll see:

1. As-Is Appraisal 

This type of new construction appraisal is very common and bases the market value of your home on the condition it is in at the time of appraisal. This system is best for when you purchase a home and have no plans on doing any improvements before the loan closes, or you have already finished some repairs. 

As-is appraisals are also beneficial for home buyers who want to move quickly into their new home. At NHC, for example, we make the move-in process simple by getting you into your home faster with our easy financing process.

2. Subject-to Appraisal 

These appraisals are typically used for homes that haven’t been built yet or need significant renovations before the loan can close. In these cases, the appraised value is based on what the home will look like once it’s finished, not what exists today.

This type of new construction appraisal can take place either before or during construction, and it’s designed to reflect the home’s after-repair value (ARV). That means the appraiser is essentially forecasting the finished product.

To complete this appraisal, the appraiser usually visits the lot, even if it’s just a blank slate, and takes photos to document the site. Then, using the builder’s plans and material specifications, they determine the estimated value as if all construction and upgrades were fully completed.

Certificate of Completion

When a lender approves a subject-to appraisal, they’ll typically follow up with a certificate of completion requirement. This ensures the appraiser returns to the property once construction is finished to confirm that everything was completed according to plan.

How New Construction Appraisals Differ From Existing Home Appraisals

Appraising a newly constructed home is a very different process from evaluating an existing one, and it all comes down to how value is calculated.

With existing homes, appraisers typically rely on real estate comps, which are recent sales of similar homes in the area, to determine value. This is known as the sales comparison approach, and it works well when there's plenty of neighborhood activity to reference.

In contrast, new construction appraisals often use the cost approach method, especially when real estate comps are scarce. This method evaluates the value of the land plus the documented cost of labor, materials, and construction. Because new builds have clear cost structures and materials lists, this approach provides a logical and dependable way to estimate value.

How Appraisal Value Is Determined Before Completion 

When creating an appraisal on new construction before it’s completed, there are several things appraisers look at:

• Square footage
• Lot size
• Condition of the home
• Renovations and upgrades
• Number of rooms
• Amenities
• Location quality 
• Real estate comps

All things considered, an appraisal can take anywhere from one to four weeks, depending on the number of factors to evaluate and the speed of the project. Certain home loans can also affect the time it takes to receive your appraisal.

Your lender will typically order the new construction appraisal early in the process to ensure the loan amount aligns with the home’s projected value. The appraisal directly affects:

• Loan approval
• Loan-to-value ratio (LTV)
• Interest rate and mortgage insurance
• Final loan disbursement

What Should You Do if an Appraisal Comes in Low?

Although it’s not common, sometimes an appraisal can come in lower than the purchase price. Here’s what that means for you:

• Lenders will only finance up to the appraised value, not the full purchase price.
• You may need to pay the difference out of pocket.
• You can ask your builder to renegotiate or provide concessions.
• You can dispute the appraisal with additional comps or evidence.

You can also increase your down payment to help get the loan approved. But when you build with NHC, we can help you find the right loan to match your financial commitment. You’ll only need $1,000 as an initial payment, and financing rates can be as low as 5.99%. With these flexible financing options, there are endless communities for you to move into as a first-time home buyer.

NHC Makes New Construction Appraisals Simple

Understanding how new home appraisals work empowers you to be a more confident buyer so that you’ll know what to expect, how to prepare, and what to do if the numbers don’t quite line up. 

We know you’re searching for your dream home, and we want you to understand every brick in the process. You can make the appraisal process even smoother by choosing NHC as your affordable home builder. 

NHC has ready-to-move-in homes in North/Central Texas, South Texas, Florida, and North Carolina that are the most affordable within the market. With turnkey features, quality construction, and flexible financing options, NHC has you in mind throughout every step of the journey. 

Ready to take the next step in your home buying process? Contact us today!

FAQ’s

Who Pays for an Appraisal on New Construction?

In the majority of cases, the home buyer pays for the cost of an appraisal. This will be included in your closing costs, according to the FDIC.

What Approach to Appraisal Is Best For New Construction?

For new construction appraisals, the cost approach is considered the best and most relevant method. This approach is even more important when real estate comps are limited.