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I'm looking at HUD properties out of state and I am not ready for an RE agent yet, so I thought I'd post this here.
The appraisal on a house I am interested in seems very off. The house has been on the market for over 100 days and the price has only been reduced once. It is appraised at $24,000 and is currently listed at $21,000. I don't know how the appraiser came up with $24k for the value. Here are the reasons I think it is wrong:
A) The assessed value is $9,000
B) Over the past year three houses of similar size and age have sold for an average price of $6,000, with the highest one being $11,000.
C) The house has typical condition issues associated with foreclosures as well as other issues, such as damaged siding, missing flooring, etc.
D) The house has an 80-foot pine tree in the front yard that is leaning over the house and at the very least requires a visit from an arborist, and may require removal, which could cost several thousand dollars. (see photo)
E) The house is only 500 square feet and is almost 100 years old.
My understanding, from what I've read, is that HUD won't even look at offers below a certain threshold. In this case, I feel the appraisal is clearly wrong and a fair price for this house is probably about a third of list price. Normally the price of a HUD house drops every 30 days or so until someone buys it, but this one has only dropped once in 100 days.
If I were to submit an offer on this house, would it be automatically rejected without anyone even looking at it?
An appraisal is an "opinion of value". Like all opinions, they could be off by some amount. HUD appraisers often take into account the value of the home after the repairs specified in the repair escrow are completed.
As for using the "assessed value", it has no bearing on the market price, take it out of the equation. Also using comps from 1 year ago are useless. In AZ home values have been skyrocketing going up more than 30% in the last few months. Any comps older than 3 months are worthless.
Your case is interesting because in my experience the HUD appraisers have been under-appraising not over appraising. If you feel that the HUD appraisal is too high, do not worry about it. The generally accepted rule is HUD wants at least 90% of listing price. When a home is on the market for 100 days and it has no offers, you can pretty much offer what ever you want. HUD will likely accept any reasonable offer at this point. Be sure to check the Property Conditions Report and Repair Escrow before you offer so you know what it will really cost you.
It's apparent to me that the appraiser has access to comparable sales and other information that you don't have. There is a reason that lenders use appraisers for estimating market value rather than buyers.
In my experience HUD appraisers are fairly close to market value. HUD won't reject your offer. They will hold it in backup position in their computer system, unless you state in the bid you don't want to be in backup.
I looked up sales through various sources, including the assessor's website, and nothing the size and age of this house has sold anywhere near $21,000. The only houses that have sold in the $20 - $25k range are houses that are much bigger and/or newer.
The house in question is 528 sqft and was built in 1925.
These are the sales listed on Trulia (the appraisal was done in December)
Obviously, I'm not an expert, but I just find this baffling. I don't see how the appraiser got a value of $45/ft² out of this house.
Well I would say that the appraiser that has physically been in the house and at least driven by the other comps has decided that properties like this one are more comparable than the ones you have chosen.
You are right I haven't had a chance to see it in person, yet. That may change my opinion, but I still think the value is too high. At this point, I don't suppose there is much value in worrying about it, though.
The property you highlighted isn't really comparable, though. It is newer, on a larger lot and in a different part of town. It's 2 blocks from a nice fishable lake, 4 blocks from a huge park with a soccer field, play area and basketball courts and 6 blocks from a highly rated school. If the house I am looking at was in that part of town, I have no doubt it would be worth at least the $24k appraisal. Unfortunately, it's not. It's not walking distance to any parks or lakes and the school that serves it has horrible reviews. Maybe that is my problem. I assume that things like that should factor into the appraisal, but maybe they don't. Maybe only raw numbers matter.
There are many things that come into play in appraisal and assessment. I'm an arbitrator for the Texas Comptroller's office for when property owners don't like their assessed value. By the time they get to me, they can only use SALES and not other assessed properties. I just did one where CAD wanted $40k and the home owner wanted $25k. Just because there are a lot of foreclosures in an area, it doesn't make up the area, and the appraiser, like the CAD, will find another area with like houses to compare to. That's what this appraiser probably did; found like properties.
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