Worried about appraisal

[fivealive]

Hi everyone,

We're buying our first home. We were doing a conventional 30-year fixed, but now we had to switch to FHA because Portland, OR has been declared a declining market and our lender (Wells Fargo) wants more money down that we just don't have. Our credit scores are both 750+ and we both have great jobs etc.

We ordered the appraisal yesterday. I was not worried at all before, but our lender said, by the way, now that Portland is a declining market, a lot of appraisals are coming back stamped with "declining market" or some similar commentary on the appraisal, and then the bank may require another 5% down if this is the case.

So now I'm kind of worried. Questions:

1) I know that tax appraisal isn't closely linked to the "real" appraisal, but why is the 'real market' tax appraisal $480,000 when we bought the house for $379,000? The market isn't really declining that much here, and the house was never listed even close to that.

2) Can I fight the bank on this 'extra 5%' thing if they do that?

3) Does the time-on-market of the house being appraised affect the appraisal, or is it only comps in the neighborhood?

3) Should I stop packing up my stuff and wait and see?

Here's more info on the house f.y.i...

Single family residential
Year built: 1992
Square feet:
Total Finished: 1990
Incl. Garage: 2386

Assessment History:
Year ------------- 2007
Improvements -- $250,230.00
Land ------------- $230,400.00
Special Mkt/Use - $0.00
Real Market ------ $480,630.00
Exemptions ------ $0.00
Assessed --------- $225,320.00

Other Features:
.23 Acre lot
Gas water, furnace, stove, fireplace insert
Security system, sprinkler system
3 bedroom, 3 bath
2 car garage
Deck, decent landscaping

Thanks!

 

[Walter Kirk]

Don't look at the appraisal as an impediment to your house purchase. Look at it as insurance against paying too much.

The tax assessment may be based on old data and may be adjusted by a general ratio.

 

[Terrel L. Shields]

)

I know that tax appraisal isn't closely linked to the "real" appraisal, but why is the 'real market' tax appraisal $480,000 when we bought the house for $379,000?

The market supported that value at the time it was reassessed or the assessor over appraised it.

The market isn't really declining that much here, and the house was never listed even close to that.

What did it sell for the last time it sold or has it sold?

2) Can I fight the bank on this 'extra 5%' thing if they do that?

Nope, but fannie stopped doing that. It has nothing to do with the appraiser. The appraiser has to accurately report the market. If the local submarket is in decline her/his appraisal should reflect that. If the submarket isn't declining and the general market is, the appraiser may label it steady.

3) Does the time-on-market of the house being appraised affect the appraisal, or is it only comps in the neighborhood?

comps. But DOM (days on market) should give you an idea if its over-priced unless it is an extremely small (slow) market. Has the asking price been dropped over an extended time?

3) Should I stop packing up my stuff and wait and see?

Deals fall thru for any number of reasons, many that relate to the loan program or other factors that the appraiser does not control.

If the appraisal comes in low, you might try and renegotiate at the lower figure..Its a choice.

 

[Mztk1]

1) I know that tax appraisal isn't closely linked to the "real" appraisal, but why is the 'real market' tax appraisal $480,000 when we bought the house for $379,000? The market isn't really declining that much here, and the house was never listed even close to that.

Different state laws affect "real market value" and I don't know the state laws where you are. Here in Florida, for instance, the taxable value on a house can only increase 3% a year as long as it is a primary residence and remains with the same owner. The "just value" or market value is often increased in line with taxable value until a sale proves it differently, because rarely will the county do reassessments. It could be like Terrell said, or it could have something to do with the state.

2) Can I fight the bank on this 'extra 5%' thing if they do that?

Yes. As Terrell said Fannie has stopped requiring it. The press release I read on it said beginning in June, but they didn't give a specific day. If the day has not yet past, you can withdraw the application for mortgage (or threaten to) and reinstate it AFTER the Fannie change goes in effect. Also there are some lenders who never were encumbered by the 5% rule. I was told that for Fifth/Third for instance, they had a special program with Fannie/Freddie and never had to require the 5% extra, so there is an option in switching lenders too.

3) Does the time-on-market of the house being appraised affect the appraisal, or is it only comps in the neighborhood?

How a house compares to another house will affect days on market if they are priced the same. It often will come out in the price. If a house was priced right with the other sales but took 3 months longer to sell, then there was likely something about those other sales that made them more appealing. It is up to the appraiser to determine what that was and make adjustments, if necessary, accordingly.

3) Should I stop packing up my stuff and wait and see?

I wouldn't. But it doesn't hurt to have another lender as a backup. Stop by and start the process for lending with a different company. If anything it can give you leverage with the one you are working with, but you might find that you can do conventional without the extra 5% down with someone else (like a Fifth/Third). It never hurts to shop around and have a backup plan.

 

[fivealive]

Thanks for the tips - those are good things to know. I doubt that the appraiser will be at fault at all if the deal falls through - more likely our bank will make up some new rule because of the credit crunch... not that it's affected Wells Fargo that much, but everyone's paranoid. You would think the big banks would have put all the new rules in place in October 2007... :icon_rolleyes:

To answer your questions:

What did it sell for the last time it sold or has it sold?

These are the sales on record:
$250,000 in Feb, 2001
$130,000 in Jan, 1993

Has the asking price been dropped over an extended time?

They dropped the price by $10,000 twice, it's been on the market 6 months. It originally listed for $409,000, then $399,000, then $389,000 last month. We came in at $379,000 and they accepted the offer.

The couple that owns it got a divorce, and while they seem to want to be rid of the house, they haven't made much of an effort in selling it -- they seem to be pretty bitter about the whole thing from what I've gathered...

I think if they had done some painting, minor repairs, and staging they would have sold the place a long time ago. The neighborhood is great, and some of the comps we looked at sold in a week or less.

 

[Greg Bell]

Just curious.Why would you purchase a home in a declining market??Most who purchase in todays market believe that where they purchase values will not decline or will start going up any day now.Markets pause and do not Decline in a straight line.There is a good chance that next year your mortgage may be more than the market value of the home especially if you finance 95% plus.

 

[OSU Beavers]

Here in Oregon we have the Real Market Value which is what the house should be able to sell for on the prior First of Jannuary, so the value as of 1/1/2007 in your case; and the Tax Assessed Value which is what the tax rate is multiplied against to determine the property tax amount.

RMV is supposed to be current, but no one really cares since the taxes are figured off the TAV. Tax Assessed Value is now figured off the 1995/96 RMV minus ten percent plus 3% a year plus and additions over $10,000 in one year or $25,000 over 5 years called exceptions.

Sounds like your area may be declining since the house is selling for $101,000 less than the 1/1/2007 RMV. You can always ask the seller to pay upto six percent of your down payment and closing costs so they don't lose the deal and be forced to sell for less in three months.

Now you should be Worried about how your appraiser is selected by Wells Fargo! If they order through their Appraisal Management Company called Quantrix, then they will select the fastest and cheapest appraiser then take a portion of the appraisal fee you paid for placing the order. So you pay $500 for the appraisal, some poor sap appraiser gets $300 and the middleman skims off $200, but all you see on the closing statement called a HUD-1 is Appraisal: $500.

Now if you have a local broker who orders your appraisal directly, he/she may use a good buddy appraiser who will rubberstamp the sales price and not discolose any repair requirements. Brokers who do not have "good buddies" lined up go fishing and call appraisers looking for one to agree to the value sight unseen.

So either you get a cheap, fast and poor quality appraisal or a rubberstamped value. What is the answer? Rotation of appraisers for assignments in their area. VA has and FHA had up until 1994 a rotational panel of appraisers. Hopfully we will get something like that back in the next year.

One last note, an FHA appraisal is NOT a home inspection. Be sure to get an independent home inspector (not one recommended by the Realtor) to check out the home.

Best of luck

OSU Beavers

 

[Margaret Treat]

Hi Fivealive,

I work in the Portland area. The thing about the declining market designation is that it is very broadly brushed over certain markets. There is a great article in the Appraisers Certification and Licensure Board (ACLB at http://www.oregonaclb.org/) newsletter about declining markets. It is probably more information than you would like but explains, among other things, that declining is not necessarily declining but it's failing to appreciate at the same rate or higher than in the past so it can be designated declining.

Another thing is that our market areas are huge. For example Tigard, Tualatin and Willsonville all report together. On Bull Mountain, where there was exponential growth in the last decade. Several mid-range builders blanketed the area with average quality homes and they are still continuing to build. The people that bought these homes a few years ago and need to sell are competing with the builders who are giving away upgrades and financing. Supply is out pacing demand and the competition between these sellers is forcing prices down. In the same Bull Mountain area, the older homes on larger parcels that come on the market less frequently and are lower in supply have short marketing times and are closing at near asking price (if priced correctly.) Additionally, there are more homes in the Bull Mountain market in the first category so by sheer volume these appreciating or declining rates are more heavily impacted by those sales.

I am not sure where the home you want is located. Although they might be designated as declining I think many markets are stabilizing. Northeast Portland is still very competitive and well priced homes move quickly. Southwest, near Beaverton, gets a little more shaky. Many of the area's that have high volumes of condo's get a little dicey too.

I have written some reports for markets declared declining and have had to do a whole lot of extra writing if I don't think that market segment is actually declining. These are reports for a lender that tells the loan officer up front it is declared declining and they have additional rules for me to follow; all sales have to have closed in the last 15 minutes, be located within 100 feet and look exactly like my subject. :Eyecrazy: Even if I do a lot of extra writing they may still have to go by that declining status and extra money down.

I think someone already mentioned this but maybe this might be a good bargaining tool. I know the sellers don't play well together but the agent may be able to work with them and get to a price that will work.

Please feel free to pm or call me with any area specific stuff and I will help if I can. Good Luck, Margaret

 

[Carnivore]

Thanks for the tips - those are good things to know. I doubt that the appraiser will be at fault at all if the deal falls through -

I assume you make decisons in your best interest. If you dont or can not buy the house it is because you dont have the money and/or you can not convince anyone to loan you the money. How could this ever be the appraiser fault?

You are being conditioned to think that the bank is not the ones denying you a loan. In fact the bank is always the one denying you the loan. You see they are listening to the appraiser. Plus they are looking at your credit and your assets and ability to pay. You should pay more attention to what the appraiser has to say. The bank, realtor and seller all have a finnancial interest in the outcome and they dont care about your best interest.

If you disagree with the bank and/or the appraiser then pony up the cash and buy the house.

Good luck!

 

[TJSum]

Just curious.Why would you purchase a home in a declining market??Most who purchase in todays market believe that where they purchase values will not decline or will start going up any day now.Markets pause and do not Decline in a straight line.There is a good chance that next year your mortgage may be more than the market value of the home especially if you finance 95% plus.

Greg, sorry if I missed it, but I did not see the OP mention if they current own a house now or just rent. If they are current renters, your first sentence may apply. But, if they currently own a home that they are selling and buying a new home they like better, what is not to like? It all evens out in the end.

When values are shooting up, everyone wants to buy because they like the price they will get for their old house they are selling, never mind they are paying top dollar and more for the new house. In a down market, they usually hold tight because they don't want to sell their house for such a low number, but their new house will be a lower buy. So it all evens out in the end if they are buying and selling into the same market.