Don't understand this appraisal (disclosing, square footage, negotiations, sales)

[twia]

I'm in escrow to buy a condo and just got back the appraisal. The appraisal is fine as far as the lender is concerned, because it's higher than my purchase price. But it's lower than I would have expected. I read through the entire appraisal and I don't understand how the value could be that low. Obviously only the appraiser knows for sure and I will try to ask them, but I would like some unbiased info as well. Can anyone with appraisal knowledge explain how they think the appraisal value could have been determined?

Also, my main concern is are there any negative effects (such as resale value) to me, the buyer, for a low appraisal? (Keep in mind that it is over my offer price and I have enough cash to have made up even an appraisal lower than the offer, so it won't affect my financing.)

Appraised value: $390,000

The comps are:
Sale price - Adjusted sale price - Distance - Status
1. $390,000 - $393,900 - .8 miles - standard sale closed 11/13
2. $368,000 - $389,208 - .8 miles - standard sale closed 12/13
3. $435,000 - $430,000 - .21 miles - standard sale closed 3/14
4. $448,000 - $428,000 - .21 miles - standard sale closed 5/14
5. $419,900 - $406,502 - .21 miles - pending standard sale
6. $398,000 - $405,040 - .08 miles - active listing

It says the adjusted price includes a .10% monthly time/sale adjustment for #1 & 2. #1 & 2 are in the same condo complex as this unit. It seems to me like the appraised value is not just weighted toward those closer units but using only those. But even giving them twice the weight of all the others comes out around $404,000. The average of just those #1 & 2 is higher than $390,000. That suggests a large amount of weight was put on comp #2, but it's not even the closest match. #2 is a 2 bedroom. This is a 3 bedroom. Why would it have more weight than #1, which is also a 3 bedroom and seems to be an exact unit match with an adjustment only for time/sale?

I'm not saying the appraisal is wrong. And I'm not mad, because it's possibly better for me because a lower appraisal will give me more leverage to have the seller fix things that came up on the inspection. But I just want to understand how the 6 numbers are used to get one that's only slightly above the lowest.

Can you help me out and give me some ideas on how the math on this appraisal worked out?

[young92]

If the appraisal does the job to get the loan, don't sweat it. You could hire three more appraisers and they could all give you different appraised values. It's one persons opinion. They use equations and comps but it's not an exact science. Plus, the appraisal is only good on the day it is done. Since it is not public record, no one will ever see it. It only effects the value on the specific loan it is done for and no further.

[berniekosar19]

If 1 & 2 are in the same condo complex as yours, and they're same unit size, the appraisal will definitely be weighted more heavily towards those, as they're the most directly comparable. The other units were most likely selected in order to provide a sense of what your surrounding neighborhood is doing with similar units to yours. When it comes to condos, the units in your own building have the most direct effect on your condo's value, since they're in the same building, have the same amenities, etc etc.
You're not disclosing enough about the property conditions, though, to get a real informed answer to your question.

[willow wind]

This has been stated many more times on this forum, but I'll state it again.

If the appraisal is too low, it's a bad appraisal
If the appraisal is too high, it's a bad appraisal
If the appraisal is right on the contract price, it's a bad appraisal

Thus, whatever figure the appraisal is, it's a bad appraiser- lol

OP-the appraiser is not doing the appraisal for you -it's not your appraisal- the lender is the client -the appraisal is being done for them. The appraiser has a convoluted set of federal guidelines to meet, along whatever overlays the lender puts additionally on those guidelines.

The appraiser is not looking for an average or for a median value. The appraiser cannot be not interested in how you want to use the appraisal for negotiations or that your feelings are hurt because maybe you're not getting the great deal you thought you were. This is not the appraiser's job.

The appraisal is simply one person's opinion of value on what the property is worth on the day the appraiser viewed it. It is submitted to the lender so that the lender can determine the suitability of the
property for the loan in question. That's why the lender requested the appraisal.

[twia]

Originally Posted by berniekosar19

If 1 & 2 are in the same condo complex as yours, and they're same unit size, the appraisal will definitely be weighted more heavily towards those, as they're the most directly comparable.

#2 is not the same size. It's 2 bed. This is 3. Why would the appraisal value not be closer to #1, which is the exact match?

The other units were most likely selected in order to provide a sense of what your surrounding neighborhood is doing with similar units to yours.

According to the appraisal, the other units were selected because comps in the complex were not very recent sales.

You're not disclosing enough about the property conditions, though, to get a real informed answer to your question.

What else would you need to know about the property conditions? That's factored into the adjusted sale price isn't it?

[twia]

Originally Posted by willow wind

This has been stated many more times on this forum, but I'll state it again.

If the appraisal is too low, it's a bad appraisal
If the appraisal is too high, it's a bad appraisal
If the appraisal is right on the contract price, it's a bad appraisal

Thus, whatever figure the appraisal is, it's a bad appraiser- lol

OP-the appraiser is not doing the appraisal for you -it's not your appraisal- the lender is the client -the appraisal is being done for them. The appraiser has a convoluted set of federal guidelines to meet, along whatever overlays the lender puts additionally on those guidelines.

The appraiser is not looking for an average or for a median value. The appraiser cannot be not interested in how you want to use the appraisal for negotiations or that your feelings are hurt because maybe you're not getting the great deal you thought you were. This is not the appraiser's job.

The appraisal is simply one person's opinion of value on what the property is worth on the day the appraiser viewed it. It is submitted to the lender so that the lender can determine the suitability of the
property for the loan in question. That's why the lender requested the appraisal.

That was incredibly unhelpful and made a lot of wrong assumptions. I didn't ask any of the questions you answered. I asked a question about about HOW an appraisal might be figured mathematically and if that has any effect whatsoever on resale. You didn't answer those questions in any way, shape, or form.

Obviously it's not just some person's opinion like you say or they wouldn't bother with comps or have standard adjustments for features, upgrades, etc. like +/- $10,000 per bedroom and +/- $5000 per half bath as it states. Obviously, there's a human factor involved, but there have to be some standards and principles that are followed that make it more than an opinion someone pulled out of you know where. Those are what I'm asking about.

Again, I don't have a problem with the appraisal. I'm not complaining about it or saying it's "bad". Considering you can't buy a similar 2 bedroom in the area for under $400,000, I got a great deal no matter what the appraisal says. And no matter what the appraisal says, it's still only 1 or 2 properties that I even liked in the 2 months of searching enough to make an offer. And it was still $35,000 less than what the other would have cost me no matter what the appraisal says.

I'm just asking 1. If appraisal during sale has any affect on future resale. 2. If anyone with actual knowledge and experience in appraisal can shed some light on how the numbers worked out. If you have any answers to those questions, please share them.

[berniekosar19]

Originally Posted by twia

#2 is not the same size. It's 2 bed. This is 3. Why would the appraisal value not be closer to #1, which is the exact match?

This is where the condition of the unit comes into play; for condos of the same unit size in the same building with similar floorplans, that's the main difference in pricing, along with which floor they're on.

According to the appraisal, the other units were selected because comps in the complex were not very recent sales.

What else would you need to know about the property conditions? That's factored into the adjusted sale price isn't it?

I'm not sure where you're questioning the variation. You're purchasing a 3BR; the first comp, which you say is the exact same type of unit as the one you're looking to purchase, is being given a comp value of $393,900. Your appraisal came in at $390K, so the values are similar; this is where the condition of the properties come into play: if one unit has been updated and one hasn't, that will account for the difference in price. As for comp #2, despite it being a 2BR, it might have similar square footage as yours, room to convert to a 3rd bedroom, etc etc. Without more detailed information about the properties selected, it's rather tough to provide more detailed analysis.

[twia]

Originally Posted by young92

They use equations and comps but it's not an exact science.

I get that. Do you know what the basic equations are though? Or where to find them?

Since it is not public record, no one will ever see it. It only effects the value on the specific loan it is done for and no further.

Thanks for the answer. I had read somewhere else on this forum that an appraiser can look up and use previous appraisals. Though I wouldn't have thought that was the case myself.

[berniekosar19]

Originally Posted by twia

That was incredibly unhelpful and made a lot of wrong assumptions. I didn't ask any of the questions you answered. I asked a question about about HOW an appraisal might be figured mathematically and if that has any effect whatsoever on resale. You didn't answer those questions in any way, shape, or form.

Obviously it's not just some person's opinion like you say or they wouldn't bother with comps or have standard adjustments for features, upgrades, etc. like +/- $10,000 per bedroom and +/- $5000 per half bath as it states. Obviously, there's a human factor involved, but there have to be some standards and principles that are followed that make it more than an opinion someone pulled out of you know where. Those are what I'm asking about.

Again, I don't have a problem with the appraisal. I'm not complaining about it or saying it's "bad". Considering you can't buy a similar 2 bedroom in the area for under $400,000, I got a great deal no matter what the appraisal says. And no matter what the appraisal says, it's still only 1 or 2 properties that I even liked in the 2 months of searching enough to make an offer. And it was still $35,000 less than what the other would have cost me no matter what the appraisal says.

I'm just asking 1. If appraisal during sale has any affect on future resale. 2. If anyone with actual knowledge and experience in appraisal can shed some light on how the numbers worked out. If you have any answers to those questions, please share them.

In terms of future resale, your appraisal won't have any effect; any purchaser utilizing lender financing will have an appraisal done ordered by the lender. That appraisal will obviously take place at some point in the future, and any comps utilized for it will be from the most recent sales that have taken place but this will take place in the future. So, no, your current appraisal won't have any effect on your future resale as any appraisals done for the purpose will be utilizing future values.

[twia]

Originally Posted by berniekosar19

I'm not sure where you're questioning the variation. You're purchasing a 3BR; the first comp, which you say is the exact same type of unit as the one you're looking to purchase, is being given a comp value of $393,900. Your appraisal came in at $390K, so the values are similar;

Yes, they're similar. But how does that math work out? I'm not questioning the validity of the appraisal. I said that in the first post. I just want to know how that math works out.

I don't understand the defensiveness in response to just asking about the math and made it clear up front that I was not at all unhappy with the appraisal, because if anything it actually was a number beneficial to me. Not that I expected the appraiser to do something beneficial to me just for my sake. I was just noting the reason why I was happy with the appraisal. Yet I was still berated for some reason. (Not that yours was bad, but response #4 was really condescending)

this is where the condition of the properties come into play: if one unit has been updated and one hasn't, that will account for the difference in price.

Aren't upgrades already factored into the adjusted sales price? As well as the condition? There's a field on the net adjustments table that includes condition. There was a $10,000 decrease from sale price on #4 for condition.

As for comp #2, despite it being a 2BR, it might have similar square footage as yours, room to convert to a 3rd bedroom, etc etc.

The square footage of #2 isn't the same or more similar than #1. #2 is 1,108 sq ft. and there's a +$4,000 adjustment for square footage. #1 and this one are 1,220 sq ft.

Wouldn't it have to be an unpermitted addition to not be recorded as a 3 bedroom? Do unrecorded additions and modifications increase appraisal values? If so, wouldn't they be included in the adjusted sales price? With my current condo, there was no appraisal increase for the unpermitted square footage when I bought it.

Without more detailed information about the properties selected, it's rather tough to provide more detailed analysis.

What type of info? There's more on the report I can give if there's something specific. But I didn't want to make the first post any longer than it already was.