A possible dumb question about appraisals (Houston, Sugar Land: sales, real estate, loan)

[Glenshire]

I'm not professionally involved in real estate and one thing I've always wondered is how do home values actually go up if appraisals are based on comps? It seems like it would be a catch-22 (this house won't appraise because that house didn't)? Would love for someone to shed light on that...

[cheryjohns]

Because appraising isn't an exact science.
What happens when a house is contracted for more per sq foot than previous sales in the neighborhood?
How close is it? Less than a dollar per square foot - $10 per sq foot? Are there some upgrades? Is there a pool and not in others? Is the appraiser in a good mood - or a bad one (yeah, really)? Is the appraiser one that really knows Houston - and knows the neighborhood is on the march up? Or is he from Bugtussle, TX and was brought in by the service, for a lender who doesn't get much business, so it doesn't really matter to the service whether he uses them again (in other words, he gets the leftover appraisers no one wants)? Or adversely, does the appraiser know that the neighborhood is stagnate, at best? Is it a conventional loan - or will a FHA or VA appraiser be doing the appraisal (huge difference)? What if there was a cash sale or two - and no appraisal was done - and they closed for higher per sq foot? All it takes is one sale to appraise for higher - and you have a new bar (unless it was only one - it was cash and a lot higher - and everyone was obviously drinking to have had it close - naïve buyer, jubilant seller, and a dumb buyer's agent). I am letting the seller's agent off the hook in that scenario, because their only concern is their client, the seller, as it should be.

The buyer's Realtor should do a little homework before the offer is put out there - and have a pretty good idea of what the appraised value will be.

[Glenshire]

Thanks cheryjohns

Seems like its just a roll of the dice, then and the system really favors those neighborhoods where buyers can pay cash or add enough cash to get them through a low appraisal.

[cheryjohns]

Originally Posted by Glenshire

Thanks cheryjohns

Seems like its just a roll of the dice, then and the system really favors those neighborhoods where buyers can pay cash or add enough cash to get them through a low appraisal.

Never thought of it that way but, yeah.

There are several ways to set up a positive outcome, based on the items listed (your choice of lender, agent, neighborhood, loan type, etc.).

[crone]

Originally Posted by cheryjohns

Because appraising isn't an exact science.
What happens when a house is contracted for more per sq foot than previous sales in the neighborhood?
How close is it? Less than a dollar per square foot - $10 per sq foot? Are there some upgrades? Is there a pool and not in others? Is the appraiser in a good mood - or a bad one (yeah, really)? Is the appraiser one that really knows Houston - and knows the neighborhood is on the march up? Or is he from Bugtussle, TX and was brought in by the service, for a lender who doesn't get much business, so it doesn't really matter to the service whether he uses them again (in other words, he gets the leftover appraisers no one wants)? Or adversely, does the appraiser know that the neighborhood is stagnate, at best? Is it a conventional loan - or will a FHA or VA appraiser be doing the appraisal (huge difference)? What if there was a cash sale or two - and no appraisal was done - and they closed for higher per sq foot? All it takes is one sale to appraise for higher - and you have a new bar (unless it was only one - it was cash and a lot higher - and everyone was obviously drinking to have had it close - naïve buyer, jubilant seller, and a dumb buyer's agent). I am letting the seller's agent off the hook in that scenario, because their only concern is their client, the seller, as it should be.

The buyer's Realtor should do a little homework before the offer is put out there - and have a pretty good idea of what the appraised value will be.

Even on the days that I am absolutely positive that I know it all, you always teach me something.

Thanks

[pach84]

Appraisers always get blamed for deals not going through, but ultimately it is up to the underwriter to gauge appraisal report, the market and approve the deals. Like OP said, appraisers can only use sales comps and listing comps to support.

[ftbend06]

Lots of good comments so far, so sorry if I replicate anything.

The first thing you learn in classes about appraisal is the only way to definitively determine the value of property is to sell it. What someone will pay is what it's worth.

I once got burned by an appraisal because I had a deal with someone to buy my house for x and it appraised for x minus 10k. They would have to come up with more cash to borrow the $.

This quote from the OP is on the money: "The system really favors those neighborhoods where buyers can pay cash or add enough cash to get them through a low appraisal."

It is a great original question because I've been through it. I can sell my house for x, but comps will only support x minus 10k. How do values ever go up unless more cash is being brought to the table? I would say that simply they don't go up as much in this situation.

[cheryjohns]

Originally Posted by pach84

Appraisers always get blamed for deals not going through, but ultimately it is up to the underwriter to gauge appraisal report, the market and approve the deals. Like OP said, appraisers can only use sales comps and listing comps to support.

The problem is that a lousy appraiser will appraise it for less, even though the comps bear out a higher price. Just had one close about a week ago (you know who you are ) where we got the house AFTER a previous buyer had the appraisal come back too low and they could not make up the difference. We got it - it appraised with no problem. I knew it would because I had already looked at the comps. I don't know why the previous buyer's appraiser couldn't see the same comps.

Originally Posted by ftbend06

This quote from the OP is on the money: "The system really favors those neighborhoods where buyers can pay cash or add enough cash to get them through a low appraisal."

It is a great original question because I've been through it. I can sell my house for x, but comps will only support x minus 10k. How do values ever go up unless more cash is being brought to the table? I would say that simply they don't go up as much in this situation.

Pretty much - but that makes sense. Areas like Sugar Land are going to keep rolling upward, because of demand. Areas like Alief won't because the demand is not there.

[Glenshire]

Originally Posted by cheryjohns

Pretty much - but that makes sense. Areas like Sugar Land are going to keep rolling upward, because of demand. Areas like Alief won't because the demand is not there.

Even if/when the demand comes, it will have to come from buyers with at least a little cash in hand at first.

[Glenshire]

Originally Posted by ftbend06

It is a great original question because I've been through it.

Thanks! I wondered if I was missing something obvious that everyone else already knew...