Appraisal Questions

[bsjay]

I just had an appraisal done for a house that I am in contract to buy. The appraisal came back over asking price for $115,000, which I know is good for getting the mortgage loan but I think that it might be slightly higher than its actually worth. I just would like to have thoughts on whether the appraisal could be correct or if the value could be higher/lower. It was appraised in 2018 for $68,000 and I understand with the fluctuations over the years would increase/decrease value( I am in no way saying that it is still worth just 68, just trying to give some history), with that said nothing major has changed to the house since except for maybe the updated pipes

So a little bit of info. I am buying from family and my uncle had set a price that I thought was really reasonable $80,000. It is a 4bd, 2ba house, 2 story- 1810 sq ft, on 4.6 acres, rural area. House(subject) was built in 1920's, has stone foundation, metal roof, 1960's kitchen-not updated-old vinyl flooring(needs replaced). Some of the piping that I could see was updated. About 1/2 of the land is wooded, has access to major road. Private well, public sewer. Has a water softener and outside wood/coal furnace and oil furnace. Has a driveway, no garage.

Land use according to report is 40% one unit, 10% commercial, 50% vacant. There are two easements that I am aware of neither of them mentioned in report. One is a right of way for the neighbor to use part of the driveway to gain access to his property. The other is a pipeline easement, that is not listed on the report that I saw (except for in the land use) and covers the bottom of the land, by the road, probably about .4-.5 acre and from my understanding of the easement, I can't do anything with that land, i.e. build, plant trees, anything that would interfere. Would this affect the price? If so, would he have been able to take that into consideration without putting anything in the report?

So how exactly do you choose comps? I figure that you try and match bedrooms, baths, lot size and area, also going to assume same number of stories.
Do you look at pictures from the inside or is the property already rated (c3, c4)? I was able to see pictures of the inside, so I would assume that the appraiser would also. One of the properties labeled c4(same as subject) has a more updated looking kitchen and just in general looks better inside than the subject.
Are pools a factor in cost? One of the comps has a pool(in listing description) but its not listed on the report

It also seems that he looked within the school district area but then put a price range of 80,000 - 150,000 and then extended the range because there wasn't enough statistical data for the area. One of the comps was 23 miles south of subject- 3.49 acre house. My opinion of this is he is saying that the property couldn't be less than 80,000, so if there was a house next door comparable to it that sold for say 70,000 it wouldn't be used( there is not though). Given this information, is there a chance that the property could potentially be less than the $80,000 agreed price? How do you choose a price range in a rural area?

I am sorry there is a lot of information and questions. If you could give me any insight into any of my questions, that would be great. I'm just a curious homebuyer and may look into getting a second appraisal done, just to see if its similar in value.

 

[TerryRohrer]

First, there is no magic in the prior appraised value. It was an opinion, and without a full review of that report and all the available data at that time, it is meaningless to compare the two. Having said that, there are few markets I have seen reported where prices haven't increased strongly at least during the past 2 years, and most for much longer.

It is unclear what the data you are referring to is intended to convey, but I would guess it is the general price ranges in the area, and the area was expanded to identify more sales by which to judge trends, of which increasing prices has been of particular importance of late. That is very general data and I would not draw any conclusions from it. There are likely some $40,000 homes and $250,000 homes that haven't sold, but that won't answer many questions even if you knew it to be fact.

It sounds like it is a small, slow market so every aspect is tough and conclusions are not certainty. It could be worth more, or less than the appraiser concluded. Giving them the benefit of the doubt, though, they probably go through the steps your trying to understand every day, and gain some sense of values and relationships that are applicable, and would likely reach more sound conclusions than someone looking to make a case that they might be mistaken. This is not a shot at you, but given an honest and competent appraiser with some experience, you are really trying to make the case that you can (I assume), with no education, experience, or training, show them how it is done. As always, that may be the case for a few appraisers, but won't likely be the rule.

The easements could impact value, but I expect you could hire your own appraiser to establish that and spend more on their fees than the difference it will make in value. If I were in your shoes, I would recognize that $80,000 for a house on 4.6 acres in the woods is almost unattainable for most of the population. I would also recognize that if anyone in the family finds out that your able to purchase a $115,000 property for $80,000, they will soon be asking for another $45,000. Were it me, I would close on the transaction tomorrow. From what the information you have provided, I would wager the odds are better that it is worth more than $80,000 rather than less.

 

[George Hatch]

The general idea is to search for comparables from the inside out - meaning looking first for more similar properties in close and gradually expanding outward until we accumulate enough sales to make some sense of it all. For rural properties involving atypical age/size/acreage combinations it might take a 20-mile radius to assemble enough such sales to make those comparisons.

As for what can possibly happen in terms of pricing, let me draw an example for you:

The median price for homes in Joshua Tree (San Bernardino County) in 2018 was $185,000. The median price in the last 6 months was $500,000. (that was for a 1962yb home of 1982sf on 1/2 acre). That's not to suggest the same would have happened in your area, but $68k/$115k = 59%, which the average increase over 4 years would have amounted to ~10%/year. All real estate is local, but there are a number of areas in the nation which have done that during the current real estate cycle.

Fun fact, the payment for a $68k mortgage in mid-2018 would have amounted to ~$242/mo. The payment for a $115k mortgage in early 2022 would have been $344/month.

Long story short, we cannot even form an opinion about what your market area looks like from where we're sitting. But I can say I've seen much stranger outcomes in the past.

 

[Tiffany Gibbons]

I just had an appraisal done for a house that I am in contract to buy. The appraisal came back over asking price for $115,000, which I know is good for getting the mortgage loan but I think that it might be slightly higher than its actually worth. I just would like to have thoughts on whether the appraisal could be correct or if the value could be higher/lower. It was appraised in 2018 for $68,000 and I understand with the fluctuations over the years would increase/decrease value( I am in no way saying that it is still worth just 68, just trying to give some history), with that said nothing major has changed to the house since except for maybe the updated pipes

So a little bit of info. I am buying from family and my uncle had set a price that I thought was really reasonable $80,000. It is a 4bd, 2ba house, 2 story- 1810 sq ft, on 4.6 acres, rural area. House(subject) was built in 1920's, has stone foundation, metal roof, 1960's kitchen-not updated-old vinyl flooring(needs replaced). Some of the piping that I could see was updated. About 1/2 of the land is wooded, has access to major road. Private well, public sewer. Has a water softener and outside wood/coal furnace and oil furnace. Has a driveway, no garage.

Land use according to report is 40% one unit, 10% commercial, 50% vacant. There are two easements that I am aware of neither of them mentioned in report. One is a right of way for the neighbor to use part of the driveway to gain access to his property. The other is a pipeline easement, that is not listed on the report that I saw (except for in the land use) and covers the bottom of the land, by the road, probably about .4-.5 acre and from my understanding of the easement, I can't do anything with that land, i.e. build, plant trees, anything that would interfere. Would this affect the price? If so, would he have been able to take that into consideration without putting anything in the report?

So how exactly do you choose comps? I figure that you try and match bedrooms, baths, lot size and area, also going to assume same number of stories.
Do you look at pictures from the inside or is the property already rated (c3, c4)? I was able to see pictures of the inside, so I would assume that the appraiser would also. One of the properties labeled c4(same as subject) has a more updated looking kitchen and just in general looks better inside than the subject.
Are pools a factor in cost? One of the comps has a pool(in listing description) but its not listed on the report

It also seems that he looked within the school district area but then put a price range of 80,000 - 150,000 and then extended the range because there wasn't enough statistical data for the area. One of the comps was 23 miles south of subject- 3.49 acre house. My opinion of this is he is saying that the property couldn't be less than 80,000, so if there was a house next door comparable to it that sold for say 70,000 it wouldn't be used( there is not though). Given this information, is there a chance that the property could potentially be less than the $80,000 agreed price? How do you choose a price range in a rural area?

I am sorry there is a lot of information and questions. If you could give me any insight into any of my questions, that would be great. I'm just a curious homebuyer and may look into getting a second appraisal done, just to see if its similar in value.

Did you have an appraisal done independently for a cash purchase or did your lender have the appraisal completed for a purchase loan?

 

[bsjay]

First, there is no magic in the prior appraised value. It was an opinion, and without a full review of that report and all the available data at that time, it is meaningless to compare the two. Having said that, there are few markets I have seen reported where prices haven't increased strongly at least during the past 2 years, and most for much longer.

It is unclear what the data you are referring to is intended to convey, but I would guess it is the general price ranges in the area, and the area was expanded to identify more sales by which to judge trends, of which increasing prices has been of particular importance of late. That is very general data and I would not draw any conclusions from it. There are likely some $40,000 homes and $250,000 homes that haven't sold, but that won't answer many questions even if you knew it to be fact.

It sounds like it is a small, slow market so every aspect is tough and conclusions are not certainty. It could be worth more, or less than the appraiser concluded. Giving them the benefit of the doubt, though, they probably go through the steps your trying to understand every day, and gain some sense of values and relationships that are applicable, and would likely reach more sound conclusions than someone looking to make a case that they might be mistaken. This is not a shot at you, but given an honest and competent appraiser with some experience, you are really trying to make the case that you can (I assume), with no education, experience, or training, show them how it is done. As always, that may be the case for a few appraisers, but won't likely be the rule.

The easements could impact value, but I expect you could hire your own appraiser to establish that and spend more on their fees than the difference it will make in value. If I were in your shoes, I would recognize that $80,000 for a house on 4.6 acres in the woods is almost unattainable for most of the population. I would also recognize that if anyone in the family finds out that your able to purchase a $115,000 property for $80,000, they will soon be asking for another $45,000. Were it me, I would close on the transaction tomorrow. From what the information you have provided, I would wager the odds are better that it is worth more than $80,000 rather than less.

I understand the appraised value is an opinion of the person doing the appraisal. As far as the price range, I guess that I am curious as to how you would determine that. I wouldn't expect the appraiser to look through all the houses that sold just to find comps.

Also, I am not trying to make a case for anything. Sometimes people like to learn new information which is why I posted the thread with the information and added questions. And assuming that I am asking questions about someone else's report to say they don't know how to do their job is ridiculous.

 

[Terrel L. Shields]

Sounds like a city appraiser doing a rural property.

 

[bsjay]

Did you have an appraisal done independently for a cash purchase or did your lender have the appraisal completed for a purchase loan?

My lender had the appraisal completed

 

[Tiffany Gibbons]

My lender had the appraisal completed

Was the appraisal in 2018 the tax assessor's appraisal or an appraisal done for a refinance, estate purposes, etc? I have done many appraisals in rural areas where the sales contract (usually between family members) was based on the assessor's appraisal for tax purposes. Some counties only perform reappraisal every 5 to 6 years so those values can be vastly out of date. Assessors are also elected officials so the values tend to be low so they will get elected again, especially in rural areas where there are few sales to support a significant increase in value. Also, our state has tax relief for the elderly, so tax values can be artificially low on some properties. I would hope that the appraiser on your loan actually inspected the property in person and also examined the comparable sales interior photos, etc. It would seem that you would have access to all that (including extended comments in the report) that would answer some of your questions, especially if you know 1 of them was 23 miles away. That seems far away but could be the market for similar older farmhouses on acreage. My advice would be to read the whole of the report. I don't see the purpose in paying for another appraisal when you seem to be in a good position.

 

[George Hatch]

I understand the appraised value is an opinion of the person doing the appraisal. As far as the price range, I guess that I am curious as to how you would determine that. I wouldn't expect the appraiser to look through all the houses that sold just to find comps.

Also, I am not trying to make a case for anything. Sometimes people like to learn new information which is why I posted the thread with the information and added questions. And assuming that I am asking questions about someone else's report to say they don't know how to do their job is ridiculous.

Not only have non-appraisers come here before to say they thought the appraisers was incompetent, but in a certain percentage of such threads they actually turned out to be right.