My Home's Appraisal Triggered A Desk Review

[allabouteat]

First, thanks for your forum. It's been incredibly informative during the home-buying process.

We are buying a vacation/rental cabin. After we made the offer, we realized that while we could afford the home, its listing price was much higher than comparable homes. (In trying to educate myself about the appraisal process, I found this forum. Thanks again.)

The more research I did, the more I was convinced it wouldn't appraise and it was overvalued. We got the appraisal this morning, and it was $2K over the offer. My jaw dropped — but when I finally picked it up off the floor, I read the Freddie Mac SSR included in the appraisal filing. And, it seems like the Freddie Mac AVM agreed with me. Among the findings:

• "This appraisal is not eligible for collateral representation and warranty relief. (1) The overall quality of the appraisal is insufficient. Please review the Freddie Mac findings for more detail. (2) Considering HVE results obtained for this transaction, the risk of overvaluation is not within Freddie Mac limits. This finding cannot be resolved with a resubmission."
  
  
• "Appraisal Quality Risk is assessed at 5 indicating a Very High risk of appraisal deficiencies"
  
  
• "Valuation Risk is assessed at 5 indicating a Very High risk of overvaluation."

The appraisal has already been kicked up to a desk review.

There's a number of elements that seem weird in this appraisal to my amateur eyes (including a 17% upward adjustment to six-month-old comps — real estate in this area rose 4% YOY), but the question I have is: Is a desk appraisal essentially another appraisal, without going in person? And how big a deal is it for an appraiser and his appraisal to receive the worst ratings?

 

[Tim The Enchanter]

Is a desk appraisal essentially another appraisal, without going in person? And how big a deal is it for an appraiser and his appraisal to receive the worst ratings?

The desk appraisal will probably rely on the physical info from the original appraisal. If it is desk, that means nobody goes out. But if it is obvious like you say, they should be able to reach an appropriate conclusion. A lower number, presumably. Hopefully you have a contingency in the contract so you can cancel or re negotiate.

It is a big deal and can cost an appraiser possibly a lot to get that kind of rating.

Good luck.

 

[Meandering]

First, thanks for your forum. It's been incredibly informative during the home-buying process.

We are buying a vacation/rental cabin. After we made the offer, we realized that while we could afford the home, its listing price was much higher than comparable homes. (In trying to educate myself about the appraisal process, I found this forum. Thanks again.)

The more research I did, the more I was convinced it wouldn't appraise and it was overvalued. We got the appraisal this morning, and it was $2K over the offer. My jaw dropped — but when I finally picked it up off the floor, I read the Freddie Mac SSR included in the appraisal filing. And, it seems like the Freddie Mac AVM agreed with me. Among the findings:

• "This appraisal is not eligible for collateral representation and warranty relief. (1) The overall quality of the appraisal is insufficient. Please review the Freddie Mac findings for more detail. (2) Considering HVE results obtained for this transaction, the risk of overvaluation is not within Freddie Mac limits. This finding cannot be resolved with a resubmission."
  
  
• "Appraisal Quality Risk is assessed at 5 indicating a Very High risk of appraisal deficiencies"
  
  
• "Valuation Risk is assessed at 5 indicating a Very High risk of overvaluation."

The appraisal has already been kicked up to a desk review.

There's a number of elements that seem weird in this appraisal to my amateur eyes (including a 17% upward adjustment to six-month-old comps — real estate in this area rose 4% YOY), but the question I have is: Is a desk appraisal essentially another appraisal, without going in person? And how big a deal is it for an appraiser and his appraisal to receive the worst ratings?

I'm not going to say the appraisal was right or wrong.

But, from this report, the house you want to buy has a basement.
The box above that says none of the comps have a basement, and that the appraiser made significant adjustments to at least 2 of the comparables.

We don't know if the appraiser made a significant adjustment for the basement and narrated that because Freddie's computer doesn't read what we write, it just plays numbers.

And the box above that, leads me to ask if there were other sales of vacation homes in the neighborhood.

This is one of the problems with the computer model. It only sees the range with the price differences and kicks out a possible error. It does not mean there is an error, only that there is a possibility of an error, because it really only likes when you buy a house that is really really, really similar to at least 3 or 4 other homes that recently sold and are close by.

So,

The more "unique" your property is, the more likely you see a GSE error report of 5.

.

 

[allabouteat]

To your point re: computers not getting it, the basement element is a nonissue, really. I'm not sure why the info says we have has a basement; it has a dirt area beneath the house. And he made no adjustment to any of comp for it. So that's totally random.

However, he said we have dual-pane windows and we don't. (I wish.) We have no garage; he gave a $2K credit to a comp that has an oversized 2-car garage (and a ton of bells and whistles for which he did not adjust, including owning a solar power system outright). This area is comprised of virtually nothing but vacation homes.

I know there are no perfect comps, and ultimately it's an educated opinion. But I am really glad we are getting a second opinion.

 

[Meandering]

To your point re: computers not getting it, the basement element is a nonissue, really. I'm not sure why the info says we have has a basement; it has a dirt area beneath the house. And he made no adjustment to any of comp for it. So that's totally random.

However, he said we have dual-pane windows and we don't. (I wish.) We have no garage; he gave a $2K credit to a comp that has an oversized 2-car garage (and a ton of bells and whistles for which he did not adjust, including owning a solar power system outright). This area is comprised of virtually nothing but vacation homes.

I know there are no perfect comps, and ultimately it's an educated opinion. But I am really glad we are getting a second opinion.

That sounds like a bunch of incorrect information on the part of the appraiser.

Have you seen the actual appraisal report? Does it say if the appraiser, or someone else inspected the interior of the property????

There is a lot of game playing going on with valuations at the moment, so I'm wondering if the person who was inside the house was the appraiser, and was not someone else at the wrong house, or just could not be bothered going to right house and sent photos they had on their computer from some other house.

.

 

[allabouteat]

It says he did the appraisal; I believe he was on the property. (Although he called a .75 bath a full bath.) I think the problem lies with his calculations on the comps. We are a 954 SF cabin being sold for $224K; comps were $249.5K/1158, $275K/1344, and $255K/1248. No lower-cost property used to bracket, and no adjustments for all the nice things that come w these more-expensive properties — as if the properties were just the same beyond SF. (The SF adjustment was also really low, but that's probably well beyond my (un)pay grade.)

 

[hastalavista]

How much do you think it is worth?

 

[Meandering]

It says he did the appraisal; I believe he was on the property. (Although he called a .75 bath a full bath.) I think the problem lies with his calculations on the comps. We are a 954 SF cabin being sold for $224K; comps were $249.5K/1158, $275K/1344, and $255K/1248. No lower-cost property used to bracket, and no adjustments for all the nice things that come w these more-expensive properties — as if the properties were just the same beyond SF. (The SF adjustment was also really low, but that's probably well beyond my (un)pay grade.)

We don't say .75 or 3/4 bath any more. It makes the Freddie computer beep very loudly. We only have full or half baths these days. Tubs aren't necessary anymore.

But if your purchase is below what the comparable sold for, well, that there is also a problem if you are putting down more than 10% as a down payment, you might be walking into the home with 20% or more in equity, not requiring PMI. And the bank does not know that, because all the sales were higher priced than your purchase price. This becomes one of the reasons appraisers are supposed to "bracket" the low and high end of the price ranges.

Hopefully there is another sale that is the same size or smaller than yours that sold for less money than your contract price.

Welcome to the "big data" game.

.

 

[Elliott]

I think of a review as that your dealing with a lender who cares about their collateral position. Not all properties or appraisals do not demand a little more attention. Not everything in RE is rubber stamped. Doesn't mean your bad.

 

[Basically Rectangular]

http://www.freddiemac.com/learn/pdfs/uw/UCDP_Prop_Messages.pdf

After we made the offer, we realized that while we could afford the home, its listing price was much higher than comparable homes.

Ouch, not really an arms length transaction if both parties are not well informed.