Guinea Pig

[Lyle Snave]

OK, I guess I am the guinea pig for this particular forum. Here goes...

My wife and I are very interested in buying a home in Mt. Tabor, NJ, a quirky little village where all of the houses are from the late 1800's and are all unique. Mostly Victorians, some Colonials, all extremely small (our lot is typical, 38' by 40'). Ours is a Victorian with a mahogany porch, rough basement with washer and dryer, nice living room, dining room and magnificent kitchen, three bedrooms and large attic (although not quite tall enough to stand in). They have done about $50,000 in renovations over the past couple of years, including a new cherry/soapstone kitchen with stainless appliances.

Here are the three main questions:
1) How accurate would the appraisal be on a quirky, unique house in this type of quirky, unique neighborhood:
2) Although the house seems to have three bedrooms, two of them are small and have no closets. Bedrooms? Or is it a large one bedroom with a couple of other rooms? If so, what does that do to the appraisal?
3) If we put 5% down and the house appraises 5% below selling price, are we going to be looking for another house? How does the appraisal affect the lending amount?

Sorry there are so many questions packed into one post, but this seems like the best place to get answers. Thank you for any advice you can give!!!

 

[Pamela Crowley (Florida)]

Lyle,

You have come to the right place. I'll try to answer some of your questions. Maybe some of the New England appraisers on this forum can answer a little more in depth regarding the quirky victorian area you are in. (not much of that in Florida) Sounds like location, condition and quality of updates might be major issues here.

1) This does sound like a difficult area to be able to get real accuracy in. There could be many subjective adjustments of which a dedicated appraiser experienced in that market will have the information to make as correctly as is possible.

2) No closet = no bedroom. This is the standard. This also makes the appraisal more difficult to complete and have a lender accept. Again, the correct appraiser will be able to explain this fully and properly in the appraisal report. If you end up with an appraisal that states it is 3 bedrooms, RUN away from your loan officer/lender. You have a bad one and his pet appraiser will make whatever value (s)he is told. RUN, don't walk.

3) If the appraisal is 5% below the purchase/sale contract price, you'll have to renegotiate the contract with the seller or pay the difference or move on to the next one you find that you like. What affect this will have on your loan is up to your lender. Typically, the lender uses the appraised value or the contract price, whichever is lowest, to determine the % down and loan amount. Various lenders use different criteria.

FYI, the cost of improvements/updates does not necessarily equal the added value of those improvements.

The real key is finding an appraiser that actually knows how to appraise unique properties and is familiar with that area. I don't know how to find the really good ones so I don't know how to advise you on this. The best advise I can give you is that some of the best in the nation are regulars on this forum and DO NOT trust your loan officer to use an ethical appraiser. Unfortunately, many, many loan officers are paid on commission - as in, the higher your loan the more $$ they make. Appraisers are constantly told to value a property too high or they won't get paid or get any further appraisal orders. If you're really not sure, hire an appraiser for yourself, even if you have to pay for 2 appraisals. A few hundred dollars is much better than losing thousands. I wish I could say it's rare to have an inflated appraisal but....

Good luck! I hope you get what you need and that it is what you want.

 

[Mountain Man]

Pam gave you a good answer, just a couple of more thoughts.

This is an old home, the bedrooms do not have closets, that was is what is called functional depreciation. It was the standard in the 1800's, but not today. Curable? That depends on the cost to cure (adding closets) vs added value. The appraisal report should make mention of these facts. That is not necessarily bad, just stating the facts. Some loan officers will not like that “language” in the report, because it will mean more work and research to pass through underwriting. However, the competent and knowledgeable appraiser will have the resources to do the job correctly, to explain the market data so that a reader (or underwriter) can completely understand the appraisal report.

I my past, I had the occasional opportunity to do some "historical homes". The real problem is that what is a historical home to a sales agent, may not necessarily be a historical home to the market. Just because it is old, has been remodeled, and looks good, does NOT make it a historical home. Historical value must be proven and documented, that mean lots of data to weed through. Ever watch the Antique Road Show? Seen when someone brings in something really nice that great-great-great-grandpaw said it came from Napoleon’s personal collection? The appraiser says: well, it is pretty, but I don’t think so.

Appraising is not a perfect science, especially when dealing with unusual properties, you must get an opinion from someone that truly knows the neighborhood. This is not the time to bring in someone from half of the state over, because they are on the lenders approved list. Sorry, I don’t know your area or anyone nearby, but we have many on this forum that may speak up.

Mell
N.GA.

 

[wyecoyote]

I agree with pam and M Legget. Absoulutly hire another appraiser you LO will more than likely hire the one that will make the value. This will give you some peace of mind, better to spend a couple of hundred dollars now than to find out later that you over paid. Do you live in the area? Have you looked at all the other victorian houses in the area and this is the one that will give you the most for your money? Someone on this forum probably knows an appraiser in that area that is honest and ethical.

Ryan

 

[Lyle Snave]

Wow, thanks for the responses! I think our dilemma is that the house invariably will under-appraise, therefore we just need to decide how much we are willing to pay for the environment (the village feel, close to the train to NYC, close to center of town, cute Victorian, etc). We also have the "found the perfect house" illness that forces us to believe that if we don't get this house then we will be forced to live in crappy apartments for the rest of our lives.

Oddly enough, my loan officer actually said something to the effect of "I think we can get it to appraise pretty close to the selling price." as if she had some say in the matter. Frightening.

 

[wyecoyote]

Lyle,

If that is what the LO said. Definately get a second appraisal paid by yourself. Would you not be willing to spend and extra couple of hundred dollars now than to find out later that you overspent on the house by thousands if not tens of thousands.

Don't be in such a rush. It is probably your largest investment that you can make. If you lose the house there are still others out there. Do you have a realtor? Also spend time looking around the area. See what is there. Can you get just as good a house in the area for cheaper? Or a house that while not as good with the upgrades is still priced reasonable for your needs?

Ryan

 

[Mountain Man]

Lyle,
Yeah, that sounds familiar and it is frightening. Just keep a good look out for yourself. The real estate agents usually work for the seller, the loan officer works for himself, the closing attorney and appraiser usually works for the lender, no one works for you... unless you hire them. That is the real estate bizniz.

Good luck in your negotiations and I hope you get it, but don't pay too much because you love it now. Now is not the time to love it, that leaves you with no negotiating power, love it AFTER you bought it. You will have many years to continue loving it, ahhh weekend maintenance.
Mell.

 

[Chris LaPlante]

Lyle, If you're considering getting your own appraisal, which you probably should. Call Bob Edgar at Certified Valuations.

They are located in nearby Randolph.

973-361-2700.

Just tell him Chris sent you.

Good Luck!!

 

[Ruth Langkawel]

I agree with my esteemed associates, with one exception. The axe does not fall for all lenders on homes with bedrooms without closets, or for one bedroom homes. The lender wants to know if the home is marketable. If the appraiser can show that it is marketable in that neighborhood - this will not kill your deal.

I have done many historic appraisals. When the home is in a neighborhood of similar homes - as you describe your neighborhood - bedrooms without closets CAN be called a bedroom, IF it is typical in the market area and price range.

Many homes of the era that you describe have no closet in the bedroom. Clothing was stored in an armoire. Reproduction armoires are available, and quite the rage in upscale historic neighborhoods in my area. I have been unable to show a "functional depreciation" (amount that the market will reduce sale price due to this feature) for historic homes in my area. So do not run screaming from the appraisal over that one issue.

You are well advised to hire an appraiser of your own to make sure that you are not overpaying in order to pad the commissions of the sales people and loan officer though. If your doctor told you that you needed an operation that would cost you what this house would, wouldn't you get a second opinion before proceeding?

The one issue that you mentioned that gives me more concern is that 2 of the 3 bedrooms are small. If those bedrooms have a width of less than 8', or a floor space of less than 96 square feet (100 in some areas), then they may not be considered bedrooms. This would be a building code issue for this particular municipality - and is likely to deter the typical buyer in the market area.

A 1 bedroom home can still pass marketing muster IF, there are adequate sales of similar homes within the neighborhood within the past year. A good local appraiser can determine that for you.

 

[Lyle Snave]

I just wanted to finish this thread by thanking you all for your posts. You were very helpful and accurate in your opinions. In summary: the appraisal came in at $240,000, the sellers didn't have any permits for the $50,000 worth of renovations that they had done to the kitchen, bedroom and porch and they refused to come down from their asking price of $260,000 citing "other buyers" who were kicking down their doors with pockets full of cash hoping to buy the house. So we recinded our offer (pretty easy, since we never made it to Contract Pending, even after three weeks or so). Oddly enough, it has been almost a month since we walked away, and they just had an open house this past weekend. Hmmm....

My wife and I are also happy to announce that we found a much more realistic and appropriate house and are currently under contract for it. A 7 room cape on a half acre, within easy walking distance of the train for my wife's commute. Cheaper than the Victorian and twice the size. It needs a little bit of work here and there, but will be wonderful to fix up and raise a family in for years to come. We already have a few major improvements planned (increasing the size of the master bedroom, adding a bathroom and walk-in closet to the master bedroom, etc). As was posted earlier, we like it now and will eventually love it.

Again, thank you for your comments.