A Tale of Two Appraisals

[tonywilkey]

Hello,

Background: I own a LOT in Texas. (Near Brownsville) I applied for a "One time close construction Loan" from a national mortgage company. The loan was for constructing a home on my LOT.

LOT Cost: $37,500
Quote for Construction of home:$265,000


Everything went smoothly (but slowly) at first and I paid $400 for an appraisal. Meanwhile the subprime mortgage mess escalates and the mortgage company stops offering all contruction loans and many types of mortgages. The loan officer assures me since my loan application was started earlier so they will still close on the loan.

The appraisal comes in at $310,000. YEAH!! Thats good enough. The loan officer says he will process the loan and we should close in about 1-2 weeks. Three weeks go by and I get asked for more documentation requested by underwriter. No problem I provide the information.

Two more weeks go by? I finally hear from the loan officer. He tells me that the underwriter wants another appraisal? I question this and after a long "Discussion" he admits that it has nothing to do with me or my credit ect. The market for mortgages has dryed up and they don't think they will be able to sell the mortgage. Why is this my problem? I refuse to pay for a second appraisal. He asks me if I want to withdraw my application. I say NO. I tell him that they need a valid reason to deny me the loan and they don't have one.

I tell him that it's obvious to me, that they want the second appraisal to come in low so that they can deny the loan. He says they have no control over the appraiser, he is randomly selected from a pool. Blah Blah...Yeah sure. He tells me later the same day, that he ordered the second appraisal and that I wouldn't have to pay for it unless the loan closes.

Two more weeks go by. I find out that the second appraisal came in at $213,000. $97,000 LESS THAN THE FIRST APPRAISAL! My loan was denied.

Questions:

How can two appraisals on my LOT/Home Plans be that far apart?

How can I tell which appraisal was right? (If either)

Should I pay for another appraisal before I apply for another loan?
(Most lenders have stopped offering construction loans anyway)

Any other suggestions?

To my laymans eye, the main difference between the two appraisals is that first appraisal compared my project to houses similar to mine that sold for about $300,000 and the second appraisal compared my project to houses that sold for $200,000.



Your help would be appreciated.

Tony Wilkey

 

[Michigan CG]

Do you have copies of both appraisals? You are entitled to them. If you don't have a copy of each one get them ASAP. That is the first thing to do.

 

[Kevin A. Spellman]

Hello Tony

The problem you described is quite common. You applied to a mortgage company that does not fund the loan or make the lending decision, you are at risk. Up here in MA most construction loans are done in-house with banks or credit unions. The second appraisal was most likely requested as the first appraisal was unacceptable by the investor who funds the loan or the appraiser is not approved with the specific lender. The loan officer was most likely well aware of the problem when they received the first appraisal. The loan officer orders the second d appraisal to satisfy the investor requirements.

The problem I observed b y the data you have stated a $265,000 home on a $37,500 lot could be considered an over-improvement. Lot is worth more or you a have a high price builder. To fund a new construction loan for a single family could be difficult if there are vacant new homes within your market segment.

Tony you must have an accurate value/price of your vacant lot. Once you have come to the conclusion of the land value. Then apply the typical cost of a typical home and add the two. This can give you a price level and compare this price with recently sold homes. The homes do not have be new, but possess a comparable finish as yours. This is an exercise a typical appraiser would review.

 

[Lobo Fan]

Plans and specs appraisals are very tricky. A lot depends upon the quality of the data. Was either appraiser guessing as to quality and finishes? Did they know if you have a tile, slate, or shingle roof? Do you have high quality flor coverings or FHA grade carpet? Are you using 2 x 6 or 2 x 4 construction? ust a floor plan is not enough and could lead to the wide spread.

I have no knowledge of your market, but there are some that have dropped 30% or more in the past one year.

If you have copies of both appraisls, drive past the comps (and if possible peek inside). Maybe there are models or others near finishing?

You may be building a $200,000 house.

Both appraisers should have been seeking the same market value. Appraisers are not working on your behalf or the lenders. The wide range in value could be attributed to poor plans and specs, or to market conditions. If you can prove that either appraiser was acting under direction from the lender, then you may have cause for action against all the players.

There may be legitimate reasons for the wide spread. I appears you suspect monkey business. You may want to develop an e-mail conversation with the appraisers (this way it is on writing). Some appraisers hit numbers so often they no longer consider it a big deal. They might just freely admit to bowing to a lender request, either up or down.

Ordering another appraisal would be just for your own edification. You could not use it to get another loan. A new appraisal is one assignment. Reviewing one or both of the previous appraisals is another assignment. Reviews are as much work as a full appraisal.

If you can prove monkey business then your state appraiser's board would be the next stop. Just be sure you have them nailed. Or, if the reports are truly bogus a review would reveal the problem. Then the review appraiser would file the complaint. the appraser's board cannot get you any money back, but they can punish the poor appraiser(s).

Good luck..

 

[Lloyd Bonafide]

He probably doesn't have the second appraisal, because he didn't pay for it, and isn't entitled to it at this point.

 

[tonywilkey]

Do you have copies of both appraisals? You are entitled to them. If you don't have a copy of each one get them ASAP. That is the first thing to do.

Yes I have copies of both appraisals.

 

[tonywilkey]

Hello Tony


The problem I observed b y the data you have stated a $265,000 home on a $37,500 lot could be considered an over-improvement. Lot is worth more or you a have a high price builder. To fund a new construction loan for a single family could be difficult if there are vacant new homes within your market segment.

Tony you must have an accurate value/price of your vacant lot. Once you have come to the conclusion of the land value. Then apply the typical cost of a typical home and add the two. This can give you a price level and compare this price with recently sold homes. The homes do not have be new, but possess a comparable finish as yours. This is an exercise a typical appraiser would review.

LOT's and land in this area are quite cheap. My Lot is approximately 0.75 acres, corner lot, New subdivision with curbs and all utilities. The smallest lot in the subdivision is 0.5 Acres.

County tax appraisal is 38,600.

First appraisal estimated Lot as $45,000
Second appraisal: 38,600

 

[tonywilkey]

Plans and specs appraisals are very tricky. A lot depends upon the quality of the data. Was either appraiser guessing as to quality and finishes? Did they know if you have a tile, slate, or shingle roof? Do you have high quality flor coverings or FHA grade carpet? Are you using 2 x 6 or 2 x 4 construction? ust a floor plan is not enough and could lead to the wide spread.




There may be legitimate reasons for the wide spread. I appears you suspect monkey business. You may want to develop an e-mail conversation with the appraisers (this way it is on writing). Some appraisers hit numbers so often they no longer consider it a big deal. They might just freely admit to bowing to a lender request, either up or down.

Ordering another appraisal would be just for your own edification. You could not use it to get another loan. A new appraisal is one assignment. Reviewing one or both of the previous appraisals is another assignment. Reviews are as much work as a full appraisal.



Good luck..

Both appraisers had full plans and specs. My builder talked to both appraisers to discuss finish and features. I would say my home would be slightly "Overimproved" compared to the typical house in the area. However there are many homes in the area much nicer than mine.

What does "Overimproved" mean anyway?

Overimprovements:

ICF (insulated concrete forms) Exterior walls.
2 Bay/4 car 1000sqft garage.
Spanish tile roof (debateable, many tile roofs in this area)


I emailed the second appraiser about his appraisal. He said that he used "the best comparable sales available" and that my home was overimproved for the area.


Thanks,
Tony

 

[Walter Kirk]

An overimprovement is an improvement which is larger, better or just costs more than the typical improvement in the market area. If you build a house which is an overimprovement you will not be able to sell it for much more than the average price of a house in your market area and a prudent lender will not lend on it.

 

[Lobo Fan]

Over improved means spending money you could never hope to recover. For example Viking and Sub Zero appliances, custom cabinets, and granite counters in a Hotpoint and formica neighborhood. You may have spent the money, but will the typical buyer pay the extra for it. I am looking at one Monday morning that may be a similar case. It is a flip, and they may have gone overboad.