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I'm trying to re-finance my primary residence and have had some issues come up. I just purchased it 16 months ago.
Biggest issues:
First appraiser called it 2 bedroom, second appraiser says it's 1 bedroom.
Second appraiser called first appraiser an idiot, said first appraiser appraised his own home and did a crap job, told me he lodged a complaint against the first appraiser and got his money back and implied I should do the same.
Second appraiser tells me, "you did a good job", "you got a great deal", and that I shouldn't be too concerned about appraisal since the valuation is largely driven on square feet, not # bedrooms.
Second appraiser demanded additional $150 after he left the property to complete the appraisal (I had pre-paid a fixed fee for the appraisal through the bank). I refused to pay this, and eventually the bank capitulated and paid a negotiated additional amount (not what the appraiser demanded).
The second appraiser did not ask what improvements I've made to the property (no square footage additions, but I did upgrade the electrical service, replace all lighting with LED can lights, ran low voltage wiring throughout house [for computer, telephone, TV, and audio], expand kitchen slightly, and repainted).
I just received the new appraisal today and it's $5,000 lower than the one from 16 months ago (while valuations and sales prices have risen significantly).
The quality of construction and condition also slipped - the first appraiser called them Q3/C3, while the new appraiser calls them Q4/C4 (definitions below). The home is custom-built - was originally a summer cabin that was greatly expanded via permitted construction. Has saltillo tile throughout, vaulted ceiling upstairs with architectural windows, completely remodeled bathroom with jacuzzi tub, large custom office space with two workstations and tons of built-in cabinets and storage, custom kitchen with solid surface countertops and stainless steel appliances (mentioned only because this seems to conflict with the rating assigned based on definition below).
Obviously I'm pretty upset - The average price per square foot of comparable properties in the immediate area is $195, the average for the comps the second appraiser used is $169, and he valued my home at $121. The home two doors down (650 square feet, 1/1) sold for $234 per square foot a year ago, and the home two doors up from me (1250 square feet, 2/2) sold for $207 per square foot a month after I bought mine in 2013.
I have read that banks won't generally use a second appraisal, and even if they did, it would be at my (additional) cost, on top of the $450 paid for the first one. My biggest issue is that valuations appear to have very little to do with gross living area (GLA), and that the condition change from 3 to 4 has cost me at least $25,000 in valuation. I don't think the house has deteriorated in one year's time - if anything, with my improvements it should have slightly improved.
I'm at a loss for how to proceed. Any suggestions? Sorry for the mini-rant...
Definitions (in case you're interested):
C3 (first appraiser rated my house as this)
The improvements are well maintained and feature limited physical depreciation due to normal wear and tear. Some components, but not every major building component, may be updated or recently rehabilitated. The structure has been well maintained.
C4 (new rating from second appraiser)
The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear. The dwelling has been adequately maintained and requires only minimal repairs to building components/mechanical systems and cosmetic repairs. All major building components have been adequately maintained and are functionally adequate.
Q3 (first appraiser rated house as this)
Dwellings with this quality rating are residences of higher quality built from individual or readily available designer plans in above-standard residential tract developments or on an individual property owner’s site. The design includes significant exterior ornamentation and interiors that are well finished. The workmanship exceeds acceptable standards and many materials and finishes throughout the dwelling have been upgraded from “stock” standards.
Q4 (new rating from second appraiser)
Dwellings with this quality rating meet or exceed the requirements of applicable building codes. Standard or modified standard building plans are utilized and the design includes adequate fenestration and some exterior ornamentation and interior refinements. Materials, workmanship, finish, and equipment are of stock or builder grade and may feature some upgrades.
Appraisals are subjective. Don't get stuck on dollars per sq foot because it is irrelevant. Consumers think that number means something but it doesn't. 2 bedroom homes should sell for more than three bedroom homes. They do out here.
Bedrooms have a door to close off for privacy, an escapable window, and a closet.
I'm trying to re-finance my primary residence and have had some issues come up.
I just purchased it 16 months ago.
How much work did you do to rebuild it in the interim?
Else wise... why would you expect a change so soon?
Quote:
Biggest issues:
The home is custom-built - was originally a summer cabin that was greatly expanded
I just received the new appraisal today and it's $5,000 lower than the one from 16 months ago
1) First appraisal done by the lender?
2) $5000 vs $100,000 or vs $300,000?
Quote:
I'm at a loss for how to proceed. Any suggestions?
Thanks Silverfall and MrRational - as noted in my original post, I've done no structural additions - only interior/infrastructure upgrades: upgrade electrical service from 60amp to 200amp, replace water heater with tankless high efficiency, replace/add to interior lighting with recessed LED, expand kitchen space slightly (add cabinets and under-cabinet microwave), home-run cat5/rg6/speaker wire to all rooms, paint exterior and interior spaces.
As to why I would expect a change "so soon" - property values in my area have increased since I bought, and I was told I under-paid for my home (supported by sales at the time - the homes two doors away on either side sold for $160k for 600 sq. ft. 1/1 cabin and $250k for 1200 sq. ft. 2/2 home - both within 90 days of my purchase). More recently, a home five doors down sold for $290k (2 bed 1 bath 1200 sq. ft.) and was on the market only two days. Home prices have increased by about 30% since I bought. It's a very desirable retirement community and I live in a very desirable part of town.
First appraisal was ordered by lender - I'm not sure what you mean (aren't they all??)?
I purchased the house for $170k and it appraised at $180k at time of sale, now according to the new appraiser it appraises for $175k.
I'm getting dinged $25k for the lack of a seond bedroom compared to other nearby sales according to the appraisal.
The so-called second bedroom in my home has a built-in closet, escapable window (and door + deck), but no fixed door - only a curtain rod which would close it off from the other bedroom. Both the selling realtor and appraiser called it a two bedroom home. I don't dispute that it is probably not a bedroom (it would be fine for a young child but not a teenager/adult), but I am curious why the two appraisers disagree - they should utilize the same standard for what is and what isn't...
If you want it to be priced like a two-bedroom it had better LIVE like a two bedroom...
Quote:
Originally Posted by like-2-hike
Thanks Silverfall and MrRational - as noted in my original post, I've done no structural additions - only interior/infrastructure upgrades: upgrade electrical service from 60amp to 200amp, replace water heater with tankless high efficiency, replace/add to interior lighting with recessed LED, expand kitchen space slightly (add cabinets and under-cabinet microwave), home-run cat5/rg6/speaker wire to all rooms, paint exterior and interior spaces.
As to why I would expect a change "so soon" - property values in my area have increased since I bought, and I was told I under-paid for my home (supported by sales at the time - the homes two doors away on either side sold for $160k for 600 sq. ft. 1/1 cabin and $250k for 1200 sq. ft. 2/2 home - both within 90 days of my purchase). More recently, a home five doors down sold for $290k (2 bed 1 bath 1200 sq. ft.) and was on the market only two days. Home prices have increased by about 30% since I bought. It's a very desirable retirement community and I live in a very desirable part of town.
First appraisal was ordered by lender - I'm not sure what you mean (aren't they all??)?
I purchased the house for $170k and it appraised at $180k at time of sale, now according to the new appraiser it appraises for $175k.
I'm getting dinged $25k for the lack of a seond bedroom compared to other nearby sales according to the appraisal.
The so-called second bedroom in my home has a built-in closet, escapable window (and door + deck), but no fixed door - only a curtain rod which would close it off from the other bedroom. Both the selling realtor and appraiser called it a two bedroom home. I don't dispute that it is probably not a bedroom (it would be fine for a young child but not a teenager/adult), but I am curious why the two appraisers disagree - they should utilize the same standard for what is and what isn't...
I bolded the stuff that matters -- even if this is still an area with primarily "vacation cabins" the fact is you can't really expect to rent a place to the weekend crowd as a "2 br" if that room does not have a DOOR!
The secondary factors are the way the space is likely to be seen by a purchaser and in my experience this is where some appraisals really fall down -- there can be rather wide variations in "price per sq ft" as the appraiser tries to match-up things like access to amenities vs quiet, year-round value vs likely demand in peak season, and even hassle factors for the interior / exterior layout vs gross sq ft. Of course there are some appraisers that will claim they don't get that detailed but believe me shoppers absolutely are swayed by those things AND that fact is then reflected in the valuations of the comparable properties. Especially in "vacation / retirement" areas I know that some shoppers absolutely will be swayed by things like where the washer & dryer are located, how functional the outdoor space, what sorts of draw there is for "peak season renters" and a long list that can then throw-off the sq ft valuations...
What to do?
Unless you absolutely NEED to refi there is no reason to worry about this. Nearly all predictions are for rates to remain quite low for at least the next six months or more. Similarly there is little reason to believe that demand for houses in good condition / nice areas is going to fall off. GET RID OF THE CURTAIN AND BUY / INSTALL A DOOR! If a pocket door or sliding barn door makes more sense put that up! Do everything you can to address every minor issue for maintenance indoors and out, keep your credit score up and try again in six months. Maybe sooner if there are a bunch of even more high priced sales near by...
An appraiser will only use sales within the last 6 months or more recently. A sale from a year ago is irrelevant.
None of the work you've done will impact an appraisal in any significant way unless the home had no electricity the first time around.
Thanks for your feedback, rrah! Yes, I'm aware that the work I've done won't impact the appraisal in any significant fashion. The appraiser used sales within the last 12 months given the small sample size of comparable properties. Of those three properties, the average selling price was $169 per square foot, and one of those was a foreclosure. Since my home is larger and in a nicer area than the three comps, I'm at a loss for how the appraiser is valuing mine at $121 per square foot. Obviously, the foreclosure is probably dragging down the average sale price as well.
It seems the biggest issue affecting valuation is the condition rating. I'm at a loss for how I netted a 4 (scale of 1 to 6, 6 being worst - where you couldn't even get a loan) when my home was more recently constructed, recently remodeled, etc. That cost me $23,000 on the appraisal.
At any rate, a call to the state licensing board was interesting - the second appraiser has been disciplined (which of course he failed to disclose), while the first appraiser was not (despite the claim by the second appraiser that the first appraiser had been sanctioned). I think I may have had a bad apple. The board also said there's no standard for what constitutes a bedroom - there used to be a HUD document, but no longer, so it was up to the discretion of the appraiser as to how to classify the space.
OP, I feel your pain! I am building a custom home in Montana, and had it appraised for the construction loan. Sales are few and far between, so comp sales were sort of a wet kiss and wishful thinking, rather than legit comps.
Appriaser came out to the property, met with the builder, called and spoke with me, and said he thought he'd be between $400,000 and $420,000 for the valuation. He then suggested another builder in the area could build the same house for $110 sq/ft, and that I should consider talking to him for a quote (comps he used were between $175 and $195 sq/ft and between $395,000 and $425,000 total valuation). I declined to contact the proposed builder.
Appraisal came in 4 weeks late and at a $330,000 evaluation. The underwriters were even taken aback at the low ball appraisal, especially given the comps used! I am being told by the bank that basically he screwed me because they won't use a second appraisal within six months of the first one because of new lending guidlines after the real estate melt down, and they don't get to pick the appraisers, so they have no influence on valuation, but they also can't avoid the incompetent or the crooked either - I am taking the lender statements at face value, but have not actually read the guidlines.
The only saving grace is I have cash to put into the project and can self fund almost the entire project if I opted to use my cash that way, otherwise, I would be screwed!
Last edited by Tuck's Dad; 01-02-2015 at 01:59 PM..
OP, I feel your pain! I am building a custom home in Montana, and had it appraised for the construction loan. Sales are few and far between, so comp sales were sort of a wet kiss and wishful thinking, rather than legit comps.
Appriaser came out to the property, met with the builder, called and spoke with me, and said he thought he'd be between $400,000 and $420,000 for the valuation. He then suggested another builder in the area could build the same house for $110 sq/ft, and that I should consider talking to him for a quote (comps he used were between $175 and $195 sq/ft and between $395,000 and $425,000 total valuation). I declined to contact the proposed builder.
Appraisal came in 4 weeks late and at a $330,000 evaluation. The underwriters were even taken aback at the low ball appraisal, especially given the comps used! I am being told by the bank that basically he screwed me because they won't use a second appraisal within six months of the first one because of new lending guidlines after the real estate melt down, and they don't get to pick the appraisers, so they have no influence on valuation, but they also can't avoid the incompetent or the crooked either - I am taking the lender statements at face value, but have not actually read the guidlines.
The only saving grace is I have cash to put into the project and can self fund almost the entire project if I opted to use my cash that way, otherwise, I would be screwed!
I surely hope you also report the "suggestion" that you use a buddy /relative of the appraiser as the basis of a complaint against them. See the link below. Highly unethical, though honestly it represents yet another pitfall with trying to finance new construction -- if you do not have "cash in the bank" a nutty / extortion-minded appraiser can sabotage the whole effort!
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If you want it to be priced like a two-bedroom it had better LIVE like a two bedroom...
