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I bought a house back in May. It was bank owned - nothing major wrong with the house, just some painting/cleaning and lil fixing up of things - We did have to buy a hot water heater...
The original appraisal was about 14k more then what we initially paid for it.
Well we're in the process of Refinacing with another bank (long story)
We just had the house re-appraised and now its 43k more then originally price. How can that be???? Remember I just moved in May and while we did paint the whole inside, I don't think the appraisal should be that high....We're talking almost 20k in a little over 2 months....
So, does it really mean a darn thing what a house is appraised for?
First the appraised value is extremely dependant on other comparable sales in your area. While doing upgrades can help increase value when being compared to recent sales, the main aspect of value is what those houses sold for themselves. For example... you could have left the house exactly as it sat, and it probably would have appraised for the same value it just did...maybe a few thousand less is all.
Most appraisals give you a cost approach, and sales approach for value. How much it would cost to build the house with land, vs. how much in theory it could sell for.
Now, the appraisal itself really only matters when it comes to mortgage lending. It part of how they judge the overall risk of the loan. If someone can't make their payments, and the bank must take it back, how much does the bank think they can sell it for. That's what the appraisal is for in their mind, and of course to be sure the house is just generally in good shape.
Other than that, the appraisal can be used to give you an "idea" of what a house can sell for. It gives you a starting point of sorts, then market conditions need to be factored in to get a real starting sales price.
Of coarse it means "something", but it is far from an exact science. What percentage of the purchase price is the $29k increase? A $29k difference on a $100k home is obviously a lot different than a $29k difference on a $500k home.
Did you check to see what homes in your neighborhood were used for comps? Maybe there was a recent comparable sale(s) that went for high dollar since the original report was done? Is your market improving, declining or stable?
Different appraisers will often come up with a different number. Do the range of adjustments vary between appraisers (ie one uses larger adjustments for sq. footage or age or condition)? Is your house unique for the area at all or are there sales of nearly identical properties in the last 6 months?
What is your concern with the "over valued" report? Are you trying to get a "true value" for a flip? Since your purchase price was so much lower than the original valuation that appraiser probably sided on the low end since he did not have to "push" for value and the property was in a bit of disrepair. Why did you have another appraisal done?
We looked at a house that had an appraised value of just under $100k. This house was in a so-so to declining neighborhood. The roof leaks and has small trees growing out of it. All of the window and exterior door frames need to be replaced, as do the windows & doors themselves. Every inch of the floor in this house was riddled with termite damage, some rooms so bad that it was scary to walk on and one room where the floor had completely separatd from the exterior wall allowing plants to grow up into the house. No hot water heater, no fridge. Built-in oven from the early 1970's. No A/C. House had recently been stuccoed, but the chimney had collapsed leaving a large hole in the stucco, and an opening in the living room that had a piece of drywall nailed over it. Scorch marks on the walls in several locations where there had been electrical issues. Etc., etc., etc.
The seller is not budging on the price, and I expect they will sit on that house until it falls in on itself. The appraiser told them it was worth just under $100k and that is what they intend to get for it. This in a small county that has well over 5,000 single family homes languishing on the market and 6 or 7 more that foreclose every day of the work week.
I say an appraisal is only as good as the appraiser him/herself. If the number is derived from statistics on paper and does not include a thorough inspection of the house from the inside, outside, top and bottom it is only worth the paper it is printed on.
I didn't mean to imply that appraisals are worthless, it's just that people don't realize what they are actually for.
They are imperative for lenders to base loans on...
Other than that they are just an educated guess as to value. Value is truly determined by what someone would actually pay for your house. Without having someone actually buy your house it's just a guess.
One note to Evey... if you try and get financing on a house that is in such poor shape, and it's noted on the appraisal... it's very likely you will need to have money placed into an escrow account for "cost to cure". Essentially a lender doesn't want to invest their money into a house that no one would buy, other than a fixer upper. If you're in the market for one of these...be sure and discuss it with your lender. Some lenders can overlook these issues if you're buying the house for far under market value though...
One note to Evey... if you try and get financing on a house that is in such poor shape, and it's noted on the appraisal... it's very likely you will need to have money placed into an escrow account for "cost to cure". Essentially a lender doesn't want to invest their money into a house that no one would buy, other than a fixer upper. If you're in the market for one of these...be sure and discuss it with your lender. Some lenders can overlook these issues if you're buying the house for far under market value though...
Hope you turn a nice profit on the fixer upper. To me that always sounded like a cool way to make money. Buy a house, and invest your own sweat equity in it... repair and building is so much fun.
Instead I sit at a desk visualizing myself exercising. I have a sneaking suspicion that it's not helping my health.
Actually, we are not looking to flip. We are looking for a house to live in. Hard to find one we can afford, so we are looking at stuff that needs a lot of work. Of course, you get a lot of pride of ownership along with all of the sweat equity.......
There's one thing I'd like you to read though. This would apply once you get the house in lendable condition. As cool as it is to own a house free and clear, there's also disadvantages to it.
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