appraisal $22,000 less than purchase price

[linathinks]

Hello,

I hope someone can give me some advice and perspective. Spouse and I are buying a home in Rochester, NY (this community is so small, no doubt someone involved will actually read this!--oh, well). We made an offer for a great place in a fantastic neighborhood. Our offer of $207,000 ($2900 under asking price) was accepted, inspection came back looking stellar, we locked in a great interest rate (our credit scores rock) and 80-10-10 financing at our local credit union (also great deals on closing fees--they seem very honest) and all was proceeding smoothly. Called the loan officer yesterday for an update and--lo and behold--the appraisal came in at $185,000. Of course this nixes our mortgage--we can now only borrow 95% or $175,750--and we would have to pay PMI in addition to making up the difference in cash to the seller. By the way, this is a true appraisal (he went inside, etc.) and not a drive by or "appraisal alternative."

This was a shock to me--comparables on the same street that our agent showed us before we made the offer were $200,000 to $210,000 (older than a year, though). Our seller bought the house in 2004 for $204,000 and put on a new roof. There are other minor updates and it's in great condition. Seller also had house appraised at $210,000 14 months ago. Rochester's housing market is not really all the bad, compared to the rest of the country. Gains are either flat or a modest 1-3% from what I've been told. Seller, no surprise, is not willing to take a loss of 10% on his home and so we are exploring other options.

After much discussion with loan officer, it was clear our bank will most likely not budge on the appraisal. Getting a second one won't help much because they have only 2 people they work with and the second guy "is even more conservative" according to the officer. I have seen copy of appraisal and the three comps are IMHO not as nice as our place--one sat on the market for months (I wouldn't even look at it; old-ish carpet, dark trim, old aluminum siding, etc.), one is at a busy intersection, one is closer toward the "not as nice" part of the neighborhood. Appraiser did make appropriate adjustments for square footage, number of rooms, etc. The main problem is that I don't think a house that is truly comparable to ours has been sold in the last 12 months. So, though the bank is willing to look at comparables from the last 12 months, probably seller's agent won't find anything.

We went to our agent and said we could pay $197,000--this would be $12,000 directly to seller--and then we'd take different financing from our bank (5% down, etc., have to pay PMI and most likely a higher interest rate since we are technically putting less down on the mortgage). I thought this was a pretty fair offer, if hard for a seller to swallow--we were splitting the pain in that we'd pay more over the life of the loan and be more strapped for cash in the short term as well as taking a risk in paying $12,000 over what the home was valued at.

Seller has rejected this offer and says he needs the full $207,000 in order to move (obviously there's another house in the works, with contingencies, etc.). So my agent called me today and said to try this particular person at this particular bank because he "knows" the property and could make sure to get an appraisal at $207,000. I'm supposed tell him the terms of my deal at the credit union and ask him if he can match them.

Now....what do you think of all this? I suppose if I can get the exact same financing deal (unlikely since I know for a fact that this bank's closing fees are higher than ours) it shouldn't be a problem, right? I mean, I was willing to pay $207,000 and if my bank's appraisal had come in at that figure, I would have been happy and gone ahead. However, now that it didn't, I'm not sure whether to think that my bank is simply being way too conservative due to rising foreclosures or an expected downturn in the Rochester market (I plan on living in the house forever, but they certainly don't know that) OR if I should be wary of getting a mortgage from someone the seller suggested (the thought occurred to me that maybe this guy is their own loan officer and that this bank hold their mortgage). And how can they guarantee the appraisal will come in at $207,000? (Unless this is the same appraiser who did the one 14 months ago.)

It's certainly possible, I know, for appraisals to be wildly different, but which one do I put more faith in? My bank's or the other bank's? Do I try to get a third party independent appraisal at this point? (I've heard this is useless unless the bank will accept it.)

This is tearing us up--obviously we *really* want the house (ideal for us in so many ways) but I don't want to do anything totally and completely foolish. (Maybe just slightly.)

Thoughts, suggestions??

 

[Pamela Crowley (Florida)]

WHY would you want to pay more than it's worth? If your real estate agent was using sales from a year ago, your agent is NOT representing YOU. ANYBODY that will 'guarantee' an appraisal will come in at your contract price is dishonest and will stab you in the back.

Experience says the Credit Unions hire the most competent and honest appraisers. I would believe the Credit Union's appraisers over and above any other bank's appraisal and especially over and above any real estate agent. When the person has a commission that will only be paid to them if you close on the deal, it's time to be skeptical of their motivations. What has been happening with Countrywide, Fannie Mae, Freddie Mac, IndyMac Bank, and so many other involved in real estate mortgages in the news these past months, you already have plenty of reasons NOT to trust those on commissions in the real estate related businesses.

If I had to place a bet on which one in your deal is being the most honest, I most definitely would bet on the Credit Union and it's appraiser. Have you looked over a copy of the full appraisal report from the credit union? If you have a copy, I would be more than happy to help you understand it. My email is: pec514 @ yahoo. com (remove the spaces)

Addition: If the seller won't negotiate so you can use your own credit union with the way the real estate market is now, s/he's a fool. I'm thinking sh/e is playing with you because s/he knows how much you want this house. Please do not let your emotions get the best of better judgement. Walk away and let this seller come after you - and only at the lower price.

 

[stefan olafson]

I'll echo Pam, why are you willing to pay more for the house than it's worth? The appraiser working for their client, the credit union, had a copy of your purchase agreement with them when they did the appraisal on the property. They knew what the agreed upon price was, but, they researched the market and hopefully properly completed the appraisal and provided their client with an unbiased opinion of the market value of the home.

I just don't understand? You are free to pay any amount you want for the property, you just have to change your financing and come up with more money.

I've been in the business thirty years. When I started selling in 1979 and 1980 interest rates started to skyrocket towards 15%. When listing a property I always told the homeowners they could ignore my advice and list the property at any price they liked, if it was higher than my suggested price, I'd ask for a longer listing period. If their price were out of bounds higher, I'd extend my listing request out a few years. A property worth $185,000 today more than likely will once again be worth $210,000, it will just take a while. Isn't your money worth something in the interim?

 

[Brockway]

Hello,

I have seen copy of appraisal and the three comps are IMHO not as nice as our place--one sat on the market for months (I wouldn't even look at it; old-ish carpet, dark trim, old aluminum siding, etc.), one is at a busy intersection, one is closer toward the "not as nice" part of the neighborhood. Appraiser did make appropriate adjustments for square footage, number of rooms, etc. The main problem is that I don't think a house that is truly comparable to ours has been sold in the last 12 months. So, though the bank is willing to look at comparables from the last 12 months, probably seller's agent won't find anything.

I would definitely not trust a loan officer that the sellers suggest. You should not pay more than the house is worth. If your credit union trusts their appraiser's judgment I would "probably" trust it as well. Having said that, I've seen some ugly appraisals out there (some with high values, some with low values). Did he take adjustments for the comps location at a busy intersection or for condition? Did you actually see the interior of the sales he used or are you basing your opinion of the condition on internet photos? If he was forced to use old sales in his appraisal, are there any pending sales that your appraiser included to support his value?

I am wondering about the large value discrepency in two appraisals completed only 14 months apart. Rochester has not seen the steady decline in values that other areas of our nation are experiencing. It is possible that the first appraisal was "pushed" so the sellers could refinance or obtain a home equity line of credit but that does not explain how the value dropped almost 10% since the home was purchased only 4 years ago. Our market has been fairly stable.

I think it would be prudent to pay for an independent appraisal but if your lender does not accept it (and they won't), you have wasted your money. Your only options appear to be: A) find other comparables that you feel better represent the property you are purchasing and appeal the appraisal or B) look for another house with a buyer's agent who is looking out for your interests, not the sellers.

I am both an appraiser and a real estate agent in Rochester, NY. Feel free to pm me.

 

[linathinks]

Thanks for the input. Of course "what a property is worth" is a constantly shifting target--witness the appraisal done 14 months ago (eons in real estate market time, I know) that had it at $210,000.

Perhaps this added tidbit will help: I think what is happening here is a variant of "best house on the block syndrome." I have seen (and seen inside, which the appraiser hasn't) many of the comparables on the appraiser's report. They simply don't compare to this property. But that's neither here nor there--the standard is to compare the home with other properties sold in the same neighborhood over the last 12 months. Obviously, I will ultimately have to decide how much to pay and what kind of financing to take. I don't expect the appraiser's forum to make that decision for me.

My real question had to do with deciding between various appraisals, and determining which is the most authentic. I agree that one should consider the recent appraisal over the 14-month-old one, and that the credit union's appraisal is most likely more "independent" than one requested/ordered/provided by the seller.

But--does it make any sense for me to get an independent, outside appraisal for added information--for example to bring back to the seller to help negotiate a price reduction? Seller now thinks that my bank appraisal is so incorrect as to be laughable. Are appraisals really all so similar that I can expect a second one to be exactly the same as the one my bank did (so why get another)? Or are they all so wildly different that, again, getting a second one makes no difference at all? (This, actually, was the perspective of my loan officer: "Any other appraisal you may get could be so different from ours it would be like comparing apples to oranges." Her perspective was that they only care what their two appraisers say.)

So--waste of money to get a second appraisal? Or useful piece of information?

 

[linathinks]

update--resolution

Hello all,

A quick update and thank you for your input. After much research, including informal opinions from this forum and from 2 other local appraisers who would have appraised "our" property at $207,000, we stood firm with our offer of $197,000. The seller accepted last night. Majority opinion seems to agree that our original appraisal was quite conservative but sound and unable to be legitimately contested at this time, because the other relevant comp (selling for $213,000 after seller concessions) is sale pending. The more generous appraisers would have given greater credit for the excellent condition of our property and considered the sale-pending comp (it's scheduled to close in two weeks and the appraisal came in at $220,000 and was accepted by the bank).

So we feel that the $197,000 is a fair price and we get to stick with our own bank with their excellent service and interest rate. BTW, a friend of mine who is a bank manager said that he is starting to see more Rochester appraisals in the last month or so come in about 15% below price. In this case, I think our financing package--we got probably the last 80-10-10 (with low-interest-rate HELOAN) available--was a factor in the bank's assessment of the situation. They just are not willing to take the risk on lending 10% against the equity in this climate. Calling around to 4 lenders and speaking with a broker, it became clear that no one was willing to do home equity financing at the time of sale anymore and that it's quite difficult to even get a second mortgage in this area, no matter how attractive you look to lenders.

So, thanks to all those who wrote to me, I appreciate it.
Best,
L.

 

[Webbed Feet]

Would have?

Linathinks,

A real estate appraiser that is "conservative" is a poor appraiser. A real estate appraiser that is "generous" is a poor appraiser and may lack ethics as well. Both of these types of appraisers either have serious problems professionally, or they are simply being unfairly labeled by people who have no real inkling what it takes to produce a good quality real estate appraisal.

A real estate appraiser what would tell you what they "would have" appraised any piece of real estate for.... is a bloody unethical idiot that needs to retake most of their education over again.

Webbed.

 

[CANative]

WHY would you want to pay more than it's worth?

Because they liked the property more than most people and were willing to pay what the seller was offering it at.

Market value is based on words like "probable" and "typically motivated." The property may have suited their needs more closely than it suited the needs of "typical buyers."

 

[JTip]

we got probably the last 80-10-10

You would probably be jumping up and down with joy paying less that asked but since you are putting zero cash down and NEED it to be the higher price in order to save pmi, I can see why you are upset. Does not mean I agree with it.

You are better off in the long run.

 

[BRCJR]

..........................................................................................................................After much discussion with loan officer, it was clear our bank will most likely not budge on the appraisal. Getting a second one won't help much because they have only 2 people they work with and the second guy "is even more conservative" according to the officer?................................................

Sure would hate to be either one of those appraisers....they are labeled as conservative.

I as an appraiser do not want to be labeled as liberal or conservative.