Home Refi - Very Low Appraisal Value on Finished Basement - Feedback Needed.

[jeremyf0923]

Hello,

I am in the process of refinancing my home with a 30 year fixed FHA loan through CitiMortgage. I recently received my appraisal back and it was lower than I expected. My hope was that my professionally finished basement would offset most, if not all, of the depreciation in home value (I am in Atlanta - home values down about 10%).

CitiMortgage requires that you go through an Appraiser Management Company that automatically assigns an appraiser to you - no more using an appraiser that you/your mortgage broker has a relationship with. This means there is no discussion whatsoever with the appraisor before or after regarding home value.

So now to my issue....

I have a professionally finished basement (1,252 sq. ft. per the appraisal). It is as nice or nicer than the above grade floors (i.e. heavy crown molding, tray ceilings, 8" floor molding, etc.). It includes a bedroom, full bathroom, game room with wet bar, and a home theater room with a raised floor and custom cabinets. The appraiser listed the value of my basement as $17,500. That calculates out at $13.98/sq. ft. I have called a number of basement finishers in Atlanta and they average $30-$50/sq. ft. to finish a basement similar to mine. It seemed to me they just plugged a generic basement value in the appraisal with no consideration for how it was finished. I think I could have legitimately finished it myself - nowhere near as nice as it truly is - and I would have received the same value. There was not even a note in the URAR stating the basement was finished with the features listed above. It mentioned my fenced yard, rear deck, etc. but not the finished basement. One other note, my basement is finished in a manner customary for my neighborhood - it is not overdone/overbuilt.

Once I received the appraisal and had an opportunity to review it, I was immediately alarmed by the above and submitted a formal dispute letter. CitiMortgage reviewed my letter and simply stated that they determined that fair market value for my basement was $17,500. This just seems ridiculous to me. I spent approximately $30K on it about 18 months ago. If there is one area that is not suffering it is home improvement/basement finishing companies. Since no one can seem to sell their homes, folks are staying in their homes and improving them. The cost of finished basements is not going down like home values.

With all of that said, I am looking to you - the appraisal experts - to finally put this issue to rest for me. Is it customary to place such a low value on a finished basement no matter the quality of the finish? Or did my appraiser do a bad job in giving me value where value was due? If you disagree with the appraiser's generic assessment, is there anything I can do to remedy this situation or am I simply out of luck?

Thanks in advance for your thoughts and feedback!

Jeremy

 

[LA Woman]

we need more information. tell us about the comps that were used on the report. were they similar to your home? how about the basements, were they finished?

 

[fifteen]

Change your lender. It appears CitiBank will not see the value you put in. They are pro-AMC so will not negotiate. Sucks I know. Banks are wary of loaning so they go with the cheapest and lowest value. If your credit is good kick em to the curb and get a real appraisal. AMC appraisers are biased to the client as they want to keep their burger king wages. You're right to question.

Typically a basement with similar finish to the main living areas will garner 60-70% or more of that in construction cost market value. Tough market where you are but I am impressed with the 8" trim. Your finished basement costs from contractors was $30-$50 sf. That doesn't include the actual area of the basement in construction costs. You wont get total cost return on your investment but with the quality you mention you didn't get a fair shake on the value. Get an independent valuation, or to save some money, get a free competitive market analysis from a realtor and then take 10% from that for a guide. I hope this helps, I'm sure more will have opinions

 

[Mike Kennedy]

http://www.remodeling.hw.net/costvsvalue/atlanta.html

the question not addressed is what Contributory Value in the Sales Comparison Approach demonstrated by the comparables sales did your local market indicate typical buyers PAY for that amenity - not Cost nor Depreciated Cost. Cost may contribute More than, Equal to, or Less than (often 75, 50, 25 or 0 return on investment) depending on buyers perception and payment for a Finished Basement or ANY characteristic of a property.

a. it may be the lender utilized an out of area appraiser.

b. it may be the actual on-site appraiser was a trainee under the supposed direct supervision of an experienced Appraiser - who forgot to supervise.

c. it may be the local market's version of a finished basement is more in line with the description of one in the link above. Exceeding the "Joneses" in finish utility or quality is never a wise move unless that choice is for personal luxury and enjoyment - not necessarily short term ROI.

d. it may be the comparables did not support your local contractors apparently wide range of Cost factors (or even Depreciated Costs i.e. basement finish is not brand new).

Options:

change lenders, INTERVIEW the next Appraiser regarding years of experience, years of LOCAL expertise IN your neighborhood, license level (i.e. assistant/trainee, novice, or seasoned)

contact leading local real estate agents requesting a free CMA containing ONLY closed sales with finished basements that sold within the prior 3, 6, 9, and 12 months. Review the listings, call the listing agents to ascertain the QUALITY of the finished basements.

Retain the services of a Local Certified Appraiser or seasoned Licensed Appraiser to formally Review that first appraisal. Should there be serious discrepancies and/or departures from reality, communicate them to Citi.

Result:

a. the market data may confirm the Residual (partial) Value for your basement indicated in the first report.

b. the confirmed market data may indicate the appraisal's conclusion re contributory value is unsupported by the facts on truly more similar comparable sales.

d. the confirmed market data may indicate less than the contributory value is typically paid by buyers than that indicated in the report - including $0.00.

e. identify truly closed sales with similar quality finished basements which indicate Buyer's actually pay much closer to Cost than the report indicated, and send them to Citi with request for reconsideration based on FACTS.

p.s. it has never been acceptable nor legal for any mortgage loan originator or owner to attempt to skew a value opinion by communicating a minimum or requested value in advance of completion of an appraisal.

 

[BRCJR]

I tip my hat to Mike Kennedy, as that was a good post and informative for the OP

 

[Cliff]

basement value

The value of your basement should be what a typical buyer would pay in the current market.
In order to prove what your finished basement is worth, an appraiser needs to finds recent comps (I think Citi wants appraiser to use comps within 3 months if possible) with similar finished basements.
If there are not any recent comps with similar basements, then it becomes diffucult for an appraiser to prove that to a lender.

I recommend- review the comps on the appraisal with similar basements if any. If none, do some of your our research. If you find similar comps with similar basements that the appraiser didn't use, call him/her and ask them.
Also, contact other local appraisers and/or broker to help out.

 

[jeremyf0923]

Thanks for all of the responses! What a great resource this is for homeowners with appraisal questions/concerns!

In relation to changing the lender - that is not an option. I locked in at 4.625% 3 weeks ago. Rates are not that low any longer. If I went with a different lender I would have to re-lock and my rate would go up.

In relation to the comps the appraiser used, she used three homes that sold in my neighborhood within a mile of my home - all above grade floors very similar to mine. One that sold on 5/28/08, one that sold on 6/25/08, and one that sold on 2/27/09. The most current one - 2/27 - was a short sale. I was less than pleased that they used a short sale since it significantly impacted my sales comparison approach value, but there were no current (within 3 months) homes to use that sold "legitimately" - not a short sale or foreclosure. So I assume they were forced to use the short sale. Would love to hear your thoughts on that? Is it right to use a short sale or foreclosure as a comp? Is that now becoming customary in today's market?

One of the comps used had a finished basement. I was actually friends with this person before they moved so I saw their basement. It was comparable to mine, although mine was finished nicer. The thing is, the appraiser had no clue if that basement was finished like mine or if it was a do-it-yourself finish because she didn't see the basement. She simply didn't make a +$17,500 adjustment on that comp as she did with the other two that had no finished basement.

Many of you are saying find homes sold in the last 6 months with basements finished like mine to use as a comp. The problem is there have been very few, if any, homes sold in my neighborhood that aren't short sales or foreclosures (which is a shame because I live in a very nice swim/tennis community). None of these had finished basements except the one I mentioned above. Furthermore, I would have no way to know how a basement was finished compared to mine without seeing it and I can't just go knock on someone's door. I don't mean to be sarcastic - just don't know how I would accomplish what you are suggesting.

Mike Kennedy - in relation to your questions/suggestions specifically:

• What Contributory Value in the Sales Comparison Approach demonstrated by the comparables sales did your local market indicate typical buyers PAY for that amenity? I am not sure if I am clear on this question. I can tell you that there is no mention of my finished basement anywhere in the URAR. Nothing regarding how she identified that $17,500 was the appropriate value. Nothing about the state of the local market regarding buyers perception of a finished basement and its value. When I say nothing, there was literally nothing in the URAR about my basement other than the $17,500 figure. (NOTE: I would be glad to attach a copy of the URAR if you would like to review it; however, I wanted to ask before I did it because I didn't know if that was a violation of any forum policy)
• The appraiser was not out of the area - their office is about 3 miles from my house.
• My basement is not finished in a manner that exceeds the "Joneses." I understand what you are alluding to, and absolutely considered that when I finished it. I wanted my basement finished in a manner that when you walk down the stairs you feel like you are on another floor of the house - that it is not the basement. I definitely did not have it finished in a manner that you would consider "over the top."
• I can't change lenders - see above.
• Will a real estate agent be willing to provide a free CMA knowing that I am not listing my house? I like this idea assuming I can find a realtor that is willing.
• Retain the services of an LCA to review my appraisal. I like this idea too. How much do you think an LCA would charge to review my appraisal? I have already spent $330 on the appraisal and there is a good chance that Citi may not even look at a 2nd dispute from me.

I look forward to your additional feedback.

Thanks!

Jeremy

 

[jeremyf0923]

Hey - in addition to my previous post, I still have a question for you guys/gals that I don't believe was answered. How would you have handled my finished basement value in URAR if you would have done my appraisal? Would you have put a total finished basement value with no explanation (as my appraiser did)? Or would you have put a total finished basement value and explained how you came up with that value in a separate notation? Or would you have used a market acceptable per square foot cost to establish the value of my finished basement?

Thanks again for all of the feedback!

Jeremy

 

[Mike Kennedy]

Fastest Way to Find a Real Estate Appraiser[FONT=verdana,arial]>[/FONT][FONT=verdana,arial,helvetica][SIZE=-2] [FONT=arial,helvetica]Enter 5 digit Zip Code: [/FONT][/SIZE][/FONT]

Jeremy, my best advice is to look above the Thread Discussion for the Search tool above. Addressing specific market trends, characterstics, buyer's preferences, possibly increasing prevalence of short sales etc...... is something you REALLY need Local, Expert Advice on.

Please do let us know how things work out. Good Luck.

 

[fifteen]

Ditto, well said

I tip my hat to Mike Kennedy, as that was a good post and informative for the OP