Buying a New Build? Why the Appraisal May Not Match the Builder's Price
New construction in Winnipeg, Steinbach and the Pembina Valley is popular, but builder pricing and appraised value don't always line up. Here's why.
New subdivisions continue to grow around Winnipeg and in fast-growing communities like Steinbach, Winkler, Niverville and Oak Bluff. Buying new has real advantages: modern layouts, energy efficiency, warranty coverage and the chance to choose finishes. But buyers are sometimes surprised when their lender's appraisal comes in below the builder's price. This article explains why that can happen and how to reduce the risk.
How builder pricing works
A builder sets prices based on land costs, construction costs, overhead, profit and what the market is paying for new homes. The final contract price often includes:
- the base model price
- a lot premium for corner lots, pie lots, walkouts or lots backing onto green space
- upgrades such as countertops, flooring, cabinetry, appliances, basement development and larger garages
- incentives, which may reduce the price or add features at no charge
How appraisers value new construction
Appraisers use the same principle for new homes as for any other: market value is what a typical buyer would pay. For new construction, the appraiser looks at recent sales of comparable new homes in the same or similar developments, and at resale homes of similar size, quality and age. The cost approach, which estimates what it would cost to build the home and adds land value, may also be used as a supporting check.
Why the numbers can differ
Upgrades are valued by the market, not by cost
A $15,000 kitchen upgrade may be worth less than $15,000 to the next buyer. Upgrades add appeal, but the market rarely pays full cost for them, especially for personal choices or high-end finishes in a mid-range neighbourhood.
Lot premiums
Some lot premiums are well supported by resale evidence, and some are not. A lot backing onto a pond may command a strong premium; a slightly wider lot may not.
Builder incentives
Incentives can obscure the true price. If a builder includes a free basement development or appliances, the effective price of the house is lower than it appears. Appraisers try to account for incentives when comparing sales.
New versus resale
Nearby resale homes that are only a few years old can sell for less than new homes of the same size. Buyers of resales give up warranty coverage and finish choice, but they also avoid GST considerations and waiting for construction. The appraiser has to weigh both types of evidence.
Practical tips for buyers
- Ask the builder for a written list of all upgrades and their prices.
- Look at resale prices for similar homes in the same development, not just new-home prices.
- Be cautious about upgrades that only you will value.
- Talk to your lender early about how and when the home will be appraised.
- Have funds set aside in case the appraisal is lower than the contract price.
Custom builds and acreages
Custom homes on acreages, common around Steinbach, Headingley, Oak Bluff and the Pembina Valley, can be even harder to appraise because there may be few comparable sales. Lenders may require progress draws based on completed stages, with an appraiser or inspector confirming work along the way. Detailed plans, specifications and a realistic budget make that process smoother.
Condos in new buildings
New condominium units carry similar issues, plus the uncertainty of a building with no sales history. See our article on condo appraisals.
A Steinbach example
Imagine a buyer purchasing a new two-storey in a Steinbach subdivision. The base price is competitive, but the buyer adds a premium kitchen, developed basement, larger garage and a lot backing onto a walking path. The contract price ends up well above the base model. Nearby resale homes built three years earlier, with standard finishes, have sold for less. The appraiser will look at both, consider which upgrades the market pays for, and reach a value that may be somewhat below the full contract price. Knowing that possibility in advance lets the buyer plan.
Progress draws and completion inspections
When a home is built under a construction mortgage, the lender usually advances money in stages as work is completed: foundation, framing, lock-up, mechanical rough-ins and final completion. At each stage, an appraiser or inspector may visit to confirm the percentage of completion before the next draw is released. At the end, a final inspection confirms the home is finished as planned. Clear plans, a realistic budget and good communication with your builder and lender keep these stages on schedule.
Questions to ask your builder
- What exactly is included in the base price, and what is an upgrade?
- Are any incentives being applied, and how do they affect the contract price?
- How does this lot premium compare with recent resales of similar lots?
- What are similar homes from earlier phases of this development reselling for?
- What warranty coverage applies, and what is the completion timeline?
Good builders are used to these questions and will answer them clearly. The answers also help your appraiser understand the contract.
New construction appraisals
Burley Appraisals appraises new homes across Winnipeg, the Perimeter communities, Steinbach and the Pembina Valley. Order online.
Frequently asked questions
Are builder upgrades included in the appraisal?
Yes, as features of the home. But the appraiser values them by what the market pays, which may be less than what the upgrades cost.
When is a new build appraised?
Usually near completion or after possession, depending on the lender. Some lenders also require progress inspections during construction.
What happens if my new build appraises low?
As with any purchase, you may be able to renegotiate with the builder, cover the difference with a larger down payment, or adjust upgrades. Talk to your lender and lawyer about the options under your contract.
Does new home warranty coverage affect value?
Manitoba new homes are covered by mandatory warranty protection. Buyers value that peace of mind, and it is part of why new homes often sell at a premium to resales.
This article is general information, not legal, tax or financial advice. Speak with a qualified professional about your situation.
