Help-Appraisal Square Footage Discrepancy

[AVoyles]

Hi,

I was supposed to close on the purchase of a home on the 28th, but the appraisal showed 120 less square feet than the previous appraisal 3 years ago. It appears the issue is a closet in the garage, which is only accessible from the garage. The appraiser in 2006 counted it as square footage and the appraiser now is not. The sellers are paying for another appraiser, selected by my bank of choice, to revisit. Obviously, I don't want to pay for house that doesn't exist so I'm not sure which approach would even be correct. This will be a deal killer if the square footage is the lower number because the sellers already had to come down on their price/sq ft due to the first appraisal. Anyway, which approach would be correct in determining the square footage?

 

[William Rightsell]

If it is only accessible from the garage, then the area is NOT included in the square footage - gross living area (GLA). The current appraiser is correct in excluding it.

I would also offer a few more comments. Why would you feel as though you are "paying for house that doesnt exist"?? When you walked through the home prior to making an offer, you had no idea if the 120 SF in question "existed" or not. If the home is acceptable to you (meets all your needs) - which I am sure it does or else you would not have offered to purchase it - then why does the small variance in GLA matter to you? If it were soooo critical then perhaps you should have determined the GLA PRIOR to making an offer...or at least addressed the issue in the offer to purchase/contract.

Don't get too hung up on price/square foot. There are MANY MANY variables which enter into that (the value of the lot for example) and many times that is not a very optimal or meaningful way to compare homes. Sometimes it can be, but many times there are too many variables and too little data to make that analysis really meaningful.

If I were the seller and you picked this as an excuse to not close on the deal, I'd keep your earnest money. (Assuming all the other terms of the contract were met).

Just my thoughts....

todd

 

[BRCJR]

I agree with Post # 2.

What is the issue? You or the lender?

 

[Jay Emmar]

I also agree with Mr. Rightsell. Please expand on the reason as to why this is a "deal killer" - ? A 10X12 storage closet seems pretty insignificant in regard to the overall transaction

 

[AVoyles]

When I made an offer on the house, it was based on the idea that the information they provided was accurate - including square footage. Currently the house appraised at $40,000 less than the purchase price. We met in the middle, since the sellers were adamant that the square footage on the appraisal was wrong. Our meeting them in the middle is contingent on getting an appraisal that works for our financing. If the square footage in the appraisal was wrong, a second appraisal most likely would have shown the appraised value of the house to be $5,000 less than the second agreed upon purchase price. So, we would have paid $5,000 over appraisal. However, there is no way the seller is going to come down another $20,000 and I don't blame them.

The issue is both me and the lender. No bank will finance above appraised value. So, I would have to come up with another $20,000 above and beyond down payment and closing costs. Plus, I would be starting $20,000 upside down, which doesn't make much business sense. We were planning to stay in this house for a while, but I don't want us to get in a bad financial situation in case something happens.

As far as the earnest money, standard real estate contracts have a clause that the offer is based on being able to obtain financing, which is contingent on the appraisal. They don't have the option of keeping my earnest money. Trust me, it's an awful situation all the way around. We already closed on our current home and are renting it from the new owners until Monday. I have a 13 month old daughter and two dogs and we have to move on Monday, but right now we're not sure where we're moving to.

 

[Paul Isolda]

If it is only accessible from the garage, then the area is NOT included in the square footage - gross living area (GLA). The current appraiser is correct in excluding it.

I would also offer a few more comments. Why would you feel as though you are "paying for house that doesnt exist"?? When you walked through the home prior to making an offer, you had no idea if the 120 SF in question "existed" or not. If the home is acceptable to you (meets all your needs) - which I am sure it does or else you would not have offered to purchase it - then why does the small variance in GLA matter to you? If it were soooo critical then perhaps you should have determined the GLA PRIOR to making an offer...or at least addressed the issue in the offer to purchase/contract.

Don't get too hung up on price/square foot. There are MANY MANY variables which enter into that (the value of the lot for example) and many times that is not a very optimal or meaningful way to compare homes. Sometimes it can be, but many times there are too many variables and too little data to make that analysis really meaningful.

If I were the seller and you picked this as an excuse to not close on the deal, I'd keep your earnest money. (Assuming all the other terms of the contract were met).

Just my thoughts....

todd

This is an excellent post. You're backed into a corner having sold your current house. Find a way to work this out with the seller. What makes more sense, paying a few thousand more for this house or walking away and renting for months until you find something else? The sellers also want to sell and they are going to run into the same problem with the next buyer when the house does not appraise for the sale price. Get them to work with you on a compromise.

 

[Peter LeQuire]

"When I made an offer on the house, it was based on the idea that the information they provided was accurate..."

I infer from this that your objection is as much based on some sort of principle and that you have been offended because of a misrepresentation of living area. You don't tell us how the total living area of the house, but it would have to be pretty small for 120 sf of closet space to be material to the overall utility and appeal of the house.

That said, if you and the seller have "met in the middle" - $20,000 less that your initial offer and $20,000 more than the current appraisal - you've already agreed to be underwater, based on the first appraisal. Are you going to be any more at ease if a different appraiser "blesses" the new sales price? What if the first appraiser is right in his value opinion? What if the second appraiser reports a different living area?

Were I in your position, I'd be less concerned about 120 sf than I would be about paying $40,000 or $20,000 or $15,000 more than the appraisal, unless, of course, the value level of the house is so high as to make those differences relatively insignificant. Wm. Rightsell is correct in pointing out that there are many variables other than $/sf.

Finally, since, absent some strong interest in this particular house, is the residential market in your area so strong that there are not other houses on the market which would satisfy the needs/wants/whims that this particular house does? If the market is oversupplied, you may be in a position to negotiate a better "deal" and to walk away if you can't do so.

 

[hastalavista]

No doubt this creates a pressure situation for you/your family around the holidays; I (and I think I can say all of us) can sympathize with that.

You've already made your deal with the seller. Remember that the primary purpose of the appraisal is to provide to your lender an unbiased, independent, and credible opinion of market value of the subject. The area in the garage (as you describe it) would not be considered as living area by any competent appraiser I know.
A 120sf closet is the size of most bedrooms, so I'm not exactly sure what function this area serves; it may or may not have some contributory value but it is not living area.

It is the lender that relies on the appraisal to make its mortgage-finance decision. Obviously that decision can have a significant impact on a buyer's ability to purchase a home (I don't want to imply that the outcome of the appraisal does not affect you). But if the appraised value equaling your contract price is dependent on the 120sf being "living area", a new appraisal (done by a competent appraiser) will not change that.

 

[AVoyles]

I do really like this house, but I'm trying to not let it cloud my judgement. It is different from most of the houses in its price range in that it has beautifully done stained concrete floors and an exposed brick wall in the middle of the home. It is a very nice home. When we agreed to the $20,000 more than the appraisal, it was written that the appraisal would have to come in at that price because we were working on the assumption that the square footage was measured incorrectly since they had an appraisal from 2006 with an additional 120 square feet. I will eventually be able to find another home, but I will have to go into temporary housing until that happens.

Really, the problem isn't the square footage, except in where it puts the house value. I have no problem with the living space available in the house. I have a problem with the lower square footage because it affects my ability to get financing. We simply don't have an extra $20,000 to spend on top of my down payment and closing costs. If the appraisal were in the ball park of the purchase price, it would be a different story. My main question was in whether that garage closet should be counted as square footage as it was previously, and I think you guys have answered my question.

My question is why can't I use the appraiser's $/sq ft for this particular house as an accurate way to judge the value of the property? When he appraised the home, isn't he taking all of the factors into consideration?

 

[AVoyles]

I really appreciate all of your comments. The only reason I am hung up on the 120 sq ft is that seemed the easiest way to get the appraisal to a figure that would allow the financing to work. It seems that the previous appraisal was most likely inaccurate, so that 120 sq ft isn't going to be found. The 120 sq ft matters only in the $ value it would add to the appraisal - using the most recent appraisals' $/sq ft and multiplying it times 120.

I will let you guys know where the second appraisal comes in. Is it likely there will be much variance in appraisals performed within a week and a half of each other?