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Building a single-family home “on paper” always looks like a good idea, but in fact building a home causes a lot of worries and problems. Poor decisions, lack of experience and insufficient deepening in the nuances of the process may at a later time lead to a discrepancy with expectations regarding the construction of a dream home and putting it into operation. These are just some of the risks that anyone who has decided to build a house can face, says Mr. Aigars Šmits, Member of the Board of "ARCO REAL ESTATE".
"The intent of building a single-family home most often begins with the search for building land in a particular location. When a plot of land fit for the purpose is found, the person evaluates his/her capability to pay and concludes that the purchase of the particular land and the construction of a dream house requires a loan from the bank", Mr. Aigars Šmits describes a classic situation in the field of construction of single-family homes.
If the potential mortgagor meets the crediting conditions and his/her level of income is sufficient to undertake the liabilities, he/she receives a verbal confirmation of granting a loan. But in order to get the loan, the customer must first purchase the land on which the construction of a single-family home is planned. In some cases, the bank may grant a loan of 50% for the purchase of land, but this is mostly the case when the customer buys the land at a place where the infrastructure is developed.
The bank may decide that before granting the loan, the foundation of the house should be constructed or even the building frame structure should be built and the roofing be installed. The credit institution qualifies such activities as self-financing.
After the purchase of land, a home project must be prepared with the help of an architect. Given that a person builds his/her dream home and fully trusts the architect, often the artist's ideas can fascinate the client's mind, resulting in inclusion of complex building details and an inadequately large area in the sketches of the dream home. When building a dream house, a person often chooses expensive building and finishing materials, which is one of the most common problems and which significantly increases construction costs. Before you go back to the bank, you should also prepare a full construction estimate for the completion of the home construction. Under current conditions, the cost of building a high-quality home is between 1,000 and 1,100 euro per square meter, says the expert of "ARCO REAL ESTATE".
When the credit institution's requirements are met, the client goes to the bank where he/she receives another “homework”, namely, the single-family home market value must be determined by a real estate appraiser. And at this point, according to Mr. Aigars Šmits, the real problem begins: the future market value of the house determined by the comparative transaction method turns out to be significantly lower than the estimate prepared by the builders.
Mr. Aigars Šmits, illustrating the situation by way of example, emphasizes: "If the construction of a 200-square-meter dream home is estimated at 200,000 - 220,000 euro, but the future market value determined by the appraiser is 160,000 euro, of which the bank only finances 70%, construction simply stops because there is not enough money. The bank will never issue a loan if there is any doubt about the completion and commissioning of a home. Where to take the remaining 70,000 - 90,000 euro?"
In order to avoid the described situation and possible losses, Mr. Aigars Šmits offers a simple solution: “From the very beginning, before the purchase of the land, it would be advisable to find an architect, to visit the chosen property and visualize the project at the idea level. It is also worth considering the area of the house: maybe it is better to pay 30 000 euro more for the land, choosing it in a good place, which significantly increases the value of the property, and build a 25 square meters smaller house. An appraiser should be visited only when a particular construction site is already known, there is a land boundary plan and a clear vision of the building (layout, architecture). For the appraiser, this will help to determine a more objective future market value of the home, which in turn will prevent the possibility of facing problems in the future. In this case, it is quite enough with a sketch project, and a coordinated project is not desirable because there must be a possibility to adjust the project. It is significantly cheaper to train on paper than in nature - to make a sketch of a house on a purchased plot. Consulting a certified appraiser will cost you less and will benefit more than relying solely on your great dream and architect's suggestions. The opinion of the appraiser regarding the future value of the property should also be heard.”
14.06.2019.