Believe I Am The Victim Of Incredibly Unfair Appraisal

[George Hatch]

I wasn't going to go into a war story on this but I ran into almost exactly this scenario on an assignment about 7 or 8 years ago. I was appraising a commercial property for a lender and they asked me to appraise the borrower's home for additional collateral for their loan decision.

I get there and the property is a 1950s home of about 1600sf. It's part of a small subdivision of homes consisting of units that were originally built out at 800-900sf, all be the same builder. So this unit has the funky addition that adds 60% more living area.

I had this property's sale history onhand so I knew what the previous transactions had been and could compare those prior transactions to other sales of the smaller homes in that neighborhood during those prior time frames. I had 2 other homes in that neighborhood that had also been overimproved so I also had their sales histories to compare to the prevailing trends in that neighborhood. I also had a nearby subdivision of (believe it not) 1970s homes of comparable size to my subject's 1600sf. So I had THEIR prior sales history to work with to identify how those other sales compared, both to the prevailing sizes in my neighborhood over time - including the current sales - as well as their performance compared to the larger overbuilt homes during the time periods of their prior sales.

Now this kind of research and analysis isn't difficult to do, but it is time consuming. At any rate, having done all this I had plenty of reason to value the property as I did. As you can guess, they were unhappy with my analysis and they complained to the lender I was working for in much the same way you described, except I hadn't compounded their aggravation with me by having the type of conversation with them that you said your appraiser did (which was incredibly dumb and unprofessional of them to do, BTW)

Like you, that borrower had a realtor friend because almost everyone has a realtor friend, and like your friend, their broker friend didn't think there was any different between a 1959yb home with 2 additions and a 1978yb home that was designed and built to that size. And then the broker had the temerity to mouth off about how I didn't know how to appraise houses because I'm a commercial appraiser and didn't know the market.

In my case, I had already anticipated the objections in advance and had addressed them in some detail in my original report. I proved my case in advance by showing how the comparison COULD NOT be made on that equal basis as demonstrated by the long term sales histories of these properties. My client weighed the broker's work and my work and they made their decision accordingly.

I've gone through this exact process in similar circumstances and with exactly the same results at least a dozen times over the years.

HOWEVER, what I'm describing is a very specific type of situation of a white elephant that is surrounded by inferior neighbors. It's not real common, and indeed your situation might not even come close to having all these elements so I'm not attempting to tell you that's what's going on here because I do not know what's going on in your situation beyond what you're telling us. The only reason I'm conveying it is to say there is a possibility, however great or small, that the appraised value is reasonable.

That's not to say I'm taking sides with this appraiser because I don't know what's going on with the property.

I do know I would NEVER have a conversation with a property owner of the type that you described. I would never use the word "overimprovement" with a borrower, make comments about old houses not exceeding $88k, talk about what i did in other assignments - none of it. I'm civil and polite because I try to be professional, but I never get emotionally involved with a property owner or their property. i don't "like" or "dislike" properties because my work is about the data, not my personal feelings. Whether its a palace or a hole in the ground a home is a person's castle and I would never disrespect that. By the same token if its a castle i never gush about those, either. If I follow through on these preferences the borrowers will hopefully have no clue of what's going through my head. Let alone have reason to suspect I dislike their house.

One reason I don't express any opinions in advance is because I know from experience that my opinions sometimes change by the time I get through my process, so I need to keep an open mind until all the facts are in.

My preference is to make contact with the property owner, exchange enough pleasantries to gain access and then be left alone to do my thing. Then at the end I'll have some questions and I will take notes on whatever they think is important. Not every appraiser does it that way but a lot of them do.

 

[Bonesteel]

My case would be the opposite, my home compares to about 20% of the nighborhood, with the other 80%of much greater value with a wide range of sizes and ages, I am definitely not either over improved or oddball or underimproved for the neighborhood, so my only conclusion as to "what it is" means is the original age and/or number of additions.

In your case can I assume you made adjustments to home (whether value was what client wanted is irrelevant) to account for the differences? Rather than just stating that the smaller homes are great comps? and as you stated, you obviously included a report justifying it

 

[Bonesteel]

Slightly off topic I'd like to share another war story and get your guys take on it, since it related to the "incureable" nature of age. My dad's next door neighbor bought the property in 2005 it was a 2 acre lot similar to all on the street originally a small bungalow built in the 40s with my dad's 1970s 3000 sq ft on one side, and a 1980s 2800 sq ft on other side.

He wanted the property but never the house, planned to doze it and rebuild 3000 sq ft 2 story. City would not let him rebuild where it was since it was only 5 feet from my dads property line (no objection from my dad there is a row of trees between and his house is 40 ft from line.) Long story short, they approved a complete rebuild as long as the wall on the property line was left standing. The stripped wall was temporarily braced on poles while a new basement was installed and an entire new house built around it, then that wall was replaced and the house finished. The city inspectors approved everything but the house is still listed as built in the 40s with its original size and the rest is additions
If he were to sell, how would you appraise, would you compare to 1940s house or a 2007 house. I understand his case is significantly different than mine, but curious as to how it relates to the "incureable" feature that is original age and construction.
(Sorry at this point my curiosity has gotten the best of me and I'm enjoying the conversation.)

 

[George Hatch]

My case would be the opposite, my home compares to about 20% of the nighborhood, with the other 80%of much greater value with a wide range of sizes and ages, I am definitely not either over improved or oddball or underimproved for the neighborhood, so my only conclusion as to "what it is" means is the original age and/or number of additions.

In your case can I assume you made adjustments to home (whether value was what client wanted is irrelevant) to account for the differences? Rather than just stating that the smaller homes are great comps? and as you stated, you obviously included a report justifying it

In that case the value of your home would benefit by proximity to the other superior properties - the inverse of what happened in the situation I described. Which if the final value was in the $120s actually would be notably higher than the $88k he specifically mentioned.

In real life there is no substitute for appealing the results of the appraisal with the lender. All we can do here is speculate, and (as an example) that's not necessarily helping you out when I post an example that is different than your situation. Best if you put your broker to work to identify other sales of remodeled homes in that age range and size, even if in other neighborhoods or if they're dated. You're trying to point out that your home isn't so unusual after all, and that the values for them aren't unduly limited. If that's what the data shows.

 

[George Hatch]

Slightly off topic I'd like to share another war story and get your guys take on it, since it related to the "incureable" nature of age. My dad's next door neighbor bought the property in 2005 it was a 2 acre lot similar to all on the street originally a small bungalow built in the 40s with my dad's 1970s 3000 sq ft on one side, and a 1980s 2800 sq ft on other side.

He wanted the property but never the house, planned to doze it and rebuild 3000 sq ft 2 story. City would not let him rebuild where it was since it was only 5 feet from my dads property line (no objection from my dad there is a row of trees between and his house is 40 ft from line.) Long story short, they approved a complete rebuild as long as the wall on the property line was left standing. The stripped wall was temporarily braced on poles while a new basement was installed and an entire new house built around it, then that wall was replaced and the house finished. The city inspectors approved everything but the house is still listed as built in the 40s with its original size and the rest is additions
If he were to sell, how would you appraise, would you compare to 1940s house or a 2007 house. I understand his case is significantly different than mine, but curious as to how it relates to the "incureable" feature that is original age and construction.
(Sorry at this point my curiosity has gotten the best of me and I'm enjoying the conversation.)

I'm guessing the reason they wouldn't allow putting the new house right on that spot was because it might have violated the minimum side setback criteria for new development.

As for the 1-wall rebuilds, those are common in certain areas under certain conditions. We're generally looking for utility and design/appeal, so if 98% of the home was built in 2007 then that's how the market would react to it. And that's the key here - we're looking for what we think the buyers and sellers will actually do. It's not our job to presume to tell the market what they should do, but to observe and report what they do as best we can.

 

[Bonesteel]

My home has only 2 24' sections of exterior wall that are original, but it's still cursed as a 1946

 

[Bonesteel]

In real life there is no substitute for appealing the results of the appraisal with the lender. All we can do here is speculate, and (as an example) that's not necessarily helping you out when I post an example that is different than your situation. Best if you put your broker to work to identify other sales of remodeled homes in that age range and size, even if in other neighborhoods or if they're dated. You're trying to point out that your home isn't so unusual after all, and that the values for them aren't unduly limited. If that's what the data shows.

I did appeal once expressed my concerns over the size of comp 1 and offered additional comps 4 miles away (clearly same neighborhood in every possible way neighborhood could be defined other than simple radius) one was virtually identical in every way including being located on same road except it was a 1925 2 story instead of a 1946 ranch, my bathroom significantly nicer, but overall very similar condition and amenities. Here is the response I recevieved.
Redacted addresses

I have reviewed the dispute and the appraisal.


Comp 1 is a perfectly suitable comparable. It is a nearby sale in similar condition located on a busy road like the subject.

Comp 3 is in a flood zone because it has a superior canal location ,this is a positive not a negative.

Comp 6 is listing and was not given weight, no effect on value.


Xxxxxxxxxxx is not on a busy rd and is far superior in condition/updates


Xxxxxxxxxxx (imho by far the best comp as described above). too distant and superior in condition updates


Xxxxxxxxxx too distant and superior in condition/updates


None of these sale would be considered good comparables for the subject as they are all superior in condition an updates, 2 are far to distant and the other does not have a busy rd location.


The C-4 rating is correct. The bathroom has been updated which is noted however the kitchen is very dated, most of the other items noted would be considered normal maintenance on a 72 yr old home.


The FNMA CU score is 2.3 reflecting the top 3 ranked sales were used. The appraisal is supported and acceptable

 

[Bonesteel]

Comp 3 is in a flood zone because it has a superior canal location

I'd like to see how he justifies this pairing it with other comps on the report
90 percent of canal homes in area(of which there is never a shortage) are elevation exempt, I had objected to this comp based on FEMA estimate of $180 month flood insurance required.

 

[Bonesteel]

I am certainly going to contest again but his time it will be directed towards bank (rather than politely directed towards appraiser and simply forwarded through bank)I will include mentions of his demeanour, but I would like as much knowledge and understanding as I can acquire about what to contest on the report and what to accept, before I pick apart everything on it. They don't seem inclined to want to send another appraiser or review of appraisal other than the response clearly from the original appraiser

 

[timd354]

I'd like to see how he justifies this pairing it with other comps on the report
90 percent of canal homes in area are elevation exempt, I had objected to this comp based on FEMA estimate of $180 month flood insurance required.

Well, if the lender rejected your appeal of the appraisal, then there is nothing else you can do with this particular lender. The only thing that you can do at this point is to make a loan application with a different lender, hoping that you will get an appraiser that appraisers your home for a higher value.