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Reconsideration of value?

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kinsella

Freshman Member
Joined
Jun 25, 2021
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State
Arkansas
Good morning! My husband and I bought a lot in January 2021 and would like to begin building a home soon. We applied for a construction loan recently. The bank sent our plans to an appraiser as they only loan 85% of the appraised value. We got our appraisal back yesterday. It had a lot of errors. We have purchased two homes in the past, so we have had appraisals done before without any problems, but never one for a new construction. So I don't know if this is typical or unusual. We are considering asking for a ROV considering the appraisal came back low and some of the errors are probably affecting value.

*there are four bedrooms (not three as stated in the appraisal)
*the home will be 2,051 square feet (not 2,063 as stated in the appraisal) I know this error was in our favor. But we still want it corrected.
*there will be seven rooms (not five as stated in the appraisal)
*all new stainless steel appliances will be included (refrigerator, microwave, washer/dryer, and disposal not check-marked on the appraisal)
*the home will be on a poured concrete slab (not crawl space as stated in the appraisal)
*the home will include natural gas service (this was not check-marked)
*the floor plans include a gas stone fireplace (not check-marked on the appraisal)
*we will have aluminum gutters (not check-marked on the appraisal)

On the Cost Approach to Value page, the square footage of the garage was listed at 659 sq ft but is actually 672 sq ft. The porches were not included at all in the cost to construct. They are 202 sq ft. Finally, we would like to request a data source in addition to “personal knowledge and local builders” for the cost approach to value estimate of $105/ square foot as the replacement cost of the home. Based on data from Marshall & Swift and Craftsman we believe that figure may be inaccurate.

Any thoughts? The proposed home appraised for $280,000. We were mostly surprised that he listed the cost to construct at $105/sq ft and based it only on personal knowledge and local builders. We are in Russellville, Arkansas. There is no way this house can be built for that. We got estimates from seven general constractors before we hired one. They were all estimating $120-125 easily. The Craftsman appraisal that I did was $292,000 and I don't believe that included the value of the land. But I am just a kindergarten teacher, not an appraiser. What do I know? Thanks everyone!
 
First off do not be offended because I have worked with many school teachers over the years and many school teachers remind me of my first grade teacher MS Rosa whose Red-Pen caused me years of agitation and anger management and therapy and now Red-Pens are not allowed to be in our office. Also please do not correct my poor-grammar and spelling because I was educated in the Los Angeles Public School System and they did not teach us English and I still don't know a Noun from a Verb or a Synonym from an-Antonym and I type with two fingers. Now I digress : The role of a review on-an appraisal is to find and locate anything that may effect the value and its overall quality therefore in reviews for banks and lenders we typically only give the appraiser changes to be made based on things that have a material effect on the value. Also some things are considered to be within a reasonable variance and square footage is one of those items. Ten square feet in the homes ( GLA ) Gross living area- is not a issue because it's within what we consider a reasonable variance of say 3%+/- or in your case that would be about 60 to 70 Sq.Ft.. The garage difference of 12 or 13 Sq.Ft. is the same non-issue. When we challenge the appraiser on things like that he is going to laugh and say my God this person needs to get a life and more importantly if he suffers like I do from ( PTSTS-Post Traumatic School Teacher Syndrome ) he may get irritated and decide to not change your value. The goal is to get focused on the BIG ISSUES and get the lender and appraiser on your team.

WHATS IMPORTANT
: Now we have narrowed it down and have the appraiser focused on whats important and not trying to get the appraiser off course. Based on just some quick calculations- if that $105.00 per Square foot is wrong ( and it is ) your $125.00 is more spot on then his cost approach may be off by $40,000 to $45,000 .
I don't know the cost difference between the concrete slab and the raised foundation he checked but it needs to be corrected . The 202 Sq.Ft. Porches are kind backed into the cake and not going to do much. The gas utility if expected in that market area probably won't effect value but needs to be corrected. The fireplace probably few thousand dollars but contractors love to pump the price up by double or triple a its a easy profit center. So I would suspect he is too low in the cost approach BUT by how much ? I also don't know where he got his information ? -Is it off your building plans ? And if so are the plans given to him the same ones you have ? or did original plans show a 3 bedroom but later changed to a 4 bedroom . Below I have listed what are factual issues that he/she needs to change on the report and ones that may effect overall final value . Remember keep the list as short as possible and in the real estate world whats important is you accomplish your goal and in this situation I think a value increase may be warranted .

Things that warrant corrections or clarification from appraiser that may effcet value.
1- Correct to show 4-bedrooms and not 3 bedrooms. May effect value and may not be but needs to be corrected.
2- Total room count of 5 not correct if 4 bedroom-Remember room count does not include laundry rooms.
3- Foundation Concrete not raised needs to changed and what is cost difference ?
4- The natural gas service under utilities should be noted.
5- The gas fireplace needs to be included.
6- The 202 Sq.Ft. Porches should be noted and included somewhere in cost approach .
7- The cost per Sq.Ft. at $105.00 seems extremely low in today's environment.
8- The aluminum gutters should be noted and the box checked in report,.
9- Any energy saving equipment-Dual Pane Insulated Windows etc ?

Note : The biggest issue in my opinion is his cost approach and the foundation-being concrete and not raised.
I highly doubt anyone is building at $105.00 per Sq. Ft. in 2021 unless this is Manufactured or Modular Home. ?
If it's really $125.00 a Sq.Ft. then his cost approach may be off by $40,000 or more and lumber and materials have skyrocketed in the last 6 months and doubling or tripling in the last 12 months and labor cost going up and if he knows a contractor at $105.00 a Sq.Ft. where did he steal the lumber from. Also whats he using for the 672 Sq.Ft. Garage ? because like the main house -lumber-materials and labor have all skyrocketed in the last 6 months and we went from about $38.00 to $40.00 a foot to $50.00 or more in some areas and concrete has also gone way up. So hopefully he isn't using some outdated cost from 1999 like $20.00 or $30.00 per Sq.Ft.

In Summary:
Good Luck but remember cost new does not always equal value and if you over-build for the area in a resale the value based on the sales comparison approach-may not be similar or the same and so don't over do it .
 
Thank you for the response. No offense taken, and you should be happy to know that we no longer use red pens! :) So on to your comments....

I know that the square foot error makes no difference in the value (even if it did it would not be in our favor because he made the house bigger than it is). I just want it corrected because I am OCD and want the appraisal to match the floor plans to match everything else! :)

He estimated the cost of the garage to be $22/sq ft. I didn't even look at that number until you mentioned it. So I am guessing that is bad? I haven't done much research on those costs.
 

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Thank you for the response. No offense taken, and you should be happy to know that we no longer use red pens! :) So on to your comments....

I know that the square foot error makes no difference in the value (even if it did it would not be in our favor because he made the house bigger than it is). I just want it corrected because I am OCD and want the appraisal to match the floor plans to match everything else! :)

He estimated the cost of the garage to be $22/sq ft. I didn't even look at that number until you mentioned it. So I am guessing that is bad? I haven't done much research on those costs.
I would follow glenn walker's advise and ignore the square footage differences. Because the appraiser got that information form the plans supplied by your lender. The difference is so small and is most likely due to the rounding of the different drawing programs. I do a significant amount of new construction work and rarely does my square footage equal the square footage from the plans.
Also note that hallways, foyers and mud rooms are not considered rooms. But, room count does not really affect value. Bedroom count may or may not affect value, but it needs to be right. Also for your sake, read the addendum, check and see if the addendums that relate to the property (Additional Features and Sales Comparison Addendums) are correct. What is checked on the front page does not necessarily reflect on how the value was arrived at. Also look at the sketch. It could be correct on all but the front page. And yes, it is important to get this right, but these deficiencies may not reflect in the estimated value if in fact they were accounted for.

Best case scenario for the appraiser is the features were accounted for correctly, but not communicated on the front page.

I too, have a problem with the Cost Approach. The data source seems to be lacking, really lacking, not only with the cost per square foot, but also the support for the estimated site value. The main thing is to work with your lender. If they don't want another appraisal, maybe ask for a field review? I am not sure of the procedures with lenders, so this may or may not be an option.
 
I bought a lot in January 2021
Was the amount you paid for the site reconciled or discussed (analyzed) in the appraisal report. Did the report summarize how the price you paid was reconciled/reflected in the opinion of site value?
 
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Unfortunately, the issues with the square footage are minor and could be attributed to how gross living area is calculated vs. plans measurements.

Some of the “errors” are minor (appliances) and some are significant (porches). However, I know that specs I have gotten for appraisals can be incomplete so missing stuff is not uncommon and may or may not be the appraiser’s fault

The cost approach for appraisers is usually an “Achilles heel”, very few appraisers develop it correctly. Many make it up to match the appraised value, so if the cost approach is like within a few hundred dollars of the appraised amount, that is a red flag.

You don’t say what the contract price is so we don’t know how far off the appraiser is from your contract. However, the underwriter would have to see gross errors that would affect the validity of the appraisal to order a reconsideration and especially a new appraisal.
 
Thank you for the response. No offense taken, and you should be happy to know that we no longer use red pens! :) So on to your comments....

I know that the square foot error makes no difference in the value (even if it did it would not be in our favor because he made the house bigger than it is). I just want it corrected because I am OCD and want the appraisal to match the floor plans to match everything else! :)

He estimated the cost of the garage to be $22/sq ft. I didn't even look at that number until you mentioned it. So I am guessing that is bad? I haven't done much research on those costs.
The $22.00 A square foot on-the garage tells me everything this appraiser has no idea what he /she is doing and I am shocked !- Its insane and-I defend appraisers- BUT THIS Guy /Gal Is living in La-La Land : ) LOL
 
...............We got our appraisal back yesterday. It had a lot of errors. ..............

*there are four bedrooms (not three as stated in the appraisal)
*the home will be 2,051 square feet (not 2,063 as stated in the appraisal) I know this error was in our favor. But we still want it corrected.
*there will be seven rooms (not five as stated in the appraisal)
*all new stainless steel appliances will be included (refrigerator, microwave, washer/dryer, and disposal not check-marked on the appraisal)
*the home will be on a poured concrete slab (not crawl space as stated in the appraisal)
*the home will include natural gas service (this was not check-marked)
*the floor plans include a gas stone fireplace (not check-marked on the appraisal)
*we will have aluminum gutters (not check-marked on the appraisal)......................
In my market three vs. four bedrooms has no value impact; I have appraised residential properties in three midwestern states.

2,051 vs. 2,063 is not even an argument. A sketch for a new construction project might, or might not, contain the brick veneer. A brick is three inches thick. Many time the plans call for lengths of walls that are 12.83 LF or other goofy numbers.

Even bringing this (12 SF) up makes you look petty as you don't understand how out profession works.

You say there are seven rooms. In that BOX we don't count bathrooms per guidelines. If there is a separate laundry room we might count it if it is a certain size. This is also petty.

Appliances are typically personal property unless they are built-in which is only typical in very expensive homes. Your appliances do not add value to the REAL ESTATE. I can put them in the back of my F-150 in less than an hour.

You are building on concrete slab? Why? I haven't seen new construction on concrete slab in over 20 years. But again, a minor situation.

Natural gas should be checked but again nothing major here. The fireplace should be considered and checked but the overall value is minor.

Aluminum gutters? Seriously; stop being petty? Almost all homes have them.
...............We got our appraisal back yesterday. It had a lot of errors. ..............

On the Cost Approach to Value page, the square footage of the garage was listed at 659 sq ft but is actually 672 sq ft. The porches were not included at all in the cost to construct. They are 202 sq ft. Finally, we would like to request a data source in addition to “personal knowledge and local builders” for the cost approach to value estimate of $105/ square foot as the replacement cost of the home. Based on data from Marshall & Swift and Craftsman we believe that figure may be inaccurate.

Garage SF 659 vs 672 is petty at 13 SF.

But what is NOT petty is the entire Cost Approach. I have found that most residential appraisers do a terrible job on the cost approach. I have used both Marshall and Swift and dwelingcost.com for my cost approaches. But I have also used local building costs from builders because I have those costs. The cost approach appears to be totally unsupported garbage.
 
@kinsella

Unless the appraiser gave "most consideration" to the Cost Approach (and it was less than the Sales Approach)....
I wouldn't spend any more time thinking about the Cost Approach....

Hopefully you are able to get sufficient financing you need to complete construction of your new home....
 
Kin,
So what do you think your property will be worth when it is completed? The four bedroom / three bedroom issue could probably be the design that more probably has a den, not a 4th bedroom, but all in all doesn't have a significant affect on value. Nor does the 'room count.' I doubt 12 sf of living area is very significant. Some people treat the garage wall that is common with living area in different ways. But again, 12 feet isn't much.

If you have support for what you think the value of the property should be, then notify the lender and request a review of value with good comparable sales very similar to your property. Don't ask for a Field Review. Cost isn't necessarily value in some markets. Good luck.
 
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