Appraisal low, should I appeal?

Question

Not sure if this is the right place but here goes.

Four years ago I built two high end (for my area) Duplexes from the ground up. 3 Bed, 2 BA, Garage, All Brick, Hardwood, Tile, Whirlpool tub, all appliances.

Appraiser gave pre-construction values of:

Sales Comparison approach:                   $373,000
Income approach (GRM=110) $875*4=   $385,000
Cost Approach ($65 sq ft)                       $407,480

I just got back the NEW appraisal from the same appraiser and here are his new calculations:

Sales Comparison approach:                     $344,000
Income approach (GRM=95) * $895*4=    $340,100
Cost Approach ($49.65 sq ft)(summed up)  $319,223

Sales comparison he uses the number of rooms, bedrooms, to calculate value. Well when you use units that are not as nice the room value is not as much.

The older appraisal he says the Income Approach should be used, the new appraisal he says the Sales Comparison Approach should be used.

The GRM has gone from 110 to 95, with no explanation why. Also the cost per square foot used went from 65 per to around 49 per.

There was a group of 4 duplexes just purchased less than six months ago on this same street for $463,000 and produce income of $4,200 a month. This gives a GRM of 110.

Obviously I am not going to accept these figures. Should I file a grievance? Anyone with this experience? Is the bank just not wanting to lend me money? We all know sometimes they have a figure and work backwards.

Help

Simon Campbell · Answer

As a retired appraiser, I see why this comp was not used.  Don't look at the total sales price because it incorporates 8 units. Break it down to a per unit basis - $57,875.

Now because this was a sale of 4 duplex buildings (if I read the posts correctly) you are looking at a per building price of only $115,750. If you were to add a generous 20% adjustment due to a "bulk sale," you are still looking at only $138,900. Making this a horrible sales comparison comp. Be glad they did not use it.

I do believe, however, that you have a case about a lowered GRM. In many markets, demand for rentals have increased and so has the rental rate. This should have increased the GRM not decreased it.  But again it has to be based on comps and if all the recent comps were discounted (short sales, foreclosures etc) then you could be looking at a lower GRM even though rental rates are high.

Ryan M. · Answer

I would say you have a case then.

Simon Campbell · Answer

The appraiser is correct. The Gross Building Area (GBA) does not include the garage area. That is a separate adjustment.  The GBA does however include common areas and basements but not the garage.

Regarding the comp, they need to correctly state the bedrooms and baths and adjust it accordingly. The low sales price (if it is indeed low for the market) should have some reason. It could be seller motivation, condition or undisclosed concessions.

IMO, the appraiser should have definitely used this comp in the income approach. I question the reliability of MF comps when they say that they are good enough for the SCA but are bad for the income approach. If a comp cannot work for one, then it shouldn't be used for the other.

Brian W. · Answer

Simon,

Should the garage sq ft be included in the GBA (Gross Building Area) on Duplexes?

This appraiser did not. Thanks

Brian W. · Answer

Actually they did use this comp on the Sales Approach to figure out the avg per room and bedroom value. (With some small adjustments.) They did NOT use this comp on the Income Approach which would have been much better since its GRM is 110 (about average for this area)

Also they made a mistake in the number of bedrooms listed on this comp, it is a two bed, two bath per and they have it as a four bed, two bath per.

This entire appraisal is crap IMHO.

Bill Briscoe · Answer

The cost approach could drop over time because of depreciation.  But then, cost approach is most appropriate for new construction and/or unique property types.

Brian W. · Answer

$463k for all four of their duplexes.

Not each. Total

Matt Devincenzo · Answer

Are you saying 463K for each duplex, or 463K for all 4 buildings? I was confused by this because in that case they have twice the buildings valued at 463K so I'm not seeing how that ties to your 2 buildings being worth close to 380K.

Sorry if I lost a key piece of info in there, I just wasn't able to see it from what was posted thus far.

Brian W. · Answer

My duplexes, $895 per unit =$3580

Comp duplexes down the street, $525 per unit=$4,200. Its sale price was $463,000 six months ago.

Ryan M. · Answer

On a duplex the appraisal is going to be based on comps (sales) not income.

When we buy I don't really care how nice it is, so much. As to what the rents and comps are. Those 2 numbers are critical to determine if the CoC is going to be sufficient.

Appraisal low, should I appeal?

Most Popular Reply