Appraisal turned down due to no recient comps

General Contractor · Steamboat , CO · Member since 2009 · 14 posts · 0 votes

I was supposed to close on a triplex tomorrow but just found out that the secondary review of the appraisal by the bank was turned down. They didnâ€™t like the appraisal because there were no mulit-family comps in the area this year, only last year. Not sure how to get them more comps if none exist. Anyone ever run into this before and have a creative way to convince the bank the appraisal is accurate?

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Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

17y

With the aftermath of the subprime mortgage meltdown, appraisals in some parts of the country have gotten unrealistically low. In houston, appraisors for Bank of America are working on the basis that the 25-30% nationwide decline in SFR prices applies to the Houston area as well, although prices in Houston have declined very little if at all. As a prime example, I purchased my current residence in 2007 for $515,000. We spent $275,000 on updating and renovating, not quite a gut renovation but extremely extensive. In the last 2 months we received 2 unsolicted offers in the $800 -$850K range, although our home is not on the market and we have no intention of selling. I did however wish to refi, so I applied for a refi loan with B of A, who also holds our current mortgage. The first appraisal performed appraised our house at $592K, with our extensive improvements ($275K) valued at prox $25K price increase. If not for the two unsolicited offers, I might think that I had made the worst real estate investment ever. However the bank was unable to close our refi within 90 days due to their incredible volume, so the house needed to be reappraised. this time the appraisal came in at $530K, with 2 or the comps being from a very less desirable development 4 miles away although our community consists of 400 + homes with plenty of resales. the appraisor's excuse for using comps from a completely different area was that most of the houses in our development are traditional while ours is modern so it would not be comparable. apparently the fact that buildable lots in our development sell for $300k and lots in the comparable development sell for under $100K required only a minor $25K adjustment! But here's the clincher. B of A told me I can protest the appraisal and submit my own comps. that would delay closing approximately three months and they could not guarantee to hold the rate agreed (4 7/8 interest). Or i could pay 1/4 point more origination, and close the loan this week.! this is a perfect example of why i moved to doing only commercial investment deals

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Mike McKinzie
Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes
17y
Banks like comps and without comps, it is pretty difficult. When I refinanced my construction loan 4 years ago, they took comps from 10 miles away, not exactly a "comp." If you have financials for the property for at least 3 years, you may have some ammunition, but banks LOVE comps. If they need to sell the property, they like to know there are other recent sales nearby. The fact that there are no recent comps makes the bank believe it would be difficult to sell the property should they have to take it back. You may need to search for other financing.
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Wayne Qualls
Commercial Real Estate Broker · Birmingham, AL · Member since 2009 · 32 posts · 3 votes
17y
Marc,

I know banks like to look back only 6 months for comps, but if your area is like here, triplexes don't sell every day. If they have comps that are up to 1 year old, and will only go back 6 months, then it sounds like you have a very conservative bank. Which is not saying a lot these day's about banks.

Is this a local bank, or a mortgage company? If a local bank I would suggest you call a local mortgage company. If it's a local mortgage company, call another one.

Are you can ask the bank could they use comps in a competing neiborhood if there is one.

Hope this helps.

Wayne

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Marc Lyman
OP
General Contractor · Steamboat , CO · Member since 2009 · 14 posts · 0 votes
17y
Thanks Wayne,
I'm dealing with a mortgage broker backed by an investor (bank), in this case Chase. They are now submitting to another bank for approval in hopes of more lenient requirements. You would think with 25% down they would be at bit more at ease but nothing is for sure these days.
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
17y
With the aftermath of the subprime mortgage meltdown, appraisals in some parts of the country have gotten unrealistically low. In houston, appraisors for Bank of America are working on the basis that the 25-30% nationwide decline in SFR prices applies to the Houston area as well, although prices in Houston have declined very little if at all. As a prime example, I purchased my current residence in 2007 for $515,000. We spent $275,000 on updating and renovating, not quite a gut renovation but extremely extensive. In the last 2 months we received 2 unsolicted offers in the $800 -$850K range, although our home is not on the market and we have no intention of selling. I did however wish to refi, so I applied for a refi loan with B of A, who also holds our current mortgage. The first appraisal performed appraised our house at $592K, with our extensive improvements ($275K) valued at prox $25K price increase. If not for the two unsolicited offers, I might think that I had made the worst real estate investment ever. However the bank was unable to close our refi within 90 days due to their incredible volume, so the house needed to be reappraised. this time the appraisal came in at $530K, with 2 or the comps being from a very less desirable development 4 miles away although our community consists of 400 + homes with plenty of resales. the appraisor's excuse for using comps from a completely different area was that most of the houses in our development are traditional while ours is modern so it would not be comparable. apparently the fact that buildable lots in our development sell for $300k and lots in the comparable development sell for under $100K required only a minor $25K adjustment! But here's the clincher. B of A told me I can protest the appraisal and submit my own comps. that would delay closing approximately three months and they could not guarantee to hold the rate agreed (4 7/8 interest). Or i could pay 1/4 point more origination, and close the loan this week.! this is a perfect example of why i moved to doing only commercial investment deals
Private Mortgage Financing Partners, LLC
Website View Page
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Marc Lyman
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General Contractor · Steamboat , CO · Member since 2009 · 14 posts · 0 votes
17y
In this case the appraisaed value was where it needed to be usnig 3 methods, comps, income and cost approach. The bank only seemed to care about the comp approach (even though they ask for all 3). Not much we can do if there are no other comps in the area. I wish they would realize that there are no recent sales because people hold on to these units because they are a good investment!
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Rodolphe Brun
Real Estate Investor · Pittsburg, PA · Member since 2009 · 64 posts · 6 votes
17y
Since it's a triplex, ask them if they could look at the property with the income that it produce instead of the comps.
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Barry O.Pro Member
Investor · Imperial Beach, CA · Member since 2008 · 52 posts · 14 votes
17y
Using last years comps could you use days on market before sold as a selling point. Followed by Days on market for SFR this year.
If the days on market is low, You should be able to get the bank to buy off on it.
As a tri-plex would be an investment property and if they make money would only come on market rairly.
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Jacques Columbo
Real Estate Investor · Lawrenceville, GA · Member since 2009 · 12 posts · 3 votes
17y
Hello Marc,

First time posting. Rodolphe has a point: work with the income. However, banks do not consider triplex as commercial. It has to be a quad. You have to convince the appraisal to do a construction comps minus depreciation. Banks don't like that either. It worth trying if this is a great deal. Good luck. Don't get stuck on one deal if you cannot make it work.
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Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Just send a thank you card to the developers of the new HVCC.

Appraisals have gone so far conservative, it is ridiculous!

You could always app with another lender but then you start over again.
Podcast Guest on Show #130
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Marc Lyman
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General Contractor · Steamboat , CO · Member since 2009 · 14 posts · 0 votes
17y
We did give them the income and cost approach but they got stuck on the lack of current comps. Might have caught a break though. Found out that a duplex is closing today and we can use that as a comp to hopefully appease the bank.
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Brian Haskins
Real Estate Investor · St. Louis, MO · Member since 2008 · 443 posts · 91 votes
17y
Take them some comps in the area just a little further out that has some multis and see if that works.

Brian Haskins

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Bryan Hancock
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
16y
Originally posted by Rodolphe Brun:
Since it's a triplex, ask them if they could look at the property with the income that it produce instead of the comps.

^^^
This.
Aside from that I can't see what you can do. Try working with a local small regional bank broker that has great relationships. In Austin this is Louis Drott...ask around at your local investor club to see who "that guy" is in your area.
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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
As pointed out 1 to 4 family dwelling is the definition of resdiential loan. Adjustments can be made when comps are exhauted, use a duplex and make the adjustments, you can also go back further in time. IMO, the appraiser is too lazy, as he gets paid whether or not the deal is funded! Ask the bank why such adjustmenst have not been considered and made. Bill
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