How much is my home worth?
Free property valuation in 3 minutes
Schweizer Immobilienpreis-Barometer

Appraise new construction: how to calculate the value of a newly built house?

Thomas Miller
30.10.2022
8 min
estimation prix maison neuve

New construction also termed a new build in the UK refers to a property that has never been occupied thus a newly built property. It should be noted that other jurisdictions and disciplines are able to classify a renovated structure as new construction.

Newly built houses have to comply with current UK rules and regulations on house building. We will use this article to discuss how to calculate the value of a new house.

Calculating the value of a newly built home/New home appraisal approach

Cost Approach 

Generally, appraisers use the cost approach when undertaking a new construction home appraisal. The cost approach factors in the estimated cost of the land on which the building is on and the current price of rebuilding the structure. 

For example, the value of a new single house with a land value of £10,000 and cost of new construction of £40,000 is likely to be between £50,000 and £60,000 depending on what profit margin that will be added. 

For a newly built house, the cost of the building can be obtained from invoices and notes from the building contractors.

The current value of land and cost of rebuilding can be obtained from the Land Registry for similar properties. 

Sale comparison approach 

New homes may differ from existing ones and may be situated in different geographical areas, which will make it difficult to make a comparison. Hence, it is difficult to apply the sales comparison approach to new homes when investigating their worth in such conditions.  

However, this approach is applicable when several houses are built on the same land or stretch for example terrace. In most cases, such houses have the same promoter, architect, design, material, and even labour to reduce cost. Knowledge of the cost of one of the houses will help you estimate the value of your house. 

For example, if one new home in a terrace is £250,000 expect buying a similar house in the terrace around the same figure. 

This approach looks at the prices of similar homes when determining the value of a new house. Even on the same land or stretch ensure the design, material, technology etc are all similar to avoid false judgment.  

Specs cost approach

The specs cost approach could also be used where a cost breakdown on materials, labour cost, and location is obtained from the constructors or homebuilders. Mortgage lenders take documents from homebuilders when assessing the value of a new house.

They take material invoices for all items used in making the building ready for use, payrolls for labour used and invoices on other expenditures to conclude a value for the mortgage loan.  

New home appraisal cost

Appraisals may be conducted at a fee or for free. At RealAdvisor, we provide an online valuation for free. But some appraisals also come with a fee even though some banks bear that cost when providing a mortgage loan. An appraisal process may take some days to complete. It needs planning, time, financial support for inspection, and expert knowledge to be successful hence the need for an appraisal fee. The cost of an appraisal depends on the type of survey being conducted and the size of the property being appraised. There are three types of survey namely condition survey, homebuyer survey, and building survey.

  1. condition survey is normally the cheapest form of an appraisal. It is normally conducted when renting a property or undertaking a lease agreement. Here, an appraiser submits a report on the current state of the property and addresses the issues that need attention now. For a condition report, one may pay less than £400 considering the value and size of the home however a home value of about £100,000 may cost you £400.
  2. homebuyer report is needed when a buyer wants to know the possible future risk of the home. This may include walls and foundation cracks, worm infestation, insulation problems, wall moistening, etc. This is also known as the level 2 report. This will cost you at least £400.
  3. building survey is conducted by surveyors to obtain the current value of the building using current rating systems after factoring in the conditions of the house. It provides you with current risks and potential issues in the future. This assessment will cost you more than £400.

Independent assessor's fee

An independent valuer comes in to provide an independent and unbiased assessment of the home. This is because these third parties have no relationship with the seller, buyer, lender, or the structure itself and can give you accuracy and transparency. It is important to always first conclude on the cost of appraisal with your independent valuer, however expect to commit more than £300.

Appraisal cost on the mortgage

Mortgages can be stressful, time-consuming, and even expensive. Averagely, an appraisal for a mortgage may cost £200 for a property that is valued up to £60,000. It is therefore important to understand that irrespective of the type of appraisal done, you are expected to set aside at least £200 as fees.

Things that can tarnish your new home appraisal

You may build a new home and still not get the full value of your property during a new home appraisal. What happens on the day of inspection is as important as how much you have committed to building the new house. These are some things that can hurt your newly constructed home appraisal:

  • The bad appearance of the new home   

Your new home will lose a lot of value if it lacks curb appeal. This means that things are not in their proper place, the garden not mowed, flowers not trimmed, dirt all over, the painting was done badly, and many more. If these are present on the day of inspection by a surveyor, it will affect the value of your new home. It is important to work the gardens and clean the house to show a nice appearance to get a higher value during your new home appraisal.

  • Faulty appliances or outmoded systems 

Your home may be new and provides a nice appeal, but can still be undervalued when appliances are broken and systems in the house are outdated. Appliances like washing machines, heaters, fans, air conditioning, fridges, etc. must all be working during the home appraisal. Appraisers will surely punish you by reducing the value of your new home if any of these are faulty and not working. Outdated access and security systems will also hurt your new home appraisal.

  • Current market trend or condition 

Valuation of homes is not done in isolation. Your new home comes into an existing real estate market, which informs the value of new houses. In a buyer market where there are a lot of houses available, your new home appraisal is likely to give a lower value compared to a seller market where only a few homes are available and listed for sale.

  • Location 

The location of a house will always play a vital role when conducting a new home appraisal. Some locations come along with several benefits like being near schools, hospitals, malls, police stations, parks, etc. Also, crime rates in some places are very low while some communities are crime-infested areas. A new home in a city and a lower crime area will value higher than one in rural communities and higher crime areas. The city comes along with several benefits and easy access to many social institutions. Hence, higher value for houses or properties in the cities.

The proximity of a house to these social amenities even in rural communities will cause a rise in the value of that house during appraisal. There are also more risky locations like earthquake areas, wildfire areas, flood areas, etc that pose danger to lives and properties. Houses in these areas receive low values as a result of the danger at that location. This inherent risk of the location is factored in when performing the new home appraisal.

  • General design

Building designs have gone through several faces over the years, with high demand for current aesthetic features. Just adopting these modern designs in building your home can increase the value of your house during an appraisal.

What to do before a home appraisal?

You must do everything possible to get a good score during an inspection of the home appraisal procedure. It is based on this score that an appraiser values your home. These are some things to be done before your new home appraisal.

  • Have a thorough cleaning of your home

Clean in and out of your home before the appraisal inspection is conducted. The garden should be weeded, flowers trimmed, and floors and windows cleaned before an appraisal. The appraiser may necessarily not increase the value of your home because of this but can be influenced to undervalue your property when the dirtiness makes him feel uncomfortable.

  • Ensure all systems are working    

Home systems like security cameras, doorbells and other systems at the gate, in the kitchen, washroom, bedroom, living room, etc. must be properly functioning before an appraisal is conducted. When all these are working properly, you stand the chance of getting the optimal value for your new house.

Estimating the value of newly built constructions can be different from calculating the value for old structures. Newly built structures may come with unique features, and it would be difficult to use the comparative approach in valuation, hence the cost method of valuation.

If you have plans on valuing any newly built property, contact us at RealAdvisors for more credible information on how to best value your new structure.

Appraise of new construction and the calculation of the value of a newly built house can is summarised below:

  1. Appraisal of new construction is different from existing one because new buildings may have no similar structure in the market.
  2. The cost approach is most appropriate for appraising a new construction building where there are no similar buildings.
  3. Your newly constructed building can still lose value during inspection for listing if certain things are not done.
  4. Before a home appraisal, clean the house thoroughly and ensure all systems are working.

FAQ

How many new houses are built in the UK?

According to Homes England, 38,436 new houses started on-site and 37,164 houses were completed between 1 April 2021 and 31 March 2022. This was seen to be a positive remark considering the drastic effect of COVID-19 though there were decreases compared to previous years. 72% of these started buildings were affordable homes.

What permits do I need before constructing a new building?

In the UK you need a Planning Permission which other countries may call it to permit before you can build a new house, make major changes to an existing house or change the use of the house. To get planning permission, you need to submit a planning application with the assistance of professional architects and a planning consultant. You may not need approval if you use someone registered with a competent person scheme. Contact the Local Planning Authority (LPA) through your local council for more information.

Thomas Miller
Thomas Miller has been a real estate agent for over 4 years now, when he is not in the field, he is dedicated to his second passion, writing, especially in the real estate market.
Related Articles
House valuation for mortgage

House valuation for mortgage

Did you know you can own a house and complete payment later? Taking a mortgage can help you buy a house today without paying now. In this article, we will discuss house valuation for the mortgage, and address key issues to look out for when taking a mortgage. Valuation of the house for a mortgage What is […]
31.01.2023
Home value after renovation

Home value after renovation

It is widely accepted that one way to increase the value of a house is by undertaking a renovation. However, how much to value your home after renovation can be challenging. This article will address how to value a house after improvements. Types of house renovation or improvement  House improvement and renovation are terms used […]
31.01.2023
Valuation of commercial property

Valuation of commercial property

What is a commercial property valuation? Buildings and land classified as commercial property are those whose primary use is business rather than apartment building, or residential property. Examples of these properties are:  The process of valuing or obtaining an estimate of the worth of business property at the time of valuation is known as commercial property valuation. How […]