Appraiser refuses comps from the west... Redlining?

13 Replies

Currently have a deal falling apart because of low appraisals and was wondering what other's thought. Have 2 duplexes under contract in Rochester NY for 60k each. They are fully rented and make the 2% rule. But.. I was unlucky enough to have both appraisal companies have policies against using comps West of Genesee St (180ft away).

Appraiser comp: July 2013 .55 mi NE, $36k cash sale in a part of town with higher crime.

West Comp: 3/31/14 under .2 mi W sold for $90k

When asked about redlining, they say houses to the west are not considered comparable sales. One of the houses under contract was refinanced for $65k a couple years back. I was pursuing a conventional 25% down mortgage and they came in at 38k and 41k. Has anyone ran into this and overcome it?

Redlining is usually a case of people charging differently depending on the location, which I'm assuming they didn't charge you more to appraise the properties.

What's the address? It sounds like you're in/around the 19th ward area, and prices can vary drastically from street to street...

Is there something different about properties on the east and west sides of this road? Proximity is only one factor in choosing comps. A common mistake is to try to compare one property with close by properties that are really in a different neighborhood. A close house that in a different neighborhood may not be as good a comp as a house that's further away but part of the same neighbhood and the subject.

@Steve Santacroce it could be charging differently or denying service. If an appraisal comes in low due creating an artificial boundary it has the same effect as charging a different amount or denying service in the end. At least in my opinion :) The property is right off of Genesee st on Shelter. Agreed that the prices can change pretty drastically street to street.

@Jon Holdman The properties lie on the border of the 19th ward and Genessee-Jefferson neighborhood. I would argue there is no difference between the properties under contract and west comp.

Have you asked why they won't used comps on the other side of the street?

Unfortunately, you don't get to argue with appraisers. There may be something subtle about the two neighborhoods that creates a real difference. Valuation is one of the most difficult parts of this business. This appraiser is telling you the houses aren't worth what you have them under contract for. I'd go back to the seller and try to get a price reduction. I've been in exactly your position and did get a reduction. Not as drastic as you need, though. From $77K to $71K IIRC. Even if you're willing to buy them at $60K, you're getting a big red flag here they're not worth that.

Unfortunately they stated it was company policy. The reduction I'd need is a bit too drastic for the seller :) I appreciate your insight! If I remember correctly some of the cash sales needed renovations to make them live-able and total amount invested would've been > 60k. So I suppose its a waiting game until other sales in the area support the prices.

I've been on the other side of a hard to comp situation, too. A partner and I funded a rehab on a busy street across from a high school. When we did the deal, comps supported a value around $210K. The rehabber defaulted (got caught without permits), we took the house and eventually sold if. But by that time comps only supported $170K. Only solds on that street and another busy one a few blocks west could be used as comps.

I'd tell the seller "Sorry, can't get financing with the appraisals. Keep my number and give me a call if something changes."

Just remove any comparisons to redlining from your mind, not even remotely close. There are many areas where the neighborhood to west of a major road is completely different from the neighborhood to the east. The reality is two houses facing each other across this road, maybe only 100' apart will have different values. In this particular case you should just consider it a fact that the appraisers, 2 different ones, are aware of a reality that you weren't aware of, and they're actually doing you a favor. This same reality is likely to still be there in a few years if you decided to sell.

I don't know for certain, but I am guessing appraisers don't cross-pollinate across zip codes. The subject properties are in one zip code and the comp you're using is in another. I looked at the appraisals I've had done recently (2 refinances, one purchase) and the comps for each are all in the same zip. So perhaps that is the policy they speak of.

Only thing I could think of is to try a local bank who might have their own appraiser on retainer? Not sure how that works exactly. I do know that for my recent purchase the lender (national) put the appraisal job up and it could get picked up by any number of independent contractors. Maybe a local bank would be more willing to work with you and their appraiser.

@Mark W. that would make sense and something I'll definitely pay more attention to in the future. After striking out twice in a row on the appraisals I'm probably just going to go on the other side of the line and find some new deals until more houses sell for conventional loans in that area :)

@Derek Hansen

If you cannot obtain appraisals to support conventional financing, any other perspective buyer will have the same issue.

This still leaves an all cash purchase {with a later refinance to pull your capital back out} or a wrap / vender carry as options. If an all cash purchase is not within your ability, then talk to the vender about wrapping or a vendor carry (whichever is applicable) ... you have nothing to loose at this point.

@Derek Hansen I think you are stretching at $60k on Shelter St near Genesee. I just drove that exact street last week. As you move towards Earl and Magnolia you could probably be safer at $60k as those streets are starting to transition up, but Shelter is still rougher.

Definitely one or two streets in this area can make a big difference. I think long term Shelter could be a good investment, but at $40k each. I think the appraisers are pretty close.

Remember not every deal is a "deal" and there are plenty of other properties out there.

Some Appraisers are not supposed to cross major roads to find comps because a major road usually indicates a significant change in neighborhood. At leat that is te reasoning they go by.

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