appraisal Qs

kiki_thinkingMay 4, 2009

yay, after 2 years! our home finally is under contract -

inspection is finished, appraisal is next.

our house is under contract or $1,000 more than it appraised for 10 years ago - so i felt sure that the appraisal wouldn't be a problem, but i started doing a little reading about appraisals and the trouble people are having since the housing market blew up

have some questions which are actually just fears disguised as questions :)

i've read that appraisers compare houses to comps -

most houses selling in the same price range as us are shabby, harvest gold, old appliances, linoleum, peeling paint type houses - ours is tidy, with newer/decent quality finishes inside. a house with the same square footage as ours would most likely be in very considerably worse condition than they just use a real estate listing info of square footage and outside photos to compare or do they actually go inside those homes as well? how much does condition factor in?

in looking at the old appraisal, a lot of the things he commented on adversely have been fixed -

the bathroom had just a toilet and shower in it, the sink was in the hall outside the bathroom - that has been rearranged to normal, with sink, garden tub and toilet inside the bathroom ;)

a bedroom addition had metal flashing around the foundation, this was replaced with a real concrete block foundation and stuccoed

the rear of the house has a french drain now, which the prior inspector commented on the need for

are those things that the prior appraiser adjusted the price downward for?

we've also added a bathroom, a very small one, in an odd little L shape off the end of the family room. we didn't increase the square footage, but we did add a shower, sink and toilet - how much does a second bathroom help value?

there are no other 2 BR houses for sale that have 2 bathrooms - so i dont' know if that will help us.

most of the houses we compare to are little downtown house on small downscale city streets - we are in an area about 5 minutes from town, on a dead end street. how do they adjust the values to take into account that we have about half an acre of land?

also, we fenced our backyard, does that add some value?

lastly, 10 years ago, when an appraiser came to our neighborhood, it was yukky - since then 3 houses immediately around us (much bigger than ours, therefore not comps) have been flipped and changed from hud rentals to family homes. some old trailers have been hauled away, some junky places have been cleaned up and mercifully one old derelict place out the road has burned down - so our neighborhood has really undergone a nice little transformation - do you think the old appraiser took into account the old surroundings or is that sort of thing invisible to them?

thanks for your help!

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Hi Kiki ...

Appraisers are supposed to use comparable homes that have closed recently. "Comparable" includes things like, bedrooms, square footage, bathrooms, same neighborhood, type of structure (ranch to ranch vs. ranch to colonial).

And no, they don't personally visit the comparables (other than to drive by and snap a picture), they use information from the MLS and the realtors for their information. If they work for a large appraisal company, they will have access to the database for that company which might have details about some of the comps.

Finishings are usually "adjusted for" ... the ratings are usually poor, fair, average and above average. Though poor is rarely used, and above average has to be spectacular. Decorating is personal and not adjusted for mostly, unless it's very old/outdated.

The metal flashing and french drain sound like normal home owner maintenance type things and would not be noted.

You turned a "toilet room" into a full bath, and added another bathroom ... that will add value, but only someone in your market can tell you how much. And if no one else has it, it might not be something people will pay extra for. Or it could put you ahead of the competition.

Your 1/2 acreage will be taken into consideration if the homes used as comparables do not have it, still can't tell you how much, every place is different.

The fence might add small value, probably not what you paid for it.

And the appraiser will not care what the neighborhood was like 10 years ago. He's looking for a market value at this specific time.

Sorry but most of things are too specific to your general area to have any idea of any amounts that might be used to adjust for different things.

    Bookmark   May 4, 2009 at 1:10PM
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thank you -

i'm just crossing my fingers, hoping that the house appraises for what they've offered for it -

luckily for us, the fence was free :)

so, just to be clear - the increase in selling price of the homes around us (like from $35K to $80K) will not have any positive effect on our appraisal? ...darn.

is it true the appraisers know the amount of the purchaser offers when they appraise the home? if that's true, then in whose "best interest" does the appraiser act? should i hire an appraiser and offer the appraisal to the buyers?
i'm sure they try to be objective, but i'd imagine there are some pressures that come in to play -

i wonder if our realtor can provide us with comps, i bet he can -

pam, thanks for the advice!

    Bookmark   May 4, 2009 at 2:39PM
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Pam gave you very good info.

If the other homes are similar to yours(comparables) and they have been selling for 35-80,000 more, then your appraisal should increase a like amount. The key here is that the actual selling price vs. the asking price...depending on the market there can be a big difference. Also when they sold is a huge issue...most will only use comps that have sold when in the last 6 months or less.

There are new rules for appraisals that just when into effect on May 1 of this year. There is a new law called the Home Valuation Code of Conduct(HVCC). This law basically says that an appraisal must be orderred through an Appraisal Management Company(AMC) if the loan will be sold to Freddie Mac or Fannie Mae, which most are, with the exception of HUD and FHA loans.

What does this mean to you? It means, higher costs for the appraisals, and that your mortgage company can not use its "in house" appraisers, your real estate agent's appraiser, or your appraiser's appraisal. This is to make appraisals more objective and outside of undue influence. This will also make it harder to appeal appraisals. Will this all work out?...only time will tell.

Bottom line, I would not hire and offer an appraisal to your buyers, as it probably will not match the AMC's appraisal and it could just muddy the waters.

Both your realtor and the buyer's realtor must be able offer comps to both you and your buyer respectively. If not, how did you know how to price your house, and how much did your buyer know what to offer?

Good Luck!

    Bookmark   May 4, 2009 at 4:14PM
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It is a not very well kept secret that appraisers are not really "independent." Theoretically, the appraisal would be an exact science with x dollars for this and y dollars for that. In reality, appraisals almost never come back under the purchase price unless you are in a market with lots of speculative buying. Everybody involved in the process has a financial interest in seeing the loan go through whether for this loan or just for future business.

It really isn't all bad though. A house is worth what a buyer is willing to pay for it. That is how prices work in free markets. The market has already "appraised" your house and set a price. If an appraiser came up with a wildly different value, their calculations would be suspect.

In terms of the mechanics of an appraisal, that depends on the area. We just sold one house and bought another. Both areas had lots of comparable sales. Neither appraiser entered the house, let alone the comps! They based everything on the stats - sq ft, bedrooms, baths, etc.

    Bookmark   May 4, 2009 at 4:31PM
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"Theoretically, the appraisal would be an exact science with x dollars for this and y dollars for that."

Not a chance.

An appraisal is an educated guess at what a property should sell for with a willing buyer and willing seller.

Since no two properties are exactly the same, adjustments are made from recent comparable sales.

There is no way to have it come out perfectly.

    Bookmark   May 4, 2009 at 5:30PM
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A lender does NOT have to order an appraisal thru an AMC.

And, the lender still chooses the just can't be the originating officer or underwriter that makes the selection.

The Code of Conduct prohibits a mortgage broker from choosing the AMC or appraiser.


Here is a link that might be useful: HVCC

    Bookmark   May 4, 2009 at 6:06PM
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Very true! I should have said Mortgage Brokers, instead of Mortgage company.

I guess my poorly made point was that... gone are the days where less than honorable parties could "shop" for an appraisal to justify an inflated cost, sale, commission and/or a loan, or worst inflating appraisals for the purpose of 100% financing.

HVCC's specific guidelines are designed to prevent all of the above, but there are numerous concerns from parties concerning the ability to appeal "under" appraisals, as well as, the added cost of an AMC and the timing of when the appraisals are delivered.

Depending on the lender, broker, etc. YMMV.

    Bookmark   May 4, 2009 at 9:18PM
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When I had gotten a home equity loan, the appraiser did a drive by and valued my home the same as a 2 bedroom with no family room when I have 3 bedrooms and a family room! I was so upset and did not get as much as I wanted for my home equity loan.

When I refinanced my home, the appraiser came in and took so many pictures for the mortgage company and measured the square footage of all the rooms and commented how spacious and neutral my rooms were but needed window treatments. I told him I was going to use any extra proceeds for all new window treatments which I did. He compared three townhouses recently sold in my neighborhood (my small townhouse complex and the one next to me) to get the value of my home which he had come close to the lowest of the three but they all sold at very high prices compared to the loan I was getting then since the market 3.5 years ago was at its highest. The appraiser was very fair since the townhouse next to me that is an end unit was bought a few months later for $10,000 more than my appraisal amount and would have sold for more if the former owners repainted their semi-gloss hunter green walls that was in every room that turned off so many buyers.

    Bookmark   May 5, 2009 at 12:55AM
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Hi Kiki,

Glad I helped ... guess I am unclear on the increase .. if property values around you have increased and your property is compared to the properties that increased, then yes, you will benefit.

rar1 - HVCC like triciae said does not require the use of an AMC, though many lenders are requiring the use of their AMC if you are selling loans to them. And thank goodness, it has stopped the practise of "shopping" for appraisals.

Prices on appraisals went up because of FNMA's new Market Conditions form, not HVCC.

Though it was painful to put in place since the guidelines were so unclear, I think HVCC will benefit all homebuyers and homeowners in the long run.

    Bookmark   May 5, 2009 at 12:47PM
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In a small town several years ago the house I bought had to be re-appraised. Even as the buyer, I knew the house was worth more than the $10K below our negotiated price that the appraiser came up with.
The appraiser had comped the house against junky houses that had been torn down 4 YEARS EARLIER to make way for a new governmental building!!
And, the appraiser is also a big time real estate agent as well as owns and rents many properties. Both the seller and me appealed to the bank, demanding a new appraisal. He finally raised it $8K more. The seller then remembered (her house had been on the market for a while), that this appraiser inquired about buying it at one time. He wanted to buy and rent it out -- thus the awful appraisal. He was hoping I'd back out and he could come in for the kill.
10 years later it had doubled in value.

I spoke with an appraiser recently, who knows our area very well. He told me that if we get an out of town appraiser (which we would if our buyer does a govt loan), it could spell disaster for us. Her house is in a named "garden district", and typically homes there command a nice price. An out of towner might use comps 4 streets over, which trust me, would indeed be a disaster for us!
In this economy, it's not just this new law which will make things difficult, but the fact that more people are doing sales by owners. This has been common around here for a while, even before the bad economy. That means less comps all the way around.

    Bookmark   May 14, 2009 at 4:42PM
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