Help! I need acceptable appraisal on unique property

[Rebecca56]

I own a very unique property that I have been trying to get a refinance on. It is a small cottage on the base of a mountain with several special ‘additions’ to the property. I bought it for 42,000 four years ago, is presently assessed for 67,000 and was recently appraised for 92,000. We do not live in it all year round so can only borrow 80% of the appraised value.
When the lender received the appraisal, they rejected it, apparently based on their subjective opinion that the value was too high. They used the same appraisal company they always use and there was no indication that they felt the appraisal was unprofessional or fraudulent. They could not give a definitive answer as to what they based their decision on. Instead, they complained that there is not another property like mine (no kidding?!), and began to discount several aspects of the property as not adding to the value, until the value was so low it was not worth borrowing on. I waited for months while they were supposedly going through this process and ended up spending $350 for a worthless appraisal and getting no loan.
When we purchased the property, there was no problem getting an acceptable appraisal. Now that land values have risen significantly, asking prices for parcels have soared as sales have correspondingly diminished. In December, a nearby similar piece of property sold for $75,000 (though I am told the owner could have asked twice as much). I think they would find this comp acceptable, but now the other comps are too old (?) and I do not think there have been many sales in the area recently. How old is too old? Do there need to be a minimum of 3 comps?
I need to understand the following, if anyone feels so inclined as to enlighten me...Is it an acceptable practice for a lender to disregard an appraisal because they ‘feel’ it is too high, without a solid basis for making that determination? I do not believe the lender would have any clue as to the value of properties in that area– that is why experts are paid to determine that very thing. And my understanding is that adjustments are made between comps to equalize them so that uniqueness is not a big issue in determining value. Do I have a valid assertion that they should accept the appraisal, if it was done properly, because they have no expert knowledge upon which they base their rejection? How does one determine if it were not done properly?
Also, even if they agree to another appraisal, could I lose this money too if there are not enough comps to use? Is there any way to determine this before an appraisal is ordered? Does it ever happen that an appraisal simply can not be done on a property? There has to be some way to determine a value...is it reasonable and/or acceptable practice for a lender to use assessed value as a basis for a loan if there are no recent sales in the area? This process took many months and I am very discouraged and unsure of what direction to take. I am hoping there are some helpful appraisers out there who have encountered similar circumstances and may have some advice for me. I am anxious to hear your input!

 

[Mike Boyd]

You need a lender who has more experience with rural properties. No appraiser can make an appraisal in such an area that will look like one in a suburban or urban area. You might try a local bank......not a BofA branch or the like, but a locally owned small town bank, Or, a local credit union.

 

[Mike Kennedy]

Rebecca - where's "the mountain"??????

 

[Annemieke Roell]

Does it ever happen that an appraisal simply can not be done on a property?

No. A competent appraiser will be able to appraise anything. Your problem is more with the lender or the person placing the loan with a lender.

Most Mortgage Brokers automatically take their to conventional lenders they have an established relationship with and don't know enough to understand that a property like this requires a niche lender.

Mike Boyd's suggestion to go with a local bank is a great one. In the meanwhile, once "the mountain" has been identified I am sure you'll be able to find an appraiser on this forum who is well qualified to do the job for you.

Good luck!

 

[Peter LeQuire]

Rebecca -

Two things appear to be in play in the situation you have described. The appraisal may be the best that could be done with the information available: BUT, the property may not fit the lender's lending policy. Most mortgage brokers only deal in loans that can be sold on the secondary market (Fannie Mae <FNMA> and Freddy Mac (FHLMC>): if the property doesn't fit the standards of those agencies, many lenders can't/won't lend on them. This doesn't necessarily reflect on the quality of the appraisal: if it accurately describes the property, uses the best market information and uses the correct analytical tools, odds are the broker is rejecting the property.

The suggestion to use a local lender (commercial bank or savings bank) is an excellent one: they may not be able to offer terms as favorable as the advertised terms of a broker, but they probably may have a better grasp on the local market and be less restricted in their property requirements.

As to accepting or rejecting an appraisal - may be just an example of the Golden Rule: them that has the gold makes the rules. Your lender may well have been able to offer whatever the terms were assuming the property's (and the borrower's) conformity to secondary mortgage market guidelines: those guidelines cover a lot more that just the value opinion expressed - they go to the nature of the market and the property's conformity to that market.

 

[Bill_FL]

I waited for months while they were supposedly going through this process and ended up spending $350 for a worthless appraisal and getting no loan.

First, let's clear this up. You paid $350 for a professional appraisal. IT was not worthless. Your lender has decided they do not want to loan you the money. That is not the appraiser's fault.

Is it an acceptable practice for a lender to disregard an appraisal because they ‘feel’ it is too high, without a solid basis for making that determination?

Whether or not it is acceptable, it is done all the time. Normally, they will use terms like that, and blame the appraisal. The real reason is that there are certain factors about the property, the borrower, or the deal itself that they do not like. It might be that they do not like the credit score, they do not like the loan to value, it could be (and I am making this up since I do not know your property) that they do not loan on 1 bedroom properties, some even have rules about the percentage or ratio of value of the land to the total value. Now, if it is anything but the credit score, they probably found out about the property issues from the appraisal. So, they tell you that there is a problem with the appraisal. There really is not. The problem is that the appraisal revealed problems about the property or the deal that they wont loan on.

 

[Hall McClenahan]

Welcome Rebbecca, Thanks for asking us.

I'll break this apart for you. I apologize in advance because the answers will not be what you wanted to hear.

When the lender received the appraisal, they rejected it, apparently based on their subjective opinion that the value was too high. They used the same appraisal company they always use and there was no indication that they felt the appraisal was unprofessional or fraudulent.

Sounds to me that you need a new company. It may be that their policies have changed and they no longer loan on this type of property.

They could not give a definitive answer as to what they based their decision on. Instead, they complained that there is not another property like mine (no kidding?!), and began to discount several aspects of the property as not adding to the value, until the value was so low it was not worth borrowing on.

Once again I read this as a second indicator that they have no desire to invest their money on this property and just don't want to say sorry, We no longer do these types of loans

I waited for months while they were supposedly going through this process

The third indicator of foot dragging.

I ended up spending $350 for a worthless appraisal and getting no loan.

Did you receive a copy of the appraisal? Did you have it reviewed by a competent review appraiser? Yes, that will cost extra. It would also answer your questions to the value reported, and may clarify why the mortgage company refused to accept it. Or it could show that the mortgage company just does not want you business.

When we purchased the property, there was no problem getting an acceptable appraisal.

Why do you believe that the appraisal is the problem?

Now that land values have risen significantly, asking prices for parcels have soared as sales have correspondingly diminished. In December, a nearby similar piece of property sold for $75,000 (though I am told the owner could have asked twice as much).

Well I can ask for a million dollars for this response, doesn't make it worth it. This country just went through a manufactured inflationary jump, and has begun to adjust to a more reasonable level. In fact many area are recording declines in value over last year.

I need to understand the following, if anyone feels so inclined as to enlighten me...Is it an acceptable practice for a lender to disregard an appraisal because they ‘feel’ it is too high, without a solid basis for making that determination?

yes. It is their money they can do what they want with it.

I do not believe the lender would have any clue as to the value of properties in that area– that is why experts are paid to determine that very thing. And my understanding is that adjustments are made between comps to equalize them so that uniqueness is not a big issue in determining value.

When done properly, which is not a simple task, the end results should appear to the reader/user of the report to do that very thing. The difficulty in achieving the end results are why there are different levels of licensing, areas of specialization and competence, differences in the amount charged, and respect for ability by peers of the profession.

Do I have a valid assertion that they should accept the appraisal, if it was done properly, because they have no expert knowledge upon which they base their rejection?

No. They have the right to dismiss and not make a loan just because they feel like it. Again it is their money.

How does one determine if it were not done properly?

Have it reviewed.

Also, even if they agree to another appraisal, could I lose this money too if there are not enough comps to use?

yes, not because there are not enough comps but there may not be enough comparables that fit the loan companies guidelines and/or the appraiser is not proficient in the reporting of his analysis and conclusions. Sometimes it is just the first other times it is both

Is there any way to determine this before an appraisal is ordered?

you can determine if there are no sales by talking to Real estate agents in the area. You can not find out the appraised value before an appraisal has been done.

 

[Steve Owen]

Rebecca, first let me say that I feel empathy for your situation and understand your frustratioin. The posters before me have given you some good advice... particularly the advice to shop the loan with local banks. I'll offer one additional bit of advice: the appraisal you already have might be useable with a different lender. Although most lenders are not aware of it, there is no prohibition against them using an appraisal prepared for a different lender so long as they review it and find it acceptable for their purpose.

Like many real estate owners, you seem to have a few fairly unreasonable expectations about the economics of the situation. That is what I am going to concentrate on in my reply to you. I've picked out a few of these from your post and separated them with ....

I own a very unique property that I have been trying to get a refinance on.
....

When the lender received the appraisal, they rejected it, apparently based on their subjective opinion that the value was too high.
....

a nearby similar piece of property sold for $75,000 (though I am told the owner could have asked twice as much).

....

I do not think there have been many sales in the area recently. How old is too old? Do there need to be a minimum of 3 comps?

...

Is it an acceptable practice for a lender to disregard an appraisal because they ‘feel’ it is too high, without a solid basis for making that determination?

I'll start with the first. Most owners of real estate assume that uniqueness contributes to a property's value. As a general rule, conformity contributes to or at least helps prove value and uniqueness detracts from value. There are exceptions to this general rule, but most owners of relatively unique properties believe they are the exception and very few are.

How do you know that the lender rejected the appraisal? Perhaps they accepted the appraisal and rejected the property. How do you know their opinion that the value was too high was subjective? You've stated this as fact, but offered no evidence.

If a nearby similar property sold for $75k, then the odds are good that that is what the value of the property is. If the seller could have sold it for twice as much why didn't they? Did they like the buyers so well that they decided to just give them $75,000? Do you like anyone that much? As appraisers, we hear similar illogical references to value frequently. In response, I usually just ask the simple question. I'd be willing to bet that if they could have sold it for twice as much, they would have.

If there have not been many sales in the area recently, that could be evidence that the area is not very marketable. Of course, it could also be evidence that the area is so great that current owners don't want to sell. What lenders look for is evidence of marketability. How old is too old for a comparable sale depends on a lot of factors, but residential lenders usually want to see at least three similar sales in the last year as a way of proving that the properties in the area are marketable.

It is a reasonable and acceptable practice for lenders to use available evidence to augment the appraiser's opinion of value in order to come to their own opinion of how much they are willing to loan. It would not be reasonable for a lender to do this without a solid basis for it, but again, how do you know they did not have a basis for their determination?

 

[Alison Swain]

First, let's clear this up. You paid $350 for a professional appraisal. IT was not worthless.

Well said. The appraisal report is not a rubber stamp approval on the loan, just a tool upon which the lender makes his descision to loan or not. Often, a lender will use the appraisal/appraiser as a convenient excuse not to make the loan.

 

[Rebecca56]

Got more help than I expected

Wow! You guys (and gals) are terrific– I am amazed at the volume of responses so far! Thank you, everyone! I value and appreciate every word of input– your responses have been reassuring and helpful on many levels. Among other things, it is helpful to know that this situation is not an anomaly that I need to address from a legal standpoint. When I have more time, I would like to respond to every question and point in detail, but for the moment I would like to clarify a few things…

The property is in the New York State Adirondack Park– Eagle Bay, to be exact. I would have included more detail in my original posting but felt I was already taking up more space than my share.

I also made two points that I think were misconstrued. When I referred to my appraisal as worthless, it was not at all meant to imply anything negative about the appraisal or appraiser. The appraiser I dealt with was very helpful and knowledgeable and I have complete faith that the appraisal was done well. My angst is totally directed at the lender, who kept reassuring me that they wanted to lend the money to me and just needed to come up with a suitable value for the property. This ‘revaluation process’ went on for months with no resolution. I referred to the appraisal as worthless only in respect to it not being helpful in obtaining the loan. Hope I did not offend anyone by not wording it better.

The second point I would like to clarify is that I do not view the ‘unique’ nature of the property as a factor that makes it more valuable. In fact, my thinking was exactly as you had stated– uniqueness being a negative thing in regards to arriving at a value for the property. MOST of the properties in this area are ‘unique’- not much tract housing in that neck of the woods. Because it is unique, the lender complained there were no comps similar enough to be used as appropriate comparisons– that is why they kept eliminating aspects of the property from the valuation equation when attempting to rework the price. What I wrote was intended to reflect my concern that the property might be so unique, I will never be able to get an appraisal that a lender will accept. I am very willing to accept a lower appraised value as reasonable and have told the lender as much.

There are issues pertaining to property values in the area, details surrounding the recent sale I referred to and other comments I can address, but for now let me state that I was told very clearly by the lender that there were no lending issues involved with this transaction except for the value the appraisal came up with. If they have a solid basis for their determination, they did not share it with me. They knew all the attributes of the property before the appraisal was done because I gave them that information. They did not have a problem with anything, or so they said, which is why they went ahead with the appraisal. Even after they put the loan on hold, the loan officer told me that all I needed to move the transaction forward was to get one more comp. I even asked him point blank if there was any other reason they did not want to lend the money and he was adamant that they wanted to move forward. It could be as Hall said and they were showing all the classic signs of foot dragging– I was attributing the delays to the incompetence of the loan officer. At any rate, for the record, any statements I have made that reflect the lender’s thinking are based on what the lender conveyed to me and not on my own conclusions.

I had a lot to read, so if I missed this, I apologize, but..one question that I do not think has been answered yet is if 3 comps are required for a proper appraisal. I do not have a copy of the appraisal so I can’t be sure, but I am wondering if only two comps were done for this appraisal, which might explain why they needed one more? Also, is it reasonable to assume that the value of the property is at least close to the assessed value, or are there a great many instances where an appraisal will come in significantly lower than that? Once again, I appreciate your insights and perspectives. More later....