Help, we think our appraisal is wrong!

[Patricia Clarahan]

My husband and I recently received an appraisal on a new home we are purchasing and we feel it is not correct and that the appraiser just plugged a number in order to get close to our purchase price. Here are the specifics… The home in a development with several other similar homes, several of which are built by the same builder who built our home, even the same floor plan. In June the builder’s contract with his real estate agent ran out and he opted to not renew and to try to sell on his own, so he dropped the prices of all the homes by the amount of realtor fees that he would have paid on the sale. Our home was listed at $368k and another home down the street, same floor plan, was listed at $380k before the realtor contracts ran out. There were some differences in the amount of hardwood flooring and type of trim that accounted for the difference between these two houses. When the contract was dropped, the builder had already accepted an offer of $370k for the other house, closing mid July, and then dropped the price on ours to $345k. We gave a full price offer and added irrigation and a new refrigerator to get us to $350k, closing the first week of September. Our lot was larger than the one that sold for $370k, other than that, the only differences between the two houses were the trim and extent of the hardwood floors. We had been in both houses for open houses on multiple occasions, so we know this. The appraisal for our house came back at $350k, suspiciously close to our purchase price. The adjustments shown on the report to get from the $370k on the other home to the $350k on our house were plus $6k for “Site” (our lot being larger) and minus $25k for “Quality of Construction”. The comments said “adjusted for superior quality construction material and amenities compared to subject”. The two houses were built by the same builder during the same time period with almost identical amenities with the exception of the hardwood and trim mentioned above. The builder has even assured us there is not a $25k difference in the amenities/materials. Which is evidenced by the $12k difference in his original listing prices.

Now my husband and I don’t know much about this process, but the whole thing just doesn’t make sense to us. Our expectation was that it should appraise for $12k less at most than the other house. It just appears that this appraiser plugged a number to get the answer he wanted. Is that the way this is really supposed to work? If so, what really is the point of the appraisal? Is it just to validate that the bank can get out of the house what the person is paying, or is it to determine the actual value of the house? We thought it was the latter, are we wrong? We don’t’ want to hold a bad opinion of the profession, but right now we just feel like we’ve been wronged.

 

[Tim Hicks (Texas)]

Patricia,

Think how all the home owners that used the Real Estate listings to buy their homes feel. Your sale and the other sale has brought the value of their homes down. Unfortunately, the builder does not worry about this.

Now for your question. One sale does not make a market. A refrigerator is considered personal property and has no contributory value in the market. Although you say your home is similar to the other sale, it did sell for more with additional upgrades. Without knowing the actual upgrades for both your home and the other one, it is very hard to determine if differences in value. For instance, hand scraped hard wood floors cost in excess of $25 per foot in this market. Hard wood floor upgrades can get very pricey.

The appraisal you received had more than one sale presented. The appraisal opinion of value is based on the market analysis of a minimum of three sales. It is possible that the adjusted market range bracketed your contract sales price and the appraiser decided the most probable price was the contract price because it fell within the adjusted sales price range. I don't know. I have not seen the appraisal or the property.

Keep in mind that the builder has officially lowered the market for the neighborhood by removing the RE agent from the equation. Now, he is selling homes for less by not paying a commission. This will effect the market. Since I do not know the specific market or neighborhood, it would not be wise for me to comment on the effect without proper knowledge.

If you are very concerned, maybe you should hire another appraiser to do a new opinion of value. The cost might save you lost sleep or even better it might save you money. Please try to select an unbiased appraiser without letting him know the specifics and let him do a "blind" appraisal without too much "predetermined expectations" if you really want to know the truth.

 

[Restrain]

Yes, from what you have said, I have a problem with the appraisal. However, if the builder has cut the prices for the homes, and is still in the market, then the builder is setting the market for the neighborhood. The adjustment should have been for the change in the market, not quality.

If you want to spend the money, get a review. Cost you about $400. However, even if there's an issue, there's probably insufficient data to get the licensing boards involved. They've got a lot bigger fish to fry than this. Also, an appraisal is an opinion of value. The operative term is "opinion". The appraisal does not set your property value. The market does. When you go to sell it, the market will determine what your home is worth.

 

[Restrain]

Tim, you beat me to it.

 

[Jungle Boy]

I agree that "quality of construction" would not apply to interior finishes.
I agree with that the adjustment should have been for change in the market.
I think that if the adjusted sale prices of the comps bracketed the subject sale price, then the appraiser probably went for the sale price as his/her opinion of value. If the final opinion of value is very close to the sale price, many appraisers will use it as the opinion of value.

If this appraisal was completed for the bank for lending purposes, then don't worry over the opinion of value, because the intended use wasn't for you to base a buying decision upon.

 

[Mr Rex]

I agree that "quality of construction" would not apply to interior finishes.
.

Raimo, so where do you adjust for interor finishes, and what do you use "Quality of Construction" line item for?

 

[hastalavista]

Patricia-

There can be some good reasons why the appraisal report's value is the same as your purchase price.

One of the requirements for a mortgage finance appraisal is that the appraisal concludes a "pin-point" value. While this is the requirement, it is the consensus of both lenders and appraisers that there is rarely a case where a value can be opined to such accuracy. Most professionals will tell you that it is more accurate to provide a reasonable value range vs. a precise valuation. Your home, for example; do you think it is really worth $350k (your purchase price) vs., say, $347,500? Or, $355k? Probably not. The accurate value range for your house may be $348k to $358k. If one were to argue (which I don't) that the most accurate value in an accurate range is the mid-point ($353k), then the range is within 1.5%, and the $350k price is within less than 1%. Accuracy like that is rarely attainable in most professions, and certainly not one where the value is expressed as "an opinion".

The other house was purchased, I take it, with a Realtor and the associated fees. The builder than decided to sell the houses him/herself at a reduced fee. Now, if price before wasn't an issue, why would the builder do this? Chances are, price was an issue, so to cut the price and maintain the builder's profit margin, he/she let the Realtor go. This may be an indication that the homes were priced too high to sell, and that your neighbor paid a premium over market.

Having said all this, your point about "quality of construction" is well made. From what you describe, this adjustment makes no sense. And, unless the appraiser interviewed the builder before hand, it makes no sense for an appraiser (in my opinion) to make such an adjustment. So, I cannot explain why this adjustment was made. If the appraiser assumed the difference was because of "quality", then the appraiser made a false assumption.

There is great debate inside and outside of the appraisal profession regarding "hitting the sale price". Your experience with this purchase and your good question regarding your appraisal and the adjustments in it begs the question "Is it just pre-determined? And if so, why go through the charade of an appraisal?"

A poorly explained and/or poorly supported adjustment combined with a seemingly more than coincidental occurrence that the appraisal "concludes" a value precisely at the sales price certainly makes one wonder! But consider this:
While not all market participants act in their own best interests, many (if not most) do, by trying to get the best deal they can; this means the buyer is trying to pay as little as possible and the seller wants to get as much as possible for the house.
If you, as a buyer, did your homework and shopped around, you probably had a good idea of what the alternatives were to the house that you purchased. If you thought there was a better alternative at the same or less price, you'd have bought the alternative. And, if you were "atypical", and other buyers in the market saw the obvious great "buy" in your house that you didn't, they would have purchased it at the higher price. That didn't happen. The developer dropped his/her price, you felt it was fair, and made the offer (plus upgrades). What makes you think your contract price doesn't accurately reflect the true market value of your house? Sure, maybe someone would have paid a little more (such as your premium-paying new neighbors), and it is safe to say many would have paid less. But it sounds like you paid at or very near market. In such a case, its no surprise the appraisal concurs with your valuation.

Again, no excuse for the inadequately explained, supported and, apparently, unjustified "quality of construction" adjustment. But just consider your valuation techniques may be as accurate as the appraisers, and your purchase price is an accurate reflection of the home's market value.


That's my opinion; others will share theirs. Good luck and enjoy your new home.

 

[wyecoyote]

The builder has even assured us there is not a $25k difference in the amenities/materials. Which is evidenced by the $12k difference in his original listing prices

I haven't seen this said so I will add this. Cost does not equate to value. If something costs $12K to install does not mean that it is worth $12K. Without seeing the appraisals or knowing where you live I will take the other side of the argument than my fellow appraisers have taken. Perhaps the appraiser does have paired resales one with extensive hardwood floors and upgraded trim package and one without. Perhaps the one with sold for the $25K more than the other. Perhaps what happened is that the typical buyer looking at these two resales realized that to upgrade to the hardwood floors and trim package one would have to remove carpeting, remove trim, interior doors etc.. Then reinstall new hardwood floors and trim. Perhaps not just the waiting but the cost of these was more atractive to the typical buyer. Also keep in mind that the $12K figure the builder gave you is his costs new. Demo work can exceed (double or triple) the actual costs from my experince in dealing with contractors. If they have to demo something the demo can double or triple the costs.

As to the lot. You may have a larger lot but where is your house located in comparison to the other. In my parts cul de sac lots and corner lots in new subdivsions can carry a premium vs an interior lot. Also the slope of the lot can have an impact.

Last like some others have said. The builder has just set the market with your sale. You belive that you got a deal on your purchase. What do you think the first buyers who paid the $380K price. What will you think that if this builder drops the price on his last remaining homes (if he has any left) to say $320K? If this happens then your house that you bought for $350K will only be worth the $320K. The people that paid the $380's are now somewhere in the $350's range for their house.

 

[Doug in NC]

You really need to decide whether or not it is going to be worth your while to fight for a re-appraisal. If you do intend on going forward with it, as in any court case, you are going to have to be able to submit evidence showing why you think the appraisal should be increased. This might be quite difficult if you try to do this on your own (Because basically it is your opinion of value vs. a "professional" appraiser's, and you have a personal interest in a higher valuation. Who do you think is most likely to be believed?) If this is important enough for you to pursue, especially if this appraisal is going to harm you financially, I would recommend that you selectively find an experienced quality appraiser of your own to defend your interests. Unless you can effectively prove that the appraiser made significant errors, you are not likely to succeed in getting the valuation changed.

As was explained by others previously here, the appraisal is not likely to affect your actual property value. Appraisals are not public information, so you don't have to worry about others seeing it and determining that they will pay less for your home based on that information. The lender's appraisal should only be used to indicate to the lender that their loan dollars are protected with your home as collateral, if the loan ever went into default for some reason. In as little as six months (or less in some cases), the information in that appraisal is going to become outdated anyway, so a new valuation would have to be done in the near future to account for changes occuring in your market.

 

[Jungle Boy]

Raimo, so where do you adjust for interor finishes, and what do you use "Quality of Construction" line item for?

Mike, sorry didn't get to this earlier.

I normally add an extra category called "upgrades/features". In here I enter "standard", "partial UG", "upgrades", or "superior UG". This category is used to describe interior finishes, and any additional amenities the subject may have, such as upgraded floor covering, crown moulding if any, granite or solid surface counter-topsl, bathroom fixtures, travertine bath or shower surrounds, elevators if any, etc.

"Quality of construction" refers to the type and quality of construction.
In this category, I point out if the subject is CBS or Frame construction, and if the overall quality is average, avg +, or good.
In some areas, CBS houses sell for more than otherwise similar design frame/stucco houses. This in where I add that adjustment.