Failed FHA appraisal, need advice.

[Blackguilt]

Currently attempting to buy a 4 unit building with an FHA loan through Wells Fargo. Final mortgage amount to be 107k, Asking price was 120k
"assessed value" was 119k

The issue is comparable sales, the appraiser came back with no comparable sales in the last 12 months of a 4 unit in that price range. There were a few sales of "slums" basically but nothing on the upper end.

Currently looking at a FHA property reject due to lack of recent comparable sales. I am confident though that the appraiser did not do his job properly. Wells Fargo used a guy that is 45 miles away from this market, has no experience in this market. Did the physical walkthrough on Oct 31st, did not receive the appraisal until Dec 6th. This whole time he kept saying that we would have it on Friday. Every week, during that time span. He is asked by underwriting to search competing markets and returns later that day with "there are no comparable sales in competing markets" It leads me to believe that he did not bother to even look.

Do I have any recourse?

Failed FHA appraisal, need advice.

 

[William K]

Unfortunately not all properties meet the criteria for an FHA loan. This can be due to a number of reasons one of which is there is insufficient data to meet FHA / HUD appraisal guidelines or requirements.

From what you state it would not be in the least surprising that the appraiser kept going back to the AMC (appraisal management company) for Wells telling them he had no comparables which met their guidelines, to which they kept expanding what they would accept as comparable properties, by allowing comparables from farther and farther away.

It could also be that the appraiser just didn't know how to handle a complex property appraisal (limited data). Unfortunately it is not uncommon for appraisers unfamiliar with 2-4 unit property appraisals to accept an assignment only to fail when thrown any type of unexpected deviation from a standard property.

If your working with a real estate agent see if they can provide comparables which support the contract price and meet the lender/ FHA criteria. If your agent can't find comparables which meet the criteria then that should answer your the question pretty quickly in that, at this time, there just isn't data that supports the value in accordance with FHA appraisal requirements.
Unfortunately there's nothing that can be done if the data just doesn't exist that is required by FHA. Not all properties meet FHA requirements. FHA is not looking to insure the unusual property even if it's in good condition.

 

[Wm. Hattaway]

Your lender can submit properties that they feel are more comparable to the subject property. They would then (hopefully) be forwarded to the appraiser who would review them and comment as to why he did or did not use them.

 

[hastalavista]

Currently attempting to buy a 4 unit building with an FHA loan through Wells Fargo. Final mortgage amount to be 107k, Asking price was 120k
"assessed value" was 119k

The issue is comparable sales, the appraiser came back with no comparable sales in the last 12 months of a 4 unit in that price range. There were a few sales of "slums" basically but nothing on the upper end.

Closed sales within 12-months is an FHA requirement; so if there are no sales, FHA will not guarantee the loan.

I am confident though that the appraiser did not do his job properly. Wells Fargo used a guy that is 45 miles away from this market, has no experience in this market.

Did he tell you he doesn't have any experience in that market? If not, how do you know?

I regularly appraiser in markets that are 45-miles from my office location; I know them better than I know my own neighborhood (which I rarely appraise within).
Lack of market knowledge (which some call "geographic competency") may be an issue, but I wouldn't draw that conclusion solely on the 45-mile distance.
Do you (or your agent, assuming you are working with one) have comparable sales in the market where your potential purchase exists which the appraiser missed? If so, you can submit them to the lender and ask for a reconsideration.

Did the physical walkthrough on Oct 31st, did not receive the appraisal until Dec 6th.

That's at the long end, even by my standards. Although I was quoting clients 3-4 weeks during that time period (and my clients would accept that scheduling for refis... but usually not for purchases which are more time-sensitive).

He is asked by underwriting to search competing markets and returns later that day with "there are no comparable sales in competing markets" It leads me to believe that he did not bother to even look.

I think a lot of appraisers could make that determination in a day, so that doesn't seem unreasonable to me.
On the other hand, the term "competing markets" is pretty broad. A truly competing market is one that matches the subject's market in most significant respects (demographic, economic, etc.), where the same type of properties trade, and where the same buyer and seller dynamic occurs. If you have all of those ingredients, the markets are then competitive and it stands to reason that a property in Market A that is the same as a property in Market B will accurately reflect the value of such a property in Market B if the property were sold in Market B.
Notice that the important criteria isn't the same type of property but the same type of market. What would be an inferior-quality/condition property in one neighborhood and sell for $200k may sell for $600k in another (in my market areas, that could be the difference between Oakland and San Francisco, about 10-miles distant from one another).
So matching the same type of property isn't necessarily the hard part. It is ensuring that the markets are truly competing.
I'm of the opinion that with rare exceptions, there is always a "competing market". I'm also of the opinion that under certain circumstances (like, SOW requirements), trying to find that competitive market exceeds what is required, expected, or (in some cases) would be acceptable for the intended use of the appraisal.

What I get from your post (and I understand it is relatively brief) is that
a. the appraiser took longer than expected to do the job,
b. the appraiser is from 45-miles away, and
c. the comparable sales the appraiser used and the opinion of value the appraiser arrived at is lower than your contract price.

If you have comparable sales that are in your property's market, you can submit them for consideration; the appraiser has no choice in this matter and must at least consider them.
If you have comparable sales from what you think is a competing market, you can submit them as well. The appraiser (and lender) will determine if they are comparable in the required sense and determine if they are relevant to the assignment. If they are, they should be considered. If not, they should not be considered.

If the lender finds that the report isn't credible, the lender can order another appraisal to replace it. FHA is very concerned that lenders do not "shop for high values", so to make that determination, the lender has to have persuasive rationale.
Did the lender tell you they thought the appraisal report wasn't credible? If so, they can order a new one.

Of all the types of financing available, FHA is probably one of the most restrictive. It is one of the most restrictive because the FHA guidelines are designed to protect the FHA guarantees. In sum, they want conforming properties and recent evidence (the 1-year rule) that the opinion of value is supported by comparables in the subject's market. They are also strict on the physical condition of the property.

If the property being purchased (or refinanced) is an outlier (and therefore, more complicated in its valuation analysis): i.e., the best or worst in the neighborhood, FHA financing is usually not an ideal type of financing mechanism to obtain. Its typical purchase and refinancing programs are not designed for outliers.

If the lender determines the appraisal is credible (although not at the purchase price), it would be extremely difficult to get a replacement... at least for the next 6-months (I believe); Your property is assigned an FHA case number and the appraisal is assigned the same case number; that linkage stays in effect for a set time period. Another appraisal (unless the first is non-credible) will not take its place for FHA purposes. However, if you go conventional, another appraisal would be appropriate.

Good luck!

 

[Blackguilt]

I did a little searching myself, and found several comparable (in my opinion) properties sold in the last 12 months in similar nearby areas. They were all around the same price range that I am purchasing or more. What I looked at were nearness to a community college, town size, as well as major industries in the area (medical, elderly/developmentally disabled care). I could not tell if they were 4 units, only that they were multi-family homes converted from previously single family homes with the original structure being the same age of the home I'm trying to purchase.

The issue is that I did so using trulia and zillow, and upon reading several threads these are not reliable sites. Is there a more reliable type website that I can use to double check these properties, and maybe find out the number of units in them?

In regards to experience of the appraiser in my area: I was told by my mortgage agent that the appraiser had limited experience in this area, as well as the seller's realtor who escorted the appraiser through the property. I was also told that we were not allowed direct contact with the appraiser due to federal regulations.

What I get from your post (and I understand it is relatively brief) is that

a. the appraiser took longer than expected to do the job,
b. the appraiser is from 45-miles away, and
c. the comparable sales the appraiser used and the opinion of value the appraiser arrived at is lower than your contract price.

A) Yes, the appraiser took way longer than expected, and knew it was an FHA property. If he was having issues during this time finding comparable sales that did not meet FHA requirements he did not let the lender know, and turned in a report that was dissatisfactory. It was not until the non-conforming report was turned in that we were aware of the ineligible comparables and then asked for eligible comparables in competing markets.

B) In regards to experience of the appraiser in my area: I was told by my mortgage agent that the appraiser had limited experience in this area, as well as the seller's realtor who escorted the appraiser through the property. I was also told that we were not allowed direct contact with the appraiser due to federal regulations. He is from a major city (Buffalo, NY) and dealing with a much smaller location (Jamestown, NY)

C) The 107k financed is including a sellers concession, so the appraisal came back with a appraised value of 119k. The purchase price without the concession is 105k so therefore the appraised value is fine.


An additional question:
If I were to find a 2-3 unit property rather than a 4 unit that rented for less per unit, was in the same condition, and had less sq footage, yet sold for the same or more than the asking price, let alone the lower sale price, would I be able to make a case to use these as comparable properties even though they are not 4 unit buildings?

P.S. Thanks for all the help thus far everybody

 

[Walter Kirk]

The biggest part of your problem is that you used Wells Fargo! Wells Fargo used a cut rate AMC and the cut rate AMC used a clueless appraiser. May I suggest using a local lender experienced in loans on income property.

 

[hastalavista]

C) The 107k financed is including a sellers concession, so the appraisal came back with a appraised value of 119k. The purchase price without the concession is 105k so therefore the appraised value is fine.

Sounds like I am guilty of what I thought you did: made a faulty assumption.
I assumed the issue was that the appraised value was different (and, lower) then the contract price, but that doesn't seem to be the case?

Then is the case the appraiser used all closed sale comparables that were older than 1-year, or that the appraisal used non-4 unit comparables?

If the appraiser used closed-sale comparables that were older than a year, shame on him: FHA appraisers should know that FHA requires closed sales within 1-year (I'd have a problem with that if I were you... and your lender should have a problem with that as well).

If the appraiser used non-4 unit comparables and the lender wants 4-unit comparables, and the appraiser cannot find them, that's a problem.

I see no reason why a 3-unit property cannot be used for a 4-unit assignment.

By the way, FHA requires that 3-comparables be within 12-months... but there is no rule that says additional comparables cannot be more than 12-months.

Good luck!

 

[Blackguilt]

The biggest part of your problem is that you used Wells Fargo! Wells Fargo used a cut rate AMC and the cut rate AMC used a clueless appraiser. May I suggest using a local lender experienced in loans on income property.

Unfortunately, Wells Fargo is the only lender in my area that does FHA.

 

[Blackguilt]

Then is the case the appraiser used all closed sale comparables that were older than 1-year, or that the appraisal used non-4 unit comparables?

If the appraiser used closed-sale comparables that were older than a year, shame on him: FHA appraisers should know that FHA requires closed sales within 1-year (I'd have a problem with that if I were you... and your lender should have a problem with that as well).

If the appraiser used non-4 unit comparables and the lender wants 4-unit comparables, and the appraiser cannot find them, that's a problem.

I see no reason why a 3-unit property cannot be used for a 4-unit assignment.

By the way, FHA requires that 3-comparables be within 12-months... but there is no rule that says additional comparables cannot be more than 12-months.

Good luck!

The appraiser indeed used all comparables outside of 12 months. This is the issue. Everything else was fine, the appraised value, the condition of the home et cetera.

The lender obviously had an issue, and told the appraiser to redo it with comparable sales within the last 12 months for the first 3. Appraiser responded with there were none. The underwriter then authorized him to expand the search to competing markets and surrounding areas. Almost instantly the appraiser said that there were none in those areas as well. Currently it is in a second level of underwriter review, but we are looking at a FHA property reject due to lack of comparable sales

That is why I feel that the appraiser is not doing their job, because it took them a month to turn in a unacceptable FHA appraisal, and that was with just the local area. Then they are authorized to look in a much broader search area and respond in an hour that there are none. From my perspective it would seem that they did not even want to bother to try.

 

[Michigan CG]

Wells Fargo treats their appraisers like **** and therefore they tend only to attract ***** appraisers.