Low Appraisal

9 Replies

I'm looking for some advice on an appraisal dilemma.

I recently purchased a home through a hud auction. The house was in need of some repairs and TLC and was listed well below market value for the area. It needed lots of cleaning, plumbing fixtures missing, new hot water heater, paint, moulding missing and repair, etc. I purchased the home cash with the intent to get conventional financing after repairs were finished, using the equity in the home for down payment, saving my cash for later investment properties.

The home was built in 1956, but has been extensively remodeled over the years (last remodel was in 2012). The home is ~2500 sq. ft, 4 bedrooms, 3 full baths, 11 total rooms including living room with wood burning fireplace, dining room, large den with gas fireplace, large master bedroom with walk in closet, master bath features quality fixtures, large double vanity cabinet with granite countertops, jacuzzi tub with tile shower stall. 2nd bath also features quality vanity with built in tub and tile shower. 3rd bath has standard shower stall and standard wall mounted sink. The kitchen features lots of cabinets, granite countertops, built in double convection ovens, built in gas 5 burner cooktop, breakfast bar, built in double sided wine cooler, and built in fridge cabinet. Flooring is quality ceramic tile throughout most of the home and quality laminate flooring in living room and bedrooms. Home also features many large double pane windows with nice wood blinds and heavy window trim throughout living areas, crown moulding throughout the home, quality front door with sidelights, 2 car steel garage builiding, large driveway with 2-3 car carport, 2 ac and heater units, 2 hot water heaters, front built in porch, large rear screened in porch, with small porch leading to backyard. The front exterior of the house features stucco with vinyl siding on sides and rear of home.  House sits on a 20,000 square foot piece of property.

My market is a small town of approximately 3,000 residents.  The town sits along the intercoastal waterway that leads into a small bayou through the town.  Approximately 50% of the homes in the area are built at or near the waterway.  The market consists of various style homes, some mobile homes and custom large homes with not much conformity.  Single Family Home Values range from 50 to 400k with ages of 80 years to new.  Being such a small market with little sales makes it difficult to find comparables.

Now to my issue:

Homes with my size and amenities in this market usually start around $180k.  My appraisal came in at $160,000.

The appraiser sited 3 comps - A 2000 sq ft. 3 bed 2.5 bath w/sale price of 180k, 20 yr old home, good shape, fairly updated kitchen and baths; A 2100 sq ft. 3 bedroom 2 bath 40 yr old house, terribly outdated (wood paneling on walls, cheap flooring, small bedrooms, etc.) w/sale price of 135k; A 2200 sq ft. 6 bedroom 2 bath 11 year old Foreclosure sale.  This home was large, but a basic builder grade home, no special amenities besides fireplace, small bedrooms, small kitchen, basic appliances, cabinets and countertops, basic bathrooms, cheap carpet and vinyl flooring, etc. w/ sale price of 129k.

He then made net adjustments of -2%, +23.5%, and + 21.1% to match amenities.

After receiving the appraisal, I emailed him addressing my concerns that two of the comps were too far off compared to my home.  I sent him addresses of some homes that looked like they were better fitting as comps.  

One home which was almost the exact size, room count, upgrades, porch size, garage, etc. as my home.  The only difference was that the home was on the water, and featured an all brick exterior. He claimed that the quality of construction, condition of the property, and location on the water were superior to my home.  Which disqualifies it as a comp. 

 Not once in his report does he note any negatives to the condition of my property.  He notes that typical physical depreciation is within acceptable parameters and no functional obsolescence was noted.  

He also adjusted the first comp -20,000 for location on the water.  How can he say that this disqualifies it as a comp.  If the water location disqualifies properties, then half of my market is not accessible as comps.

Another home he cited the age of my property as a disqualifier.  He stated that this home was only 11 years old.  Yet he used an 11 year old home as a comp.  

Another home he cited quality of construction and lot size as a disqualifer.  Yet he only adjusted the other homes for my lot size at .25 a square foot.  To be honest this home looked more like a custom high end home but had similar features, but his lot size comment made no sense.

Another home was a much smaller 1500 sq. ft. home that sold for 180k.  He stated that location on water and smaller square footage disqualifies this home as a comp.  Yet he used a home that was located on the water as a comp and he used all three homes that were smaller in sq. footage.

He then stated that he had also looked at active listings in the area. He gave me an address to look at a home that had recently been reduced from $175k to $170k (similar square footage, 4 bed 2 bath). Upon inspection of this address, it was a mobile home. He obviously did not even look at the listing and just pulled the info from the MLS to justify himself.

He also mentions in every email the amount of my purchase price of the home.

I then asked him questions about the inconsistencies above as well as provided him with another listing of a similar constructed home, much smaller (1700 sq ft), fewer rooms, with similar upgrades listed at $175,000.  

He provided no answer to these questions, no mention of the mobile home, and no mention of the new listing.  

His response now was that the market does not have enough comps close enough to my home, so he was forced to use the homes that he did.  He offered to adjust the value on two of the comps another $3 a square foot based on condition.  This would bring my appraisal to $167,000.  

I then contacted my loan officer to find out if she could do anything.  She reviewed the appraisal, siting that the adjustments to the two comps were high which could indicate that they are not good comps.  She contacted him to ask him to review again and possibly look outside of the market for more valid comps.  He stated that he had already reviewed it and would absolutely not look out of market for new comps.  

Do I have any recourse here besides paying for a second appraisal?   I feel that he came into this appraisal with a preconceived value, and is only willing to use comps that support this value.  I also feel that he's going to cost me money for a second appraisal because he is unwilling to do his job and look for the best available indicators of value.

Do I have any grounds for reporting him to my state appraisers board?  Or is this a waste of time because its all based on his opinion?

@Robert Mayfield , was it deliberate that you neglected to mention how much you bought it for?

As far as I can tell, the only hurt you have is that you are slightly less able to follow your desire of "saving my cash for later investment properties".

Lenders have every right to either agree (likely) or disagree (not likely) with their own Appraisers. Many times, that will end up being in your favor. But, not EVERY time! I suggest: drop it.

Also, the Owner isn't under any obligation to lower their Sale price because of a "poor" appraisal.

Hopefully, you already knew that. [Nice sounding property by the way]. Welcome to BP.

On the plus side, if you want to sell it, YOU are under no obligation to limit the price either! My 2c.

Sounds like this deal isn't going to work for you after all; I just wanted mention that when /if a "cash" offer is accepted, you will likely be asked for proof of funds right after. I'm not sure that the seller looking for a cash sale would accept the eventual bank financing as proof. It seems to me that a seller looking for cash doesn't want to mess around with the property being taken off the market for weeks, only for the sale to fall-through. If It were me in this situation (assuming that these were indeed townhouses with proper permitting, metering , etc.) I would make a real cash offer for the cash that I actually had, with as few contingencies as possible, still leaving at least one contingency to bail if I found something questionable . 

Hi @Brent Coombs ,  it was not intentional to leave out the purchase price.  I paid $140,000 for the property.  

This is my first post at BP, but I have been reading and listening to the BP podcasts for a while now.  

I really tried to approach this purchase like an investor. Sort of like a BRRR strategy without renting the home out. I researched the local market, estimated rehab costs, had my realtor run a CMA (She chose some properties slightly out of market due to lack of sales), etc.

I thought I had a good grasp of the after repair value of the home.

The lower appraisal is not going to break me, but I just feel that he is being lazy and not using all of the information available to him to properly assess the value of my home.

One other thing that he keeps mentioning in emails is that the kitchen and master bath is superior to most homes in this price range (price range of his comps) but the living area and baths are similar to most homes in this price range.  

I cannot justify how he came up with this conclusion.  My living areas, bedrooms, and baths are much larger and nicer than those in this price range.  

Originally posted by @Steven Gruner :

Sounds like this deal isn't going to work for you after all; I just wanted mention that when /if a "cash" offer is accepted, you will likely be asked for proof of funds right after. I'm not sure that the seller looking for a cash sale would accept the eventual bank financing as proof. It seems to me that a seller looking for cash doesn't want to mess around with the property being taken off the market for weeks, only for the sale to fall-through. If It were me in this situation (assuming that these were indeed townhouses with proper permitting, metering , etc.) I would make a real cash offer for the cash that I actually had, with as few contingencies as possible, still leaving at least one contingency to bail if I found something questionable . 

 Hi Steve, 

I either didn't clarify or you misunderstood. I already own the home. I purchased it "cash" through a HUD auction. After doing some repairs, getting the house in good shape, I am getting financing on the home and pulling my "cash" back out.

I've never once had any success arguing with an appraiser or trying to convince them of anything whatsoever.  Indeed, it's in their own interests to be 'right' and therefore more professional than your average Joe.  And it is also in their own interests to not allow the banks hired by them shower homeowners with cash like it's 2005.  

(Not saying that's what you're up to, but rather just trying to explain the other point of view.)

As an investment strategy, consider selling immediately if your refi doesn't work out.  If you did indeed buy well under market then you should be in a great position to cash out - and then some - at retail.

New user here too. Sorry,  this posted in error while trying to work with BP tech to help make my app work. 

I've had bankers in two instances not agree with appraisals and order new ones. 
(thier cost) 
All banks I've worked with are not allowed to talk to the appraiser, but homeowner can. 
I show up the day the appraiser is there and talk up how much remodel I did. 
Get them to put the original purchase price out of thier head. 
What happens is they see original purchase price, get scared and do what they can to justify it down so they don't get in trouble. 
You need to move on, try to get another appraisal. 
Meet the appraiser, legally and ethically get them to give a high number. 
Photos of it looking horrible when you bought it helps. 

@Robert Mayfield , it's a (sometimes unfortunate) fact of life that anyone's home will NOT automatically appraise at a dollar more for every dollar spent on renovations. eg. When someone spends $40k to get the nicest kitchen in town, it may well only improve its appraisal by half that amount, or less. Of course, once experience kicks in and the dollars are spent on EXACTLY what the market is crying out for (and appraisers are carefully watching out for), that same $40k may result in an increased appraisal of $80k, or more!

So, you may have over-capitalized a bit, but that's not to say that SOMEONE wouldn't pay you a premium upon sale! In the meantime, YOU get to enjoy the fruits of your own reno. Cheers...

I also spoke with a local real estate agent today who told me that he has seen appraisers being very gun shy since they are under tighter regulatory scrutiny these days.  He said that it looks like they tend to stay on the safe side when evaluating to keep themselves out of trouble.  It still baffles me that he is unwilling to look a few miles away for some better comps.  Everyone in our town that I have spoken to had at least 1 comp taken from outside the market due to lack of sales in the area.

I'm going to move on and request a second appraisal and hope for the best.  I'm going to be better prepared and put together a list of improvements with before and after photo's.  

Regardless of how the second appraisal turns out, I am still coming out with a good bit of equity.  I did most of the rehab work myself (with the help of a family member that is a contractor).  I Learned a lot about the work involved in this and realized that my time is better spent hiring rehab's out.  I also came out with some valuable insights into the appraisal process. 

Thank you all for the comments and advice.  I look forward to continuing to learn from and participate in the BP community. 

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