If you are planning on building an ICF house in the near future, or are currently building one and financing it with a construction loan, be aware that the current housing market just may trip you up when it comes time to get a mortgage. Here's what happened to me.

I got approved for a construction loan in Oct 2007. My, and my builder's, estimated cost of construction was about $324k. The appraiser's estimated cost of construction was ~$317k. This includes lot cost. The appraised market value was given as $315k, less than 1% below his estimated cost of construction.

Fast forward to today. We are finally getting close to completion so it's time to get serious about converting to a mortgage. Not surprisingly, the bank ordered an update to the appraisal. The same appraiser did it. Now, because of the rotten housing market his estimated cost of construction, including lot, has dropped by ~14% to $274k and his appraised market value has dropped by 30% to $220k, from the 10/07 appraisal. Not counting the lot I've spent about $280k. My labor hasn't saved me anything.

Here's the gotcha. If you're already underway your costs to date may well be higher than the current cost would be. An appraiser's estimate for cost of construction could well be less than the real cost of construction. But, here's the real stinger. In my case at least, the appraiser is saying that the market value of a house is about 25% less than the cost of building it. This means you would have to come up with about 35% of the appraiser's estimated cost of construction in order to get an 80% mortgage. That's one h*** of a down payment.

Unquestionably your situation will be different, but be aware that because of the flood of repos and foreclosures the market value of your home, which determines how much mortgage money you can get, may very well be substantially less than what it will cost you to build it.

In my case I don't believe the appraiser gave me adequate credit for the energy efficiency of my heating system and the ICF and foam insulation construction. It also may be, in spite of what we ICF and SIP proponents like to think, the market really doesn't want to pay up front for energy cost savings down the road. Hopefully my builder and I can talk him into revising the appraisal upward to better account for the quality of construction, but I'm not holding my breath.

Sounds like the appraiser completed this blind. He had no guidance as to what you are putting in the house above and beyond the 'standard' construction items.

I have seen if you review the features of the property and it's impact you get something for it, not 100% but something.

Did you recieve government credits for any 'green' items you installed to help offset the costs?

There is just so much supply of existing homes right now, it makes it tough to justify building, except I got a big chunk of change already in a lake lot. In MN, I heard a stat that 60% of the home sales were bank owned! Going to make appraisals/comps tough for new construction. The question is will building costs drop enough to cover. I doubt it. I am planning an owner build and that will be really tough to get a construction loan.

On top of that, it will take awhile to educate the appraisal/mortgage/insurance industry to value better built homes such as icf and sip higher and give lower insurance rates. I think right now you really have to search around for the companies that 'get it'.

I talked to the appraiser today. The market here, as elsewhere, is absolutely rotten. He flat out said yes when I asked if what he was telling me by the appraisal that if it cost a contractor $200k to build a  house the market value would only be about $150k. That's why almost no one is building right now. Some contractors are building houses at cost just to keep busy. Not smart economics, I don't think.

But I may have made some headway because he kept saying what a "typical buyer" would notice, pay attention to, and be willing to pay for. I said this house was never intended to sold to a "typical buyer." When I sell it, it will be to an aware buyer, one who is conscious of the value of energy efficiency and  the value of accessibility for physically limited folks. He said he would look to see if he could find comparable houses more in line with what I'm building that would justify an upward adjustment in appraised market value. I'm not holding my breath.

His #1 comparison was a new frame 2900 sq ft house with hardwood and tile floors, 2 fireplaces, granite counter tops, and supposedly other "quality" features. It sold for $89/sq ft. In the comparison he made no adjustment against mine for quality of construction. Shows how much he understands ICF vs. 2 x 6s, not.

Maybe I'll be lucky and get a better number out of him. At least he gave me a $99/sq ft value compared to the $89 for comp 1. But that's really no consolation. A 1734 sq ft frame house two over from me, built by a contractor who builds on the cheap, sold last Sept for $105/sq ft. My house is 2230 sq ft, based on outside dimensions, and a hell of lot better construction.

If you're thinking of building a high quality energy efficient house right now, be very wary. The appraiser may turn your dream into a nightmare.

How about the country assessor's valuation? Probably don't want to point out all the unseen quality or else they will assess property taxes at the high end. Hopefully they will be as ignorant of the quality of construction as the bank's appraiser and keep value low for your sake.

A big problem for county assessors in Idaho is the fact that realtors have successfully fought off for decades all attempts to make sale prices of property a matter of public record. Assessors don't have good market numbers to guide them. Usually good for homeowners when prices are going up, bad when they're coming down.

Dmaceld,

I too was hit by the same process. But I did not start the project. Good thing I guess. Appraisers base value on what has SOLD. When it came time for my construction loan, I qualified no problems. But as it turns out I was proposing to build something that he could not appraise. In essence I was told that you could build a 40,000 sq ft house but it would appraise at 5500 sq feet. That was the worst conversation I had. My ICF project that I had planned, reaserched, permitted for the last 2 years was killed by one conversation. I KNOW your pain.

This real estate fiasco is a mess. Unless the big wigs in DC figure this out all the "stimulus" in the world isn't going to work. Especially when you build basically at cost you are still "over appraised" value.

Best of luck to you.

Leonard

I have not been able to get a construction loan for my house for the same reason. Appraisers and underwriters only care about comparable sales. ICF construction and other "OVERIMPROVEMENTS" do not add any value.

In the valley homes are selling for $65-$75 per sqft or lower including the lot. The best quote I have for ICF construction is $120 per sqft NOT INCLUDING THE LOT.

Sure I could build a stick house for about $90 per sqft. But why do that when I can buy one with a lot for $75 per?

It's hard to argue with that logic. What "Valley" are you referring to with homes going for $ 75 psf (including the lot)?

Well, there is one bright spot in this whole mess. I'll qualify for the $8000 first time home buyer's tax credit, a true credit this year, which will offset the tax due when I cash in some retirement fund money to make up the difference between what I still owe suppliers and what the bank will loan me on a mortgage.

The Rio Grande Valley in Texas (Brownsville, Harlingen, Mcallen).

8k credit but have to come up with another 50k-100k down to get a construction loan! LOL

The same thing happed to me in 1980 (Welcome back Carter!) but I finally did get a loan at 12% interest. Mine was a log home in SE Idaho.

Alas, my ICF project that was discussed in another thread http://www.greenbuildingtalk.com/Forums/tabid/53/forumid/4/postid/47778/view/topic/Default.aspx has been crushed by the same problem. I never completed an appraisal because every appraiser I could find all said that there was nothing comparable in the area, and there was no way it was going to appraise anywhere near the projected construction costs. Now, we are in the situation of others, with owned land that it may difficult justifying building on. Needless to say, our per-foot costs now have to be cut to the bone. We are re-working the house as mostly conventional, hoping to keep a few green features. I suppose that we are fairly lucky that our only lost costs so far are architectural fees. In addition to getting the economy turned around, we must find some way to get the appraisal/mortgage industry up to speed on quality building!

Obama needs to throw a few billion green building bucks our way.

I recall years ago that appraisers actually had to work to do an appraisal, not just look at comparables.

There was always two approaches, one was the infamous comparable, the second actually required them to review plans and construction technique and come up with a cost approach that way. In turn the bottom of the appraisal showed both numbers and now you had a range to work with.

Maybe I am getting old.

Even the Big 3 on the verge of Chapter 11 can still charge for options and get you financed for them. That vehicle if it is going to appreciate in value it will take 25 years to start, the house will appreciate long before than.

In appraisor and realtors minds, homes are just a commodity item.  Value is not given for green or upgrade features, just thrown in to help you sell quicker than other homes. 

How many builders are in the same misere in the USA....Isn´t it time to make a call to the Governeurs in each state and bring this subject to an end. Banks have their own appraisers...and I know by an real case...this appraiser has his numbers...no matter how good and green and... and.... and...the home is.

The Government is the source that must understand that the market will only come alive if insentives are given.( in the banks and AIG´s they call it bonuses).

In Germany we can get €50.000 equals $65.000 from the Government bank KFW (1.4%-2% interest) on a low energy or passiv house. The first 1-2 years no payments. That´s why the market is still alive and thousands of job´s are still save.

CALL YOUR GOVERNMENT WAKE UP

What information can you share on passivhaus? I was recently made aware of it by a designer using it as his standard for a small addition (ICF foundation and high performance wood framing).

Just curious