The Appraisal

[dwford]

As suggested here, when I was ready to sell my house I had it appraised. It appraised for $228,000 - a nice bump from my purchase price of $170,000. In the appraisal there were 6 comps used, 2 from houses right around the corner, both currently for sale at time of appraisal. 3 of the comps were prior sales, 3 were current listings.

Today I got a call from a buyer who had made an offer on one of the houses around the corner, but the deal fell through when the house wouldn't appraise. The asking price was $224,900, and it appraised for $204,000. My concern is that MY appraised the same house for $222,900. Granted, he did not go inside. But what am I to make of this?? If this buyer makes an offer on my house, will the bank accept my appraisal, and if not will my house appraise as poorly as the other one did??

I have an appointment with this buyer tomorrow. At least I know she is ready to buy!!

Help!

[TommyOH]

Well, the bank appraiser is going to do what s/he does, but you can help her/him a little, which the other owner may have not. When they come to do the appraisal, be there, with your other appraisal, and comps. Give them to the appraiser and explain that you just had one done recently, and wanted to give them a copy.

That's not to say that they will take it, or look at it, but you can try. Most appraisers can be persuaded somewhat in person.

[Aldo]

The appraiser who, it appears, provided an appraisal of a property without entering the home could, and should, be fired for that. The interior of a property is usually more important than the exterior. The Village Idiot can see if a property has a good roof or whatever, but a professional appraiser needs to see the infrastructure as well as the condition of the interior to make a worthy appraisal.

Then, if your appraiser is not on the list of your lender's 'approved' appraisers, your appraisal may be of no value to them and may not be considered. For whatever reason, lenders will usually only consider appraisals from appraisers on their A-list.

Okay, the above was the bad news. The good news is that, if the sale price is reasonably close to the real value of the property, you probably have a done deal. This is the value of lenders having preferred appraisers. If the lender's underwriters believe the price is acceptable, they tell their appraiser what they'd like to see on the final appraisal. Strangely, that either happens or the appraiser ends up on the lender's B-list. As evidence, I can provide appraisals of many properties I've bought or sold which came in at exactly the sale price.

[Burke]

Maybe you can find out which lenders have this guy on their approved appraisers list and then attempt to steer your buyer to one of those lenders.

Just a thought.

Burke

[REItobe]

Aldo maybe there is some confusion. Maybe Dw's appraiser did not go inside the OTHER home or the other appraiser did not go inside Dw's house.

But I am surprised the appraiser used listing prices and not sold prices. I did not think that was done.

And banks usually order their own appraisal. I think they have to.

[dwford]

My appraiser did enter MY house, but did not enter the houses he used as comps. How could he? Is he supposed to? Surely an appraiser doesn't knock on doors and ask to look around when checking out comps! He did go to each house though.

[REItobe]

My appraiser did enter MY house, but did not enter the houses he used as comps. How could he? Is he supposed to? Surely an appraiser doesn't knock on doors and ask to look around when checking out comps! He did go to each house though.

no, your appraiser is not going inside any other homes. your appraiser did what he was supposed to.

You said, "granted he did not go inside" and I believe Aldo thought you meant your appraiser did not go inside your home. what you meant was he did not go in the other homes.

OK all clear now

I would have my appraisal ready to show another appraiser. I had an appraisal done at 570 for my benefit. 3 weeks later i got a HELOC and the appraisal came in at 523. I was out of town and could not meet the second appraiser. wasnt detrimental as the house is for sale and the HELOC was to tide me over and I just got less than what i wanted but got enough.

[Aldo]

You're right. I misunderstood. Sorry 'bout dat. But, using listing prices instead of sale prices is clearly unacceptable for obvious reasons.

dwford, appraisers don't need to see the inside of comps because they have access to the info they need to do the appraisals. The truth is, you and I have access to most of this info if we were willing to spend the time needed for research.

I don't believe lenders are legally bound to order the appraisals, but prefer to do so to ensure an approved appraiser is hired. Since lenders have working relationships with their approved appraisers, they get a reduced price based on volume which is not available to us little guys. One could ask their appraiser which lender(s) s/he works with and, as above, steer buyers toward those lenders.

[dwford]

I thought I read here somewhere that lenders are expecting a lot more research from appraisers now, including finding out about concessions at closing that inflate the selling price, current asking prices, market trends etc.. My appraiser used 3 completed sales and 3 current asking prices as his comps. I could have given him a bunch of sold comps I found in my research that would have also supported his appraisal.

I just worry about the radical difference between my appraiser's # and the banks appraiser's # for the house around the corner ($18,000 difference, my appraiser was higher). I do think my house is in better shape, though.

Next time I will use an appraiser the bank likes, just to be sure.

[Aldo]

.....concessions at closing that inflate the selling price.....
This is probably due to local law. The past few years have clearly seen a seller's market which makes flipping properties for excessive prices a no-brainer for savvy investors who know how to market their properties to lenders who, in turn, sometimes (unknowingly?) employ unscrupulous appraisers. This is a very complex issue, but the bottom line is that many states have enacted legislation to prevent fraud related to flipping.

.....my research that would have also supported his appraisal.
Okay, so you were lucky, I guess. While considering asking prices for an appraisal is improper, it is also unethical. The asking price for a property is meaningless unless that property (rarely) sells for the asking price. To clarify this point, suppose the asking price for a property was $140K, but actually sold for $125K. Wouldn't you agree that this would skew the results of a proper appraisal?

.....I will use an appraiser the bank likes .....
Help me out here. Why do you feel a need to obtain your own appraisal when your lender will obtain one for less money from an approved appraiser that you, at this point, can't even identify.

[REItobe]

Aldo, sometimes sellers get an appraisal when they put the house on the market as an advertising tool and thats what dwdord did.

Dwford, i wouldnt get any more appraisals. The next appraisal should come from your buyer. When that appraiser comes, simply show him your appraisal

[Debbie]

Aldo, sometimes sellers get an appraisal when they put the house on the market as an advertising tool and thats what dwdord did.

I know that is what Dan Auito recommended via his e-book.

[dwford]

That's why I got the appraisal - following Dan's advice. The other appraisal I mentioned was conducted by a potential buyer on ANOTHER HOUSE, a house that just happened to also be used as a comp in my houses appraisal. It's all just a coincidence.

That potential buyer was supposed to come see my house on Saturday but backed out, and didn't come to my open house on Sunday, so it is all moot anyway.

I will definitely be pushing my appraisal when the time comes, and I think that I have already priced the house $10,000 below my appraised price will limit any problems anyway.

[nicoleferguson]

Wow, did you say your appraiser used homes that are currently for sale as comps? That's crazy! Under no circumstances should he be using "asking prices" as comps.

Keep us posted on this one... I'd like to know what happens.

[dwford]

My appraiser didn't use asking price in my appraisal, he adjusted the asking prices based on the houses' conditions to get an approx appraisal for them. He also used 3 closed sales as comps.

I took a look at the house in question the other day (asking price is $224,900, it appraised at $204,000 when it was under contract recently, and my appriaser put its value at $222,000), and it has a 1 car garage, central air, a deck, a finished basement, and a small screened in porch - none of which my house has - and the lot is about the same size and shape. However, the flipper who removated it just did a quick repaint inside, no new siding or roof, no new kitchen/appliances - both of which are very outdated. So I think my house shows better.

I have had no negative comments about my house from the 30 odd people and agents that have toured it, so it is a little frustrating not to have had any offers yet.

Am about to give up, move into it, and sell my residence - I have a lot more equity in it and it's in a better town. Or I may rent it - it's kind of fun saying I own 2 homes, even if I have a total of $350k in mortgage debt and my payments total $3200/month!!!:SM108:

[nicoleferguson]

If you choose to keep the house, let me give you some advice...

The market is crazy everywhere right now. In some places, (including where I have a rental home) property values are actually DECREASING, because the market is so stale. There are 9 homes listed for sale in my subdivision, all of which are priced significantly less than identical homes that sold 2 years prior for thousands more...

I know that logically that house should be appreciating, and will once the market stabilizes. So as opposed to losing money on it just to get it sold and avoiding carrying the note on it, I did the following:

If your credit is reasonable, apply for an IO loan. This will DRASTICALLY reduce your monthly payments. There's no reason why a total of $350K in mortgages should cost you $3200/month. That's insane. I have a $220K mortgage on one of my rentals and my payment is only $920/month. I rent the place out for $1350/month. I pay a management company $150/month and a landscaper $75/month. I still have enough left over to pay taxes and clear over $100/month. It's not making me rich, but it's income I wouldn't have had otherwise, and it's allowing me to ride out the market... So I can sell it in a year or two, avoid capital gains taxes, and hopefully make the $30-40K off of it I intended to... Without being remotely greedy.

Moral of the story? If you think your homes will eventually appreciate, refi using an interest only loan to lower your payments. It's an affordable way to keep both homes, and allow you to wait until the market stabilizes to make any rash decisions.

I don't personally prefer to do home loans, but I'm licensed in 50 states. (My company is a commercial mortgage company - not advertising to do home loans.) Contact me if you need advice, and I'll try to throw a couple options at you - or at least refer you to some people who can take great care of you.

Regards,

Nicole

[dwford]

Problem with that plan is, #1 While I have great credit, I was unemployed when I bought the 2nd house so I did get an IO loan @9%. My primary residence is a 30 yr fixed at 5.375% that I pay bi-weekly. Since I have recently started a new job, I don't have the income history to get 2 new mortgages. The only reason I took the IO loan for the investment house was that I planned to sell it, so I didn't care. But now, I am paying $1100/month of interest, soaking up my profit margin. I am not interested in living with an interest only loan at this point.

If I sell my primary residence, I will net enough to pay off all the renovation expenses for the investment house, refi it with a 15 yr fixed mortgage of $100k for about $800/month, and have enough to put down on the next investment house, which will probably be a multi unit so I can generate some cashflow.

When I say $3200/month, that includes escrowed taxes for both, and escrowed insurance and PMI on the investment property, all of which totals about $850/month combined. So my mortgage payments total bout $2350 for both - about $1000/month goes to equity on my residence.

[nicoleferguson]

Personally, I think IO loans are great for investors. Keep in mind, anything you keep for less than a year will result in capital gains taxes. If you're flipping a large number of homes, that might become irrelevant... When you're just starting, you might want to consider taking the "rental" approach.