What Do Appraisers Consider In Determining Value?

[abbazwoman]

I'm not trying to ask you to boil all your professional experience and knowledge into one paragraph, but here's my scenario:

I bought my home almost 5 years ago in a SW suburb of Dallas for $130,000. It was built in 1967, It has an addition and was completely renovated 2 years prior to my purchase because of an electrical fire from aluminum wiring. It is literally a new house on an old foundation.

I am disabled. I was divorced last year and would have refinanced earlier, but there is a 5 yr prepayment penalty in the note that I was unaware of until closing. According to a prominent realtor in my area, property values rose and fell since my purchase. She ran comps on my home to get a dollar value per sf and tells me that it is now worth only $121,000, which is less than I owe on it. I looked at the homes that she pulled on the comps. All of them were in my specific subdvision. A number were foreclosures. One sold for $59,000 because it didn't have complete plumbing. My house is aytpical for my specific subdivision.

The county assessor values my home at $128,000 and Zillow values it at $131,000. I need to reduce my mortgage payments. I was considering selling the house, but after the discussion with the realtor, it seems that I would be much better off refinancing. I am wondering whether I can get a no-cost mortgage, but if the house doesn't appraise because of what is going on in my subdivision (rather than my neighborhood) I'm concerned that I won't be able to get a mortgage. I owe $123,000. Now my question: What can I expect the appraiser to consider? Would I damage myself by protesting my property value for tax purposes? Should I tell my insurance company that I am now overinsured based on property values? It seems that I am in a no-win situation. Please advise. Thank you.

 

[Terrel L. Shields]

Foreclosure sales are not adequate comparable sales. Having said that, I suspect that if you paid $130,000 and still owe $123,000...you probably are in the hole anyway. Selling is still an option but in the best case you would walk away with nothing after adding a Realtor Commission. But try refi with the current mortgage holder if that is possible. Some lenders don't want to lend on houses that are currently listed. If the current mortgage holder balks, play harball. Demand they drop the penalty or you'll let them have the house back and they get to sell it for $59,000...They'd rather waive a few thousand in potential fees rather than inherit this mess. You need a very agressive Realtor or banker to assist you. Otherwise, I would think FHA financing is the only thing that might bail you out.

I don't know how to put a pricetag on your credit record. But if you let this go into default, your credit will stink. You might consider placing it on the market with a Realtor willing to sell it for $123,000 plus their commission and accumulate a few thousand in cash to "bring to the table". That is, to get out from under it, I suspect you will not get a check but will have to write a check. If you cannot write a check, then I suggest rather than go thru foreclosure, I would file bankruptcy and let the courts set the mortgage fee for you. You should be able to stay in the house that way but again, your credit will suck putty balls for a few years. Sorry I cannot be more optimistic. The appraiser isn't going to bail you out of this situation.

 

[Lobo Fan]

As far as the value of your home goes, are there nearby houses that are closer in age to yours? Otherwise condition and age adjustments could be significant. REO sales are not usually considered if they are minimal in number. Once they start setting the pricing level, then they would have to be considered. That is the rule of substitution. If someone could buy two similar homes, one is a REO at $110,000, the other is an arm's length sale offered at $125,000 which would sell first?

If there are a large number of REO listings and REO sales in your neighborhood then you could be in trouble.

Appraising atypical properties can be a challenge. I was asked to do one recently where they were building new on a site that had burned. When I got there it was open stud walls, no electrical or plumbing rough ins, no windows, etc. I spit the hook so fast. There had not been any new construction for 50 years within 5 miles of this property. Let alone trying to appraise a property at 50% completion.

Due to the age, your property might more readily compare to newer construction. If you have any within one mile or so, then you could look to those areas for possible comps. Good luck.

 

[abbazwoman]

Thanks so much for the mortgage/financing information you provided, but I am still wondering what an appraiser will conisider in coming up with a feasible worth for my home. I'm not expecting an appraiser to bail me out, but under the scenario I posed, I'm wondering whether my home can appraise for enough to qualify for refinancing. Specifically: What factors can I expect the appraiser to consider? Would I damage my perceived property valuation by protesting my property value for tax purposes? Should I tell my insurance company that I am now overinsured based on property values? Will an appraiser look at comparable sales in subdivisions right near mine (like across the street)? It's great to know that foreclosures aren't comparable sales, but how do they factor in the overall valuation process?

 

[Mztk1]

What can I expect the appraiser to consider?

Relevant sales data, closed, active and pending, and if you are in a market where foreclosures are competing and bringing values down, than those will be considered too. If however your foreclosures all sell below the rest of the market, they will likely be omitted from the report. From a guideline point of view, for lending purposes, the appraiser should consider resales from the subject subdivision as the best indicators of value and use them if they are available. Some lenders wants sales within 90 days, a general rule until the market downturn was 6 months with sales viable up to one year if none other are available.

Would I damage myself by protesting my property value for tax purposes?

Definately not, when by damaging yourself you mean reducing the value of your house in a mortgage appraisal. The value is what it is. An appraisal for tax purposes and one for mortgage purposes are two separate appraisals and one does not cross over to the other. For instance, if you refinanced at the height of the market when your house was worth $160,000 let's pretend, that would not have any effect on your taxes. In a down market, the same is true.

Should I tell my insurance company that I am now overinsured based on property values?

You probably aren't. Insurance is based on cost to replace and in a market where the costs to build are going up but values are going down most of the loss in value for your property is in land, which isn't insured.

 

[abbazwoman]

Terrel, I really appreciate all the mortgage and financial wisdom that you provided. I am dealing with Countrywide so I need all the information I can get to go up against them. However, I'm still unclear about the valuation issues that I initially raised; I am looking at the possiblity of a no-cost FHA mortgage to reduce my payments a few hundred dollars per month. I'm not expecting an appraiser to bail me out of anything; I expect him/her to be objective. I am just unclear as to what information will be considered in the valuation process: Will an appraiser look at the subdivisions near my home (within a 5-10 block radius) to find homes that are of similar size and upgrade? Although foreclosures are not comparable sales, how do they affect a valuation if the subdivision's most recent sales are primarily foreclosures? Would I possibly lower the appraisal amount by protesting my property value for tax purposes, or telling my insurance company that I am now overinsured based on property values? Thanks again for any clarity you can bring to me.

 

[Obsolescent]

abbaz,

When valuing a property the appraiser looks at many factors. They will start with looking at recent sales (preferrably w/in six months) of homes similarly styled to yours e.g., ranch, 2 story, etc. preferrably within your immediate neighborhood. The homes they will try and select will be of similar size, age and quality of finish. If there are none within your immediate neighborhood they will look to nearby competing neighborhoods for similar homes.

If your immediate neighborhood has a lot of foreclosures, those foreclosure sales can affect the value of non-foreclosure sales. The principal of substitution would apply....meaning no one will pay more for a home with similar features/utility if there are others available for less.

Insurable value (what it would cost to replace) is not the same as market value (what a typical purchaser would pay.) If you want to reduce your insuranced costs, perhaps you could look into raising your deductible.

Your local assessed value (what the town assesses your property for for taxes) is not the same as market value (what a typical purchaser is willing to pay.) You can, however, always consider protesting your property taxes by findiing similar homes with similar features and compare what they are paying for property taxes vs. what you are paying. Sometimes this is public information. I don't know if it is in Texas.

 

[Terrel L. Shields]

The appraiser should be looking for the most similar, proximate and recent sales. That is a judgment call but the amount of available and confirmable information will determine how many homes there are to select from.

It is those comparables that will determine the actual value. In a Realtor estimate, they normally simply divide the sales price by the SF and they sell (generally) only the closest sales of similar age. The appraiser will be more discerning in their determination but again, it will be a estimate and that can vary widely between individuals, especially as less and less valid (arm's length) data are available.

I understand CW does have a program to reset mortgages and I would contact my CW agent if I were you. You can get on homefinders or realtor dot com and check for listings in your neighborhood. See what the asking prices are. Lowering your payment will give you some relief. Your home value will come back eventually. After all the petroleum biz is doing well and that is only going to say good. In the early 80's Dallas did well and they will recover faster than most other cities. Again, an FHA loan might be just the ticket and CW can get you in one if they cannot simply change the mortgage you have. Good luck.

 

[abbazwoman]

Double Posting

I apologize for two posting replies that essentially say the same thing. For some unknown reason, the first post didn't take for several hours. I thought that perhaps the forum didn't recognize my sign in (this happens sometimes) and that the post needed to be rewritten. Thanks for all the help.

 

[Lobo Fan]

An appraiser should try to compare your property to those most similar in age, quality, conditions, size, amenities, etc. If there is a development of similar aged homes within a reasonable proximity, then it may be proper to look at that area for comps.

A large number of REO properties can lower the entire market. They will set the bar if they become the rule rather than the exception.

Your assessed value for property taxes has no correlation whatsoever with current market value. Counties often assess hundreds of houses at one time and rarely try to account for individual features of each property. Assessed value only applies to your property taxes.

Considerations would be location, square footage, age, quality, condition, room counts, and more. The key is what your primary competition would be should you choose to put it on the market. Would you be competing against newer homes or against refurbished homes in your existing neighborhood. Can you find nearby properties that have been upgraded, (new roof, kitchen, mechanical, floor coverings, windows, etc.). Someone might be able to bring the effective age of their home up to something close to the actual age of yours.