comparables from superior neighborhood

[anvemi]

We are in the process of buying an partially updated, basic 4/2 single family home in a non-gated community with no amenities (pool or clubhouse). The seller (a realtor) bought it as a foreclosure, fixed and updated it. We negotiated the asking price down a bit based on recent sales in the immediate neighborhood and added a clause to contract saying the house has to appraise to the selling price (feeling it still was about $15-20,000 overpriced since a same model house with pool had just sold for the same price).

We just saw the appraisal and the value came higher than the purchase price. The appraiser had used 2 comparables from a nearby guard gated community with pool and clubhouse. The selling prices of these 2 houses were about $30-50,000 more than similar houses in our non-gated/no amenities community. The appraiser had adjusted down for sf/baths/pools but not for what we think is superior location since people are willing to pay $$ for the guard gated security. The third comp used was from our neighborhood with remarks "a distressed sale that was sold under market value". Is gated vs. non-gated an issue in an appraisal? Why would he not use two other sales within the neighborhood that per realtor were regular sales of similar size homes with values similar to the third comp? Is there anything we can do?

 

[Smokey Bear]

Sounds like you got a number hitter. It might have even been influenced somehow by the lender. Unfortunately, your contract condition has been satisfied. You should send your concerns about the appraisal, in writing, to the lender, along with any sales info that you have. Out of curiosity, how far did the appraiser travel from his/her office to do this appraisal?

 

[Smokey Bear]

Another note, if the lender is not responsive about the out of neighborhood comps with no location/amenity adjustments, I would take your concerns to the boss, and the bosses' boss etc. until you get someone who is willing to reject the apprasal and get a legitimate one.

If you tell us what city you're in, we can recommend an appraiser who can do a formal review of your appraisal. It will cost some, but not nearly as much as the excess cost of the property.

 

[hastalavista]

Anvemi-

It will be difficult (if not impossible) for anyone on this forum to address the specific factors of your issue.
However, in general, one would presume that a gated community, where homes are selling for $50k more than homes in the non-gated area, has some kind of location premium that should be adjusted for.

As to the 3rd comp referenced as selling "below market value", that may or may not be true. There is a debate on this forum among appraisers about the appropriateness of using properties that have been foreclosed and then are being resold (on the open market, usually listed on MLS) as a "comparable".
In my opinion, just because a property is owned and listed by a bank does not make it a "distressed property" if that property is actively competing against non bank-owned properties for the same buyer.

I think all of us would agree that you have the basis for legitimate concern about the credibility of the appraisal. The first question is, "how was that appraisal ordered"? Was it ordered by your lender? Was it ordered by the seller? If ordered by the seller, you should not rely upon it. If ordered by your lender, that creates a difficulty (I doubt if they are going to reconsider the appraisal; you can always switch lenders but I don't know how practical of a solution that is).

You can always file a complaint against the appraiser with the state board that regulates appraisers. There may be no personal benefit to you in this transaction, but if the appraisal report was done by an incompetent appraiser, then everyone benefits if that appraiser is identified by the regulators.

Finally, you could obtain your own appraisal. However, if you do, the lender (by regulation) cannot use it for the lending decision. The lender might consider it and obtain another appraisal from a different source, but who knows?

Here are my two observations based on your post:
A. You bid on the house at a price higher than you really thought the house was worth and put in a contingency that the appraised value had to at least support your offer price. If part of the offering strategy was to rely upon the appraisal to support a lower price that you could then re-negotiate toward, that strategy did not work.

B. The appraisal report, as you describe it, definitely has some significant issues that are not appropriately addressed in the report. I assume you have the entire report and have read all of it. The use of gated vs. non-gated homes should have been explained in the narrative portion and the reason for making or not making and adjustment should have been discussed. You said there are other homes in the neighborhood that you looked at (non-gated) and they were not used in the report; the obvious question is "why not"?


I suggest you talk to your lender's representative and tell them you don't think the appraisal is credible and want another one. You may have to pay for it, but that's your decision. If you do, you can use the second one as a gauge to judge the first one's credibility. If they are widely different, then I suggest you file a complaint (based on everything else you say). If they are very similar, hopefully the second appraisal report explains what the first report left out.

Good luck!

 

[anvemi]

The house is in Coral Springs, FL and we are seriously starting to lean towards getting a review or new appraisal.
Thanks for the help.

 

[OminousRun]

The house is in Coral Springs, FL and we are seriously starting to lean towards getting a review or new appraisal.
Thanks for the help.

In general, guard gated vs non guard gated communities probably have "some" superior location, but it's probably more than just the "gate" aspect.

How far away is the guard gated neighborhood from your property? Even if they are close by, I often see gated sections of communities, while there are other non-gated sections of communities, and there are usually minimal differences between sections.

I'd look at quality of homes (Construction, appeal, age), in the gated neighborhood to determine if its actually superior. Often guard gated communities in Florida are "custom built", superior construction. If your non-gated community has tract homes, it shouldn't be compared with a gated community with custom homes - even if they are of similar size and age.

Other things to look for might be site sizes between communities, level of upkeep, curb appeal, community features (golf course, lake access, parks, etc.)

Additional things that might indicate differences in location are school districts and municipalities.

 

[anvemi]

To answer the earlier guestions; the appraiser came from a nearby town about 15 miles away and the appraisal was ordered by the lender.

Thanks for the insight to Florida housing. After a little research I found out that indeed the houses in the guard gated "estate" community, which is only about half a mile from our community, are custom built and it is advertized as "luxury community" by realtors. Our non-gated community definitely is not custom built since the same models repeat around the community.

 

[Mike Kennedy]

Anvemi-

It will be difficult (if not impossible) for anyone on this forum to address the specific factors of your issue.
However, in general, one would presume that a gated community, where homes are selling for $50k more than homes in the non-gated area, has some kind of location premium that should be adjusted for.

As to the 3rd comp referenced as selling "below market value", that may or may not be true. There is a debate on this forum among appraisers about the appropriateness of using properties that have been foreclosed and then are being resold (on the open market, usually listed on MLS) as a "comparable".
In my opinion, just because a property is owned and listed by a bank does not make it a "distressed property" if that property is actively competing against non bank-owned properties for the same buyer.

I think all of us would agree that you have the basis for legitimate concern about the credibility of the appraisal. The first question is, "how was that appraisal ordered"? Was it ordered by your lender? Was it ordered by the seller? If ordered by the seller, you should not rely upon it. If ordered by your lender, that creates a difficulty (I doubt if they are going to reconsider the appraisal; you can always switch lenders but I don't know how practical of a solution that is).

You can always file a complaint against the appraiser with the state board that regulates appraisers. There may be no personal benefit to you in this transaction, but if the appraisal report was done by an incompetent appraiser, then everyone benefits if that appraiser is identified by the regulators.

Finally, you could obtain your own appraisal. However, if you do, the lender (by regulation) cannot use it for the lending decision. The lender might consider it and obtain another appraisal from a different source, but who knows?

Here are my two observations based on your post:
A. You bid on the house at a price higher than you really thought the house was worth and put in a contingency that the appraised value had to at least support your offer price. If part of the offering strategy was to rely upon the appraisal to support a lower price that you could then re-negotiate toward, that strategy did not work.

B. The appraisal report, as you describe it, definitely has some significant issues that are not appropriately addressed in the report. I assume you have the entire report and have read all of it. The use of gated vs. non-gated homes should have been explained in the narrative portion and the reason for making or not making and adjustment should have been discussed. You said there are other homes in the neighborhood that you looked at (non-gated) and they were not used in the report; the obvious question is "why not"?


I suggest you talk to your lender's representative and tell them you don't think the appraisal is credible and want another one. You may have to pay for it, but that's your decision. If you do, you can use the second one as a gauge to judge the first one's credibility. If they are widely different, then I suggest you file a complaint (based on everything else you say). If they are very similar, hopefully the second appraisal report explains what the first report left out.

Good luck!

Excellent post! I agree.

 

[anvemi]

Could you please give us a referral for an appraiser in Coral Springs, FL area? Thank you.