Finised Basement Valuation Dispute

[jbpeacock09]

I need advice on a basement valuation dispute on a refinance.

Subject property: 2900 SF above grade, 1400 SF finished daylight walk-out basement.

Background - 1st Refi:
The first refi occurred 8 months ago in Dec 2011. No surprises on the appraisal, came back at $340K. Plenty of equity, LTV = 70% so no PMI needed. Closing occurred without a hitch.

Current - 2nd Refi:
Interest rates dropped substantially since December. In late July I locked rate for another refi. Rate lock expires Sept 10. The appraisal has come back with a big surprise, $282K. The PMI threshold is standard 80% LTV = 295K.

Dispute:
There are many areas of the appraisal that could be disputed. However it is clear the appraiser can use the broad "opinion" argument to reject every dispute we could list, so the end result of a "laundry list" approach is a mad appraiser.

I have focused my dispute on a single issue: request support for the $ per square foot assesed for the basement.

Below, between the asterisk areas, is the lender dispute form.

*****start of the lender dispute form********

Finished Basement Valuation Dispute

- Subject property has a finished 1404 square foot daylight, walk-out basement.
- Basement includes: Bedroom, Full Bath, Game Room, Theater Room, Office.
- Basement was permitted, built by professional contractors, and Certificate of Occupancy issued in 2008.

The appraisal displays a value of $20 per square foot. The appraisal lacks comps with basement needed to support a market value assessment of the basement. Additionally, there is no other market data or documentation to support the $20 per square foot assessment.

Market sales of homes with equivalent above grade square footage, where Property A has a finished basement and Property B does not, result in a basement valuation for Property A at well above $20 per sf.

The value of the subject property basement should be adjusted to what is reasonably expected in the market.

******end of the lender dispute form*********

- Illustrative Data, recent sales, with vs. without basement:
Property B = 3000 SF above grade: $350K = $116/SF
Property A = 3000 SF above grade + 1400 finished below grade: 430K =
$116/SF above grade + $57/SF below grade
- Conclusion: Finished basement SF is valued in the market at 50% of above grade SF.

The $ per square foot on the appraisal has to be quantified based on real market data. The appraisal provides no support for the $20 per sf figure.

Is it acceptable to ask how/where the $20/sf figure was derived? And adjust value if necessary? Absolutely. The appraiser should be amenable to the reasonable request for support of his value.

My question is: Is the above dispute form worded adequately and clearly? What would you change?

 

[TRESinc]

$/sqft is not something we as appraisers use to calculate value. it is something that was made up by agents long ago to give a false sense of value to the buyer and seller. it cannot be relied upon as a true measure of market value.

your "examples" don't mean a thing. you can't base value on a single sale of a house w/ a finished basement to one with a slab. your "conclusion" that finished below grade area is worth 50% of actual living area is not based on enough real data. for that you need more than just 2 examples. you need to know the finish, materials and workmanship that went into finishing the basements.

all that being said it is perfectly fine for you to ask how the value for below grade area was determined.

additionally, how do you know that the first appraisal was not erroneous? just because it was higher than the second one does not mean it was right. no one ever complains when they think the home is worth less than the appraised value, do they?

 

[residentialguy]

57/SF below grade adjustment? Dream on. You're not in a million dollar property. Call some local contractors. Construction completion of a lower level could easily be done at $25-$30 sf all day. That's cost, which is typically higher than what the finishing would contribute to market value. If you could finish it for $25 sf and get $57 sf back, everyone would finish the lower level...maybe even dig another lower level under that one to quadruple their money.


Check out this link for Lower level finish calculator

Basement Remodeling Estimator

Basement Square Footage:​

1200

Remodel Type: ​

Complete

Flooring: ​

Ceramic Tile

Bathroom: ​

Yes Full Bath

Kitchen: ​

No

Escape window/door:​

Yes

Designer’s help:​

No

Age of property :​

Less than 10 yrs

Ceiling type:​

Drywall

Walk out basement:​

Yes

Workmanship level:​

Balance between Quality and CostApproximate Cost: $23,460.00 - $31,740.00

 

[residentialguy]

Opps...here's the link

[url]http://www.craftsmennetwork.com/calculators-basement.html[/URL]

 

[Webbed Feet]

<....snip....>

Background - 1st Refi:
The first refi occurred 8 months ago in Dec 2011. No surprises on the appraisal, came back at $340K. Plenty of equity, LTV = 70% so no PMI needed. Closing occurred without a hitch.

Agree with post #2, what makes you assume that the above appraisal was credible? We see this analogy all the time here at the forum with the blanket assumption being used the higher value appraisal was correct. We have no proof of that, and typically the posters do not either even though they often post again trying to convince us.

<....snip....>

I have focused my dispute on a single issue: request support for the $ per square foot assesed for the basement.

It would be good to get the terminology correct. Tax departments "assess" real estate for tax purposes. Independent appraisers do not "assess" as far as the meaning of the term is being used.

Below, between the asterisk areas, is the lender dispute form.

*****start of the lender dispute form********

Finished Basement Valuation Dispute

- Subject property has a finished 1404 square foot daylight, walk-out basement.
- Basement includes: Bedroom, Full Bath, Game Room, Theater Room, Office.
- Basement was permitted, built by professional contractors, and Certificate of Occupancy issued in 2008.

The appraisal displays a value of $20 per square foot. The appraisal lacks comps with basement needed to support a market value assessment of the basement. Additionally, there is no other market data or documentation to support the $20 per square foot assessment.

The immediate above seems good information to me. I would agree, absolutely no comparable used with similar finished "walk-out" basements is a significant issue. This can be caused by appraisers blindly following secondary mortgage market and client "guidelines" or "assignment conditions" that the appraiser should have in the first case explained why they could not be followed and in the second case rejected at the time of engagement.

Market sales of homes with equivalent above grade square footage, where Property A has a finished basement and Property B does not, result in a basement valuation for Property A at well above $20 per sf.

Your above is confusing because your below was not yet explained.

The value of the subject property basement should be adjusted to what is reasonably expected in the market.

Good statement

******end of the lender dispute form*********

- Illustrative Data, recent sales, with vs. without basement:
Property B = 3000 SF above grade: $350K = $116/SF
Property A = 3000 SF above grade + 1400 finished below grade: 430K =
$116/SF above grade + $57/SF below grade
- Conclusion: Finished basement SF is valued in the market at 50% of above grade SF.

The $ per square foot on the appraisal has to be quantified based on real market data. The appraisal provides no support for the $20 per sf figure.

The statement is good, but the meaning of the above data isn't quite what you should do in interpretation.

Is it acceptable to ask how/where the $20/sf figure was derived? And adjust value if necessary? Absolutely. The appraiser should be amenable to the reasonable request for support of his value.

My question is: Is the above dispute form worded adequately and clearly? What would you change?

You need to first understand that taking and dividing sale prices by square footage typically derives misleading factors if those factors are then used inappropriately. Using this method is almost always used inappropriately in most cases and in posts on this forum. Regarding post 2 response, I agree and disagree both. IF there is copious amounts of market data to derive a basement adjustment from, I tend to agree. However, in the world of appraising today across this lovely country of ours, "copious" is not what most appraisers are dealing with. Instead, the term "Complex" should be most often used as it is meant by our trade, and in this case it may mean very little data to use for literally most everything.

Ok, why'd did I explain "Complex" to you in that way? IF there is almost nothing to use to extract market adjustments, then your data you have above might be something an appraiser needs to consider. However, NOT for a straight forward $/SqFt like that. In the Sales Comparison Approach, from many studies appraisers should know about from Regression Analysis we find that when comparing the DIFFERENCE in footage between a subject house and comparable house the adjustment is NOT Price/SqFt from a comparable sales price, but rather something much less than that. The reason is buyers mentally and emotionally react to the differences in living area, not total living area. Hence, adjusting your above grade at $116/sqft for the difference and your basement at $57/sqft for the difference would probably not be correct. Those numbers, as you came up with them, include the land, patios, decks, fencing, views, sheds, literally everything.

The above is why one will typically see something like $80 to $140 per square foot in a Cost Approach multiplied by the Total Footage, but $30 to $70 (these are just for discussion, not real numbers of adjustments to use or work from) used in the Sales Comparison Approach multiplied by the Difference between the houses. So subject is 2,000sf, comp is 1,910sf, the adjustment might be $55 x 90sf added as a positive adjustment to the comp for the difference. Yet the subject COST new, before depreciation, may have been $140 per square foot. Regression typically shows the public will NOT pay $140 per square foot for 90 sf more. Because the Sales Comparison Approach is showing VALUE.... The Cost Approach is showing COST.

Here is where I was headed.. Your data may be showing that the basement footage adjusted for the market should be 50% of that adjustment used for the above grade footage for the difference. Using my hypothetical numbers from above for discussion, If I deemed the market was reacting at $55 per square foot for the difference to the above grade footage, and I had your data, the data would be saying that the below grade adjustment should be $27 to $28 per square foot to the market to reflect value. The adjustments used are drastically lower than just taking a price/footage because those adjustment are for footage differences of the houses, not the land size differences, nor the view differences, nor the fireplace differences, nor the bathroom differences, nor the ... nor the....nor the.....

 

[Koya]

The two points I would suggest pushing in your appeal would be: 1) lack of any comparables with a finished basement in the appraisal, which 2) leads to the unsupported adjustment of $20/sf for the finished basement being essentially a guess as to the value. If your December appraisal had comps with basements, then those could be offered as examples of how your market "typically" values basements.

Your Property A/B illustration will probably not be directly useful. The first point is that there is not enough info to determine whether Property A and Property B are truly similar in all respects but finished basement. Without that, the source of the value difference could be a combination of location, lot size, age, condition, quality, functional utility, appeal, etc.

The second point is that your house is 2900sf + 1400sf finished basement and was valued at $282K to $340K, while Property A is 3000sf + 1400sf valued at $430K. So Property A is apparently dissimilar enough to yours, ($90K to $148K better) that it is not a usable comp for your property (if it *is* a usable comp, then you are much better off just offering Property A as a comp the appraiser should have considered). Since it is probably not a usable comp, it muddies whether your derivation has the meaning for your property that you want to assert. As an example, taking your numbers, it could be argued that $56/sf is an upper limit for finished basement value in a superior property and that would provide support for a number well below, say in the $20-30/sf range, for an inferior property. I wouldn't derive adjustments that way, but someone with a different mindset might follow that path of reasoning.

 

[Michigan CG]

.........................The $ per square foot on the appraisal has to be quantified based on real market data. The appraisal provides no support for the $20 per sf figure.

Is it acceptable to ask how/where the $20/sf figure was derived? And adjust value if necessary?.........................

It is my opinion that basement areas and basement finishes are the most undervalued item by appraisers and that few can offer support for their adjustments.

http://appraisersforum.com/showthread.php?t=189692

http://appraisersforum.com/showthread.php?t=189693

$/sqft is not something we as appraisers use to calculate value. it is something that was made up by agents long ago to give a false sense of value to the buyer and seller. it cannot be relied upon as a true measure of market value.....

I completely disagree. $/SF when used correctly is a very good indicator of value when used correctly just as value per unit or value per acre or value per bedroom (in some markets).

In doing a market analysis $/SF is a valuable tool.

......Construction completion of a lower level could easily be done at $25-$30 sf all day......

$25-$30/SF for CONSTRUCTION, not remodel of a finished basement? Sorry, I don't buy it unless it is a basic construction with few walls or amenities.

My basement finish in Iowa was ~$50/SF for four rooms. I have seen basements where the cost was over $100/SF.

Now, the chance of a typical finished basement having a value of $57/SF is going to be rare.

 

[jbpeacock09]

Residential Guy you are right on, $40,000 was the cost to finish the 1400 sf by the previous owner.

TRESinc, you are correct, I believe the earlier appraisal was high. I feel the reasonable market value may be as low as $310K. I'm only trying to get from $282K to $295K to meet 80% LTV. 282K has me at 84%.

Webbed Feet, thanks for the detailed "appraiser's eye view" on market value vs cost approach in my situatuon, and your explanation of how $/sf can't be mapped the same in both instances.

Koya, you are correct the property example in the post is from a higher end section of the neighborhood. Unfortunaltely there have been no recent sales for finished basements in my section. So I had the realtor pull the comps from the higher end section where there have been multiple recent basement and non-basement sales, to compare the percent market value added by the finished basement.

I'll be where I need to be if the basement valuation is adjusted from $20/sf to $30/sf. Of course I could not state this directly in the dispute, as that would clearly be steering.

The post-HVCC situation "is what it is", I suppose. Appraisers on the street got the raw end of it. And AMCs are now very nice profit centers for the big banks.

As far as dispute response, the lender is a biggie (Provident). The Broker says it's 3 weeks on dispute response, which is past my rate lock expiration in 2 weeks. Rates have gone up since lock. I'm sunk if the response is past the lock expiration.

Any ways to speed the process? Is the majority of the delay on the lender side, with a backlog of disputes to review prior to consulting the appraiser? How do you view the homeowner that sends you an email with a positive "heads-up" goodwill gesture that a dispute is in the pipeline, including the details?

 

[TxArmadillo]

Any ways to speed the process? Is the majority of the delay on the lender side, with a backlog of disputes to review prior to consulting the appraiser?

Probably not. Lender, AMC, and appraiser would all be involved. It also depends on the quality of data you might provide to justify your case for the appraiser's review. That means you need to screen the data you get from your RE Agent that you'll provide. It better be right or you'll lose at least a few days in this process and further weaken your position.

How do you view the homeowner that sends you an email with a positive "heads-up" goodwill gesture that a dispute is in the pipeline, including the details?

Any appraiser should be willing to review his/her work.

I am going to point our here, OP, that your other thread on this same topic has a much more threatening tone as you've stated that you will file a state board complaint against Appraiser 2 unless you are satisfied with his review (and revaluation). If there is a serious error or omission, those should be corrected. But be careful with your threats. They can come back to you.

 

[Webbed Feet]

<....snip...>


I completely disagree. $/SF when used correctly is a very good indicator of value when used correctly just as value per unit or value per acre or value per bedroom (in some markets).

In doing a market analysis $/SF is a valuable tool.
<....snip.....>

TreSinc meant taking sale price(s) and dividing it by GLA(s) to get a factor. Then taking that factor and then taking that factor and multiplying by a specific property GLA to assume a value. It certainly is a terrible method. Most typically terrible as those that use it normally are gaming the outcome or too uninformed about valuation to be using it at all.