What changes when the subject is brand-new, including finishes, lot premiums, and why appraisers often use different techniques
Appraisers use the same three valuation approaches for all residential properties: the sales comparison approach, the cost approach, and the income approach. However, the weight given to each approach and the data sources used differ for new construction compared to older homes.
For new builds, appraisers often rely more on the cost approach and careful analysis of builder pricing and lot premiums, while for older homes the sales comparison approach usually drives the final opinion of value.
- Older homes: there is usually a neighborhood history of closed sales, so appraisers select recent, nearby comps and make adjustments for condition, age, and features. Lenders and government-sponsored entities typically expect a minimum set of relevant closed sales reported in the sales comparison approach.
- New construction: direct comps inside the same subdivision may be limited or unavailable, especially if many recent sales were builder-to-buyer transactions or if inventory is low. When same-subdivision comps exist but involve builder incentives or sales concessions, appraisers must disclose and adjust for those factors, or reach outside the subdivision to similar new homes.
For brand-new homes, the cost approach (land value plus replacement cost of improvements minus depreciation) often yields a reliable cross-check because depreciation is minimal and construction costs are current and documentable. This approach is especially useful when comparable sales are scarce or not directly comparable.
Note: While the cost approach is useful, it does not always equal market value, since buyers rarely pay exactly the cost to reproduce a home. Appraisers reconcile all approaches to decide the final opinion of value.
- New homes frequently offer a menu of upgrades, such as countertops, cabinetry, HVAC, and smart-home packages. Appraisers must document which features are standard versus upgraded, and determine how the market treats those upgrades, meaning whether buyers in the neighborhood pay a premium for them.
When upgrades are custom or unusually high-end, they may not be fully recoverable in market value and require supporting market evidence.
- Older homes may need depreciation adjustments for deferred maintenance or remodeling; appraisers make condition and effective-age adjustments to reflect this.
New construction projects frequently assign lot premiums, which are extra costs for corner lots, wooded lots, waterfront views, or lots with better orientation.
Appraisers treat lot premiums as part of the land value component and must show market support, either through past lot sales, buyer behavior in comparable subdivisions, or documented market demand for specific homesites.
Important: A developer’s listed lot premium (what they charge at sale) is a clue, but the appraiser seeks independent market evidence that buyers actually pay that premium in arm’s-length transactions.
Builders sometimes offer incentives, such as closing cost help, upgrades, or interest rate buydowns, or they may sell homes to affiliates. Appraisers must identify these concessions and either adjust or exclude those transactions as comps when they do not reflect typical market behavior.
Lender and FHA guidance instructs appraisers to note unusual concessions and to be cautious when using builder sales as primary comparables.
New homes come with construction documentation, such as certificates of occupancy, third-party inspection reports, and builder warranties. Appraisers document these items because they affect perceived condition, timing of delivery, and marketability, all of which are relevant to value.
Older homes, by contrast, require careful condition analysis and may need separate inspections to confirm mechanical systems and structure.
- New construction: appraisers typically present all applicable approaches. You will often see the cost approach shown prominently as support, with the sales comparison approach used where suitable comps exist. The appraiser reconciles the indicators into a final opinion.
- Older homes: the sales comparison approach usually dominates, with cost or income used only as secondary checks when appropriate.
- Buyers of new homes: understand that appraisals may come in lower than the sales contract if the market does not support builder upgrades or lot premiums. Try to ensure comparable closed sales exist for similar finished homes.
- Sellers and builders: document upgrades, provide recent subdivision sales data, and be transparent about concessions so appraisers can find market support.
- Homeowners seeking a refinance on new construction: expect the appraiser to consider construction completion date, warranties, and whether the home’s finished condition matches what the contract described.
- Understanding the Role of Comparables (“Comps”) in Your Appraisal
- A primer on the cost approach, explaining when it is used: https://www.investopedia.com/terms/c/cost-approach.asp
If you are buying or selling a new construction home in Hampton Roads and want an appraisal that reflects local market realities, request an appraisal or call us at 757-286-4740, and we will explain which approach will most influence value for your specific property.