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Looking in an area of Orlando that qualifies for USDA loans and my salary is just below the required max for the guaranteed USDA loan.
Herein lies the rub : I know all about the waiver process if you want to finance a pool home with USDA. I was hoping I could find a place and get an offer accepted that would appraise for the offer price minus the pool (I could use recent home sales data to try and estimate what that "strike price" would be.) But someone I know who is a mortgage broker up in Destin told me to forget it. He said every USDA loan he's processed, the appraisers are so afraid of being accused of impropriety given the recent past that 99% of appraisals come in at or darn close to the offer price, no matter what. Meaning, I wouldn't be able to finance the pool and would have to go out of pocket, which I can't afford right now.
True/false? It's damn hot down here and I want a pool !!!
I get all that and I'm not insinuating that an appraiser would do anything untoward. I'm curious as to how the following scenario would play out (to better illustrate what I'm asking.)
2 homes, side by side, identical floor plans, built simultaneously, same sq footage, identical condition. One has a pool, one doesn't. The one without the pool sells for $150,000. A few weeks later, I make an offer on the house with the pool, which is listed at $165,000. I offer $150,000 and the offer is accepted (unlikely, I know - but suspend disbelief.) Now the USDA appraiser has to determine the value of the home/pool.
I figured the appraiser would likely value the home at $150,000 based on the sale of the house next door with no pool, and appraise the pool at, say, $15,000, for a total value of $165,000 - the asking price. Thus, if my offer of $150,000 was accepted, I could finance 100% of the appraised value and move into my new pool home. But what the individual I spoke to tells me is that in this scenario, the appraiser will value the home/pool at $150,000 and then break out the pool value from that - so something like : home - $140,000 / pool - $10,000. Which would mean I'd only be able to finance $140k and would have to pay the $10k for the pool out of pocket.
So, in this instance, what is more likely, the way I had assumed it would work, or the way my buddy in Destin claims it will?
The contributing value of the pool will be determined, most likely, by Paired Sales Analysis, or what the market will value it at. Depending on your market, this could add to the value, not change anything to the value or, in some cases, deduct fro the value. Also keep in mind that there may be other factors as well, such as condition of the houses and any improvements made.
It states that the loan is capped at the value of the home without the pool. The insturctions go on to state that the appraiser must determine the value of the house without the pool and establish the value of the pool. The values must be justified by using comps.
I read this to mean that the scenario works like this.
House A no pool: $150k
House B with pool: $165k
The pool is worth $15k, the house is worth $150k. The appraiser would determine that the home is worth $150k based on the comp of House A without a pool and the loan would have a max of $150k. Essentially, the appraiser just needs to find a comp that justifies the value of the home at $150k. So, your scenario where you buy a house with a pool listed at $165k for $150k with a comp to support it sounds reasonable per my interpretation of the regulations.
Here is a realtor's blog that supports the interpretation above:
It states that the loan is capped at the value of the home without the pool. The insturctions go on to state that the appraiser must determine the value of the house without the pool and establish the value of the pool. The values must be justified by using comps.
I read this to mean that the scenario works like this.
House A no pool: $150k
House B with pool: $165k
The pool is worth $15k, the house is worth $150k. The appraiser would determine that the home is worth $150k based on the comp of House A without a pool and the loan would have a max of $150k. Essentially, the appraiser just needs to find a comp that justifies the value of the home at $150k. So, your scenario where you buy a house with a pool listed at $165k for $150k with a comp to support it sounds reasonable per my interpretation of the regulations.
Here is a realtor's blog that supports the interpretation above:
It will basically all come down to finding a comp without a pool that will support your purchase price.
Yeah, you definitely understand what I'm getting at. See, what you're saying is the way I thought it would work. Find a house with a pool, find the closest possible comps, and offer what the house should fetch sans pool. That should allow me, assuming the offer is accepted, to finance 100% of the appraised value of the house alone ($150k in my example) without having to go out of pocket for the pool. But this guy is telling me to forget it, it'll never happen. Comps be damned, the appraiser is going to appraise the entire purchase at whatever the comp (with no pool) sold for and then simply break out the cost of the pool. So he's saying in my example, even though the house next door with no pool sold for $150k, he'll appraise the house I'm offering on at $150k, even with the pool. Then he'll just say the pool is worth $8k (arbitrary #) and the house $142,000 - even though the comp would seem to support a $150,000 appraisal of the house alone. That, to me, seems unfair.
The contributing value of the pool will be determined, most likely, by Paired Sales Analysis, or what the market will value it at. Depending on your market, this could add to the value, not change anything to the value or, in some cases, deduct fro the value. Also keep in mind that there may be other factors as well, such as condition of the houses and any improvements made.
So, in my example, assume the houses are identical - no improvements to either, same appliances, same condition, etc. What you're saying is that the house itself SHOULD be appraised at $150,000, and then the pool will be appraised separately, potentially at 0 or a negative number. If that's the case, I should be fine as long as I make my offer equal to or lower than what the house next door sold for without the pool, no matter what the pool is actually appraised at, correct?
Seems like researching comps and making an offer on a pool home that would be equal to or lower than said comps (non-pool homes) is the key. You're basically at the mercy of the appraiser, no? If I write an offer in my example for $150, it's accepted, and then the appraiser values the house at $140,000 and the pool at $10,000 - now I have two choices. One, go out of pocket 10 large to cover the pool, or two - back out of the deal (obviously I'd have to write in a caveat that if the house itself appraises for less than the offer price, not counting the value of the pool, that I can back out) and lose the $700-$1,000 I paid to have the place appraised and inspected.
Or option 3. Submit an amendment to the seller for a price change reflecting the appraisal - Maybe they'll bite, maybe not, or maybe they'll meet you in the middle.
Option 4. Also review the comps with your agent - if the appraisal isn't reflecting the price, in my experience with some banks appraisals can be contested, IF there are additional and better comps that were missed then a new appraisal MAY be an option (not for free though).
No guarantees option 3 or 4 will work, but if one really wants a place they are worth considering/trying.
Yeah, you definitely understand what I'm getting at. See, what you're saying is the way I thought it would work. Find a house with a pool, find the closest possible comps, and offer what the house should fetch sans pool. That should allow me, assuming the offer is accepted, to finance 100% of the appraised value of the house alone ($150k in my example) without having to go out of pocket for the pool. But this guy is telling me to forget it, it'll never happen. Comps be damned, the appraiser is going to appraise the entire purchase at whatever the comp (with no pool) sold for and then simply break out the cost of the pool. So he's saying in my example, even though the house next door with no pool sold for $150k, he'll appraise the house I'm offering on at $150k, even with the pool. Then he'll just say the pool is worth $8k (arbitrary #) and the house $142,000 - even though the comp would seem to support a $150,000 appraisal of the house alone. That, to me, seems unfair.
...and it would be. I think the spirit of the rules that they laid out are such that they don't want to finance properties where the value of the home (and consequently the loaned amount) is influenced by the presence of a pool. Using your example, they don't want to finance $165k on a house wherein $15k of that value is a pool. They will however finance $150k on a house worth $150k whether there is a pool or not.
All of this will really come down to the appraisal and what the seller may or may not be willing to do after that. If you find non-pool appraisals that support your offer price for the house with the pool, then you should be free and clear. Even if the appraiser comes back and says it isn't, you still have the recourse of going back to the seller and asking them to meet the lower sales price.
I think the important distinction and what the gentleman you are talking to missed is that it isn't always; purchase price (aka value of the pacakge) - the value of the pool. I think he assumed that they always had to deduct the value of the pool no matter what the house appraised for and that isn't the case.
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