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USDA appraisal seems too low. Do we have recourse?

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hoopmama11

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Jun 3, 2011
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General Public
State
Florida
My son is a first time home buyer going through the USDA. The home he is purchasing in Babson Park, FL has a tax assessment of approximately $68,000. Also, Zillow has it as $70,000 and rising (I know Zillow is not an official appraisal, just FYI). The contract price was for $43,000. My son was told that as long as the home appraised for more than that that he would be able to wrap his closing costs in to the loan. Well, the appraisal came in at exactly $43,000. When I asked the seller's realtor about this (since he is from the area) he said USDA appraisals almost always come in for the exact contract amount! In additon, I checked the comps the appraiser used. One was $42.89 per square foot, another was $35.98 per square foot, and a third was $30 per square foot. My son's house was set at $30.91 per square foot which makes it come out to be exactly worth $43,000! I do not understand this. Even if you took an average of all of those prices, his would've been at $36.29 per square foot and would have come in at $51,467...much more in line with what even the selling realtor had been expecting. Also, the appraiser used the cost approach to come up with an appraised value of $69,235 but noted that he would give greater weight to the first approach. I do not understand how he arrived at this exact calculation of $43,000 on the nose, particularly when the assessed value is about 35% higher that this figure. In most counties, the tax assessment is considerable under the fair market value. Do you think we have reason to be suspicious and, if so, what are the proper channels to go through? Thank you.
 

Thomas Fiehler

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Jun 2, 2003
Professional Status
Certified General Appraiser
State
Ohio
Appraisers don't value based solely on a sq. ft. basis. Since the appraiser is only allowed to talk with their client (lender) I sugeest you have your son and their Realtor provide comparables that they feel are more representative of the market and the subject property. Ideally, you would provide sales that are similar in size, some slightly larger and some slightly smaller and the same with sales prices. Also check to see if all comparables were foreclosure sales to investors.
 

Michigan CG

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Nov 1, 2006
Professional Status
Certified General Appraiser
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Michigan
......he said USDA appraisals almost always come in for the exact contract amount! .......Also, the appraiser used the cost approach to come up with an appraised value of $69,235 but noted that he would give greater weight to the first approach......
m2:

USDA needs to find some different appraisers.
 

Lost Cause

Senior Member
Joined
Sep 17, 2004
Professional Status
Certified General Appraiser
State
New York
Appraisers don't value based solely on a sq. ft. basis.
To elaborate on this point, appraisers don't value residential properties on a unit basis; i.e., by the square foot. Single family properties are compared on a gross price basis only, with adjustments made for any number of items, including variances in size. Trying to compare price per square foot between properties would not account for the impact on value arising from different size lots, better or worse locations, and other items that don't vary with house size.

This is a common misconception among the general public about home valuation. I have been reviewing appraisals for a bank for a long time now. In cases where the loan applicant has issues with an appraisal, it is quite common for the complaint to note differences in price per square foot. So this appraiser may or may not be right, but comparing price per square foot won't help us to determine that.
 

Mr Rex

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Joined
Jan 12, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
You want a higher appraisal for what purpose? It can't be used for anything other than what it was intended for, a USDA insured mortgage. While I have no idea whether the appraisal is garbage or not, why do you seek "recourse"?
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Certified Residential Appraiser
State
California
You want a higher appraisal for what purpose? It can't be used for anything other than what it was intended for, a USDA insured mortgage. While I have no idea whether the appraisal is garbage or not, why do you seek "recourse"?
"My son was told that as long as the home appraised for more than that that he would be able to wrap his closing costs in to the loan."
 

Mr Rex

Elite Member
Joined
Jan 12, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
"My son was told that as long as the home appraised for more than that that he would be able to wrap his closing costs in to the loan."
Unless they have changed the criteria, USDA will do 103% of the appraised value to cover the closing cost. Maybe PE can confirm or deny if he is lurking.
 

NORTON

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Joined
Oct 10, 2007
Professional Status
Certified Residential Appraiser
State
California
why would something be worth more than what someone is willing to pay for it....when is the last time u got a cheeseburger for the price of a hamburger?
 

PropertyEconomics

Elite Member
Joined
Jun 19, 2007
Professional Status
Certified General Appraiser
State
New Mexico
USDA will provide 100% financing but limits the amount of closing costs to be included in the loan. Not all closing costs are covered under the program, assuming it is a 502 Direct loan.
Had the value on this property exceeded the purchase price, a loan of up to the appraised value (assuming the applicant is eligible) is possible which could include closing costs and necessary repairs to the property, again, assuming the market value would cover all such costs / repairs.

All closing costs cannot added on top of the loan amount if the market value and the contract value, as in the OP example, are the same.

To read more about the 502 Direct and Guaranteed Lending programs please see the following site:

http://www.rurdev.usda.gov/HSF_SFH.html
 

Peter LeQuire

Elite Member
Joined
Jan 3, 2005
Professional Status
Certified Residential Appraiser
State
Tennessee
why would something be worth more than what someone is willing to pay for it....when is the last time u got a cheeseburger for the price of a hamburger?
?
Has value suddenly been declared equal to price? Has the phrase "good deal" fallen from the language?
 
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