Appraisal Inaccurately reported? Has it ever happened to you?

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Appraisal Inaccurately reported? Has it ever happened to you?

Roc Pilon
Investor · ID · Member since 2014 · 35 posts · 12 votes

I just purchased a single family home in the downtown area of where I live. I purchased it because when I drove by and spoke with the realtor the cost for what was being sold seemed so crazily low I had my offer in that day and accepted the following day. Here's where it gets interesting...

The property is a .16 acre

5 bedroom/2 bathroom 2000sqft SFH + a vacant lot next to it (included)

It is zoned for office/commercial building.

Purchased: $235,000 

Appraised: $235,000

I didn't think anything of this at the time. I was like, sweet, right on the money... Then i started looking around the area of what else was for sale.. There is a small house thats a 3/1 around the corner for sale for $245k and all the comps on my appraisal were old or reflecting that of a 2/1 or a 3/1.

Things weren't adding up and when I went back to my appraisal it showed 2 bedrooms and 1 bathroom for my property. The assessors office showed this on the city records as well... And the taxes reflect that of a 2/1.

Im wondering if my assessor, appraiser, etc are just looking at this property as a 2/1 because thats what the city is showing meanwhile its quite clearly a 5/2 (there is 2 bedrooms upstairs, 1 on the main, and 2 in the basement - the appraiser showed all these rooms in their sketch on the appraisal but still omitted 2 rooms for the numbers.)


A 5/2 in that area when its accurately reported would be worth between 300-350k by my calculations which is why I ask. Seems like poor recording/reporting may have just created 50-150k worth of equity in this property. Any thoughts?

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Jeff C.
Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
6y

@Roc Pilon It's possible that there were unpermitted additions made to the property, and that's why the city shows the house as a 2/1. Appraisers will generally not assign value to unpermitted additions. Bedrooms below grade may not be legal bedrooms if they don't have 2 means of egress. This of course is variable by local building codes and I have no idea what they are where you are. I've definitely seen inaccuracies on appraisals, but there's no way your appraiser simply "missed" 3 bedrooms and a bathroom.

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  • Jeff C.
    Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
    6y

    @Roc Pilon It's possible that there were unpermitted additions made to the property, and that's why the city shows the house as a 2/1. Appraisers will generally not assign value to unpermitted additions. Bedrooms below grade may not be legal bedrooms if they don't have 2 means of egress. This of course is variable by local building codes and I have no idea what they are where you are. I've definitely seen inaccuracies on appraisals, but there's no way your appraiser simply "missed" 3 bedrooms and a bathroom.

    5Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    The property appraised for what its supposed to, thats all that matters.

    The appraiser has a copy of the contract, then looks at market data to see if it supports the purchase price.

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  • Roc Pilon
    OP
    Investor · ID · Member since 2014 · 35 posts · 12 votes
    6y
    Originally posted by @Jeff C.:

    @Roc Pilon It's possible that there were unpermitted additions made to the property, and that's why the city shows the house as a 2/1. Appraisers will generally not assign value to unpermitted additions. Bedrooms below grade may not be legal bedrooms if they don't have 2 means of egress. This of course is variable by local building codes and I have no idea what they are where you are. I've definitely seen inaccuracies on appraisals, but there's no way your appraiser simply "missed" 3 bedrooms and a bathroom.

    This would make sense. The basement does have egress windows in the rooms but it looks as though it was included in the non liveable square footage. Im wondering if they were put in and never recorded/permitted. 

    I agree with you, its as though the appraiser just changed everything to fit exactly what was being sold instead of what actually existed for the seller. Im not complaining its actually a good thing, but I am curious as to go about recording the actual property characteristics to increase the property value.

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  • Roc Pilon
    OP
    Investor · ID · Member since 2014 · 35 posts · 12 votes
    6y
    Originally posted by @Russell Brazil:

    The property appraised for what its supposed to, thats all that matters.

    The appraiser has a copy of the contract, then looks at market data to see if it supports the purchase price.

    On the surface thats all that matters during the transaction. But not over the long term, if the value is actually 300k+ which I believe it is. I want to force that with the city so that I can pull the equity out of the property and access the capital. 

    If the info is inn-accurate, not recorded, or not up to date and the appraiser is working off of that then there is potential for increased value in the property.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y
    Originally posted by @Roc Pilon:
    Originally posted by @Russell Brazil:

    The property appraised for what its supposed to, thats all that matters.

    The appraiser has a copy of the contract, then looks at market data to see if it supports the purchase price.

    On the surface thats all that matters during the transaction. But not over the long term, if the value is actually 300k+ which I believe it is. I want to force that with the city so that I can pull the equity out of the property and access the capital. 

    If the info is inn-accurate, not recorded, or not up to date and the appraiser is working off of that then there is potential for increased value in the property.

     So you want the city to assess your property at a higher value so your taxes increase?  What the city values the property at has nothing to do with how the market values the property.

    And for what its worth, if you just purchased this....the value is exactly what you paid. It is not $300+.

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  • Roc Pilon
    OP
    Investor · ID · Member since 2014 · 35 posts · 12 votes
    6y

    @Russell Brazil Yes, to be honest a $800-1200/yr increase does nothing to my cash flow or income and id rather have access to the 100k in potential equity to scale the portfolio. Ill dm you the listing on Zillow so you can look at it for context.

    Zillow is registering 3 property types on the same lot - 2 units a 2/1 for 212k and a 3/1 for 218k... and a single family house (same house) as a 5/2 for 235k.

    Normally, Id agree with you but I think the realtor listing the property didnt list it correctly and unless you walk through it you would never realize its a 5/2 hence the cities info being out of date.

    The market wouldn't be able to value the property accurately if its never been listed/recorded correctly. Thats my point, not the other way around.

    0Reply
  • Jeff C.
    Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
    6y

    @Roc Pilon If the work is unpermitted, and it sounds like it likely is, the city doesn't "have it wrong"". They have it right. You may open a can of worms notifying them that you have an unpermitted structure. It may or may not be permittable, and it may take anywhere from a little work to get it permitted, to (absolute worst case scenario) being forced to demolish the unpermitted addition. Given that any unpermitted work did not undergo required inspections, the city can't know that the any aspect of the construction has been done properly. There would be destructive testing to be done.

    2Reply
  • Roc Pilon
    OP
    Investor · ID · Member since 2014 · 35 posts · 12 votes
    6y

    @Jeff C. Ill do some digging and jump back on this thread once Ive asked around about it.

    0Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    6y

    If I were you I would require that the seller provide building permits that are signed of for any additions to the original structure.  You could be required remove the extra rooms.  And if there should be a fire in the house, you could be held liable criminally if the bedrooms were not permitted, did not have windows that meet the required size for egress, wiring not up to code, etc.

    When I sold my parents rentals after they passed away I replaced the windows in their 1950's house and had to make the bedroom windows different so that they had openings for emergency egress.  The original windows slid up and down, but were too small for egress so I had casement windows put in that opened the right amount.  Because the windows were being replaced, I had to do them to the current code.

    I wrote that because if you went to get the new rooms permitted and recorded on official records, you could be in a similar situation.  Even though they are unpermitted, they may have been built to code at the time they were built.  However code changes a lot and you will have to bring them up to current code for them to be permitted, not the code from when they were constructed.  

    There could be major costs to do this.  If one changes or ads to a house by certain amounts in many areas the ENTIRE house or entire systems may be called out to be upgraded.  For an apartment building I bought I wanted to put in heat and air for each apartment rather than every 2 units share one HVAC unit (and I get the electric bill).  To do that I was required to completely update all the electric boxes, have outlets every ten feet in every room, and the boxes have to be accessible to each apartment unit (which none were before, they were in a garage that no one had access to).  Since I was doing what was considered a major electrical upgrade for the HVAC system, I now get to update the entire building!  Put me back 3 months. Just got electrical signed off last week, and now am back to redoing other work.

    No one gives away their equity.  You are getting a 'deal', yes you are.  An unpermitted mess!  Get estimates on what it will cost to permit that mess before you close.  And remember it may not just involve the unpermitted areas but the entire building since you are adding a lot to the original house.  There is a reason it is priced as it is, and likely that $100k equity you are hoping for is really a $100k upgrade/permit work experience you will be getting and paying for.

    1Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    6y

    @Roc Pilon Yes, you Obviously have unpermitted work that has been done, which is why the city has it “different”, not “wrong”.....they have the original, permitted construction.

    2Reply
  • Aaron Smith
    Durham, NC · Member since 2014 · 104 posts · 68 votes
    6y

    I don’t Andrew with the others that it is obviously unpermitted because the city has different sizes and numbers than actual. I have numerous houses in my area with much larger square footage and with mic h more square footage and beds and baths than being reported by the city tax assessors. No appraisers in our area give a second thought to what the tax department reports cause they are always considered notoriously wrong as even when you do a permitted addition they never update the tax records to reflect it.

    0Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    6y

    @Roc Pilon The appraiser has a copy of your contract as @Russell Brazil points out. They know the number they have to hit to make everyone happy, and as long as the comps support at least that purchase price the appraisal will almost always come in on or near that number.

    0Reply
  • Account Closed
    Member since 2018 · 127 posts · 106 votes
    6y

    I am going through a similar issue with my single family house right now. I am trying to get a HELOC on my house so I can use it for a down payment on my next property. The first appraisal the bank did was just a desktop appraisal, no one entered the house. The problem is that the country assessor's office lists my house at 769 sqft, but when I bought the house, the onsite appraiser listed it at 965 sqft. So there were some additions made to the house that the country did not know about. Back to today, when the bank provided me with the first appraisal, I noticed the old sqft, so I told them that was incorrect and provided documentation showing an updated sqft. They then paid for an onsite appraiser to come to the house to do the appraisal, which they should measure the house to verify. So now I am waiting for that report. Assuming the price per square foot is the same ($179) from the first appraisal, the difference in square footage is about 35k in equity.

    Once this is done, I need to figure out how to update the sqft with the country so that it is listed correctly for when I decide to sell it.

    0Reply
  • Roc Pilon
    OP
    Investor · ID · Member since 2014 · 35 posts · 12 votes
    6y

    @Account Closed this is what im thinking. 

    For context this house is 114 years old - When I look at the value of the property that was quoted by the appraiser in the "cost approach to value"

    The site is $110k

    The dwelling that was included was $153k

    The 546sqft of basement was valued at $55k at $100/sq ft (in reality its more like a minimum of $150)... But thats the portion that was omitted most likely because it just hasnt been updated with the city. To my knowledge the egress windows are to code and in this area everything would be grandfathered in, they want more density in the area so I cant imagine them rejecting improvements that have already been made but I will look into this.

    Total appraised value: ~$318k

    Total ommitted $55k

    Total depreciated? 86k

    Indicated Value by cost approach: $236k

    The appraiser depreciated the physical asset by 86k... to hit the number that the property was being sold for on the appraisal lol - seriously, the paint is worn on the exterior - sure. But 86k is an insane amount to depreciate considering the property is rent ready as it stands right now. I rented it for $1900/mo the day after I closed. 

    Cash flow: $250/mo after all expenses.

    0Reply
  • Alexander Gonzalez
    Flipper/Rehabber · San Gabriel, CA · Member since 2019 · 12 posts · 1 vote
    6y

    @Roc Pilon

    You could check with the county assessor and request to see if any permits were issued for additions / upgrades to the property. If no records exist for the additions, you very well may be opening up a can of worms by reporting them to the city.

    0Reply
  • Roc Pilon
    OP
    Investor · ID · Member since 2014 · 35 posts · 12 votes
    6y
    Originally posted by @Alexander Gonzalez:

    @Roc Pilon

    You could check with the county assessor and request to see if any permits were issued for additions / upgrades to the property. If no records exist for the additions, you very well may be opening up a can of worms by reporting them to the city.

    Ive asked a few people + this forum. Consensus, is dont tell the city. 


    But when I go to get refinanced in 6-12 months I will walk through it with the appraiser to ensure the 5/2 is accounted for at market value. One of my mentors had the same thing happen to him and everyone here saying dont talk to the city is correct from what Ive heard.

    0Reply
  • Nik Corbaxhi
    Rental Property Investor · Stratford, CT · Member since 2019 · 154 posts · 115 votes
    6y

    @Roc Pilon, a lot of good advice here. 

    If renovations or bathrooms were added illegally, check to make sure that none of those consequences come to  you. While you decide to not tell the city, having a bathroom or rooms without permits will be come an issue when you try to sell it as a 5 bedroom 2 bathroom, when the city only has it as a 3 bedroom 1 bathroom, unless you advertise to sell the property in the future as a 3/1 or whatever it is registered in the city.

    That should not happen now in the first place, and as part of the mortgage process, it should be caught and the seller needs to provide Certificate of Occupancy (CO)/Permit for the additions, especially bathrooms.  I would check with the local town/city regulations on this or other property managers in the area to make sure you are covered. 

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y

    @Roc Pilon every property I buy appraises for right at purchase price. Appraiser is not impartial. They work for the bank and their job is to make sure the property is worth the purchase price. They have no incentive for it to be worth more than the purchase price.

    1Reply
  • Kai Van Leuven
    Investor · USA · Member since 2015 · 325 posts · 447 votes
    6y

    @Roc Pilon

    Gotta echo the advice you have been given...

    My thought on appraisals... they are a box you need to check for the bank. I don’t look to them for any indication of “value” of my property. Every investor, appraiser and bank knows “just let it come in at purchase price”. Anything higher creates issues. If there is a ton of equity the bank may not see it as an “arms length transaction”.

    You pay for the appraisal but it protects the bank. They don’t want it to come in low.

    What I do... once my lender tells me the property appraised, I don’t even look at it in my email. If they send it to me in hard copy, I shred it.

    0Reply
  • Marion Lee
    Real Estate Investor · Los Angeles, CA · Member since 2013 · 50 posts · 12 votes
    6y

    The points made about the additional rooms being illegal may be true but if your main concern is the property appraising at a higher value for the HELOC, I don't think you should be concerned about the original appraised value. When you go to do your HELOC the bank/lender will do their own appraisal and "magically", like it did before, the appraised value will be what you need it to be for the HELOC.

    0Reply
  • Alexander Gonzalez
    Flipper/Rehabber · San Gabriel, CA · Member since 2019 · 12 posts · 1 vote
    6y

    @Marion Lee

    Could you elaborate a bit more?

    During the HELOC appraisal, is the appraiser able to count the unregistered additions towards the value of the house?

    Also, could the appraiser serve as a whistle blower when he or her walks the property and notices the un permitted additions done to the structure?

    0Reply
  • Ronald Starusnak
    Property Manager · Syracuse, NY · Member since 2016 · 601 posts · 384 votes
    6y

    Unfortunately appraisers will always go by what's on the taxes. Just got destroyed on a refi. We have a building with 3 purpose built town homes that are on the taxes as a single mult-family building because they're all on the same deed. This little detail erased $80,000 from our appraisal. We are going through with the refinance and splitting the deeds and refinancing again when we're done. 

    0Reply
  • Keith Linne
    Investor · Minnetonka, MN · Member since 2013 · 70 posts · 100 votes
    6y

    @Roc Pilon I ran into appraisal issues on my re-sale of 2 rehabs in Minnesota a few years back. The first was an FHA loan, and unfortunately, an FHA appraisal sticks with a property for all FHA-financed buyers for something like 6 months. That property was likely only going to have FHA applicants, so I took a $5-10k loss on the re-sale to simply move the property rather than rack up holding costs.

    The second property had a conventional appraisal come in $20k below the purchase price (which we received from a multiple offer situation). I told that buyer to make up the difference in cash, or we would go back to market (couldn’t stomach getting burned again). Ended up canceling the PA, calling another agent from multiples, and getting it back under contract at the same price, same day. When the appraisal came around again, I provided a one page letter explaining the length of time on market, number of showings and offers over that time period, recent upgrades, and comps supporting the new re-sale value. I left hard copies of all information, along with my contact info, at the property during the appraisal appointment. Appraisal came in as needed, and everyone was happy (especially me).

    To this day, every time I sell a property for myself or a client, I use this approach. The last house I sold for a friend had an appraisal window of 10-11am. My friend was in his car outside reading for the hour. Appraiser showed up at 10:55, was in and out in <5 minutes, and left with all of the info I provided. Appraisal came in just fine (and was pushing the high end of comps by ~$20k more than the most recent comps).

    My take away - provide extremely solid information to support the value, and issues all but disappear. Appraisers don’t want to deal with someone who will dispute their shoddy work, and most don’t actually spend any time on true valuation. I’ve never had an appraiser verify against property tax or city/county records - that would take too much time on their end, and assessed values always lag the market (for better or worse). Permits are almost NEVER checked. I work full-time as a GC and can’t tell you how many clients we need to notify of past permits that are still open when we pull new permits for our work!

    All in all, don’t worry about the value from the original appraisal - they had to hit a specific number, and did. When you refi, provide as much info as possible supporting what you want the new value to hit, and you’ll be pleasantly surprised by the outcome!

    1Reply
  • Lee Bell
    Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes
    6y

    The misconceptions and mis information about what an appraisal is and what the appraiser does are mind blowing to this appraiser. I'm not going to spend time trying to unravel it or teach anyone anything. Happy Holidays all.

    ROTFLMAO.

    0Reply
  • Roc Pilon
    OP
    Investor · ID · Member since 2014 · 35 posts · 12 votes
    6y
    Originally posted by @Lee Bell:

    The misconceptions and mis information about what an appraisal is and what the appraiser does are mind blowing to this appraiser. I'm not going to spend time trying to unravel it or teach anyone anything. Happy Holidays all.

    ROTFLMAO.

    What a useful and enlightening contribution.

    Thanks Lee

    1Reply
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