Bank Overthinking Quad Value?

Question

I am representing a buyer-client who has a quad under contract. The bank is having trouble justifying the value of the property because of lack of 'established marketability' and good comps in its rural location.

We sent the bank a recent appraisal that was performed at the request of the seller prior to listing. The bank claims the comps are mostly inferior to the subject property, but also that they are in a different area - a more expensive area within 20 miles. Shouldn't that be a positive indication of the appraised value?

The property has a 13 year history of being fully occupied. Is that not validation of 'established marketability'?

Jon Holdman · Answer

Hard to comp properties can be really troublesome.  I took a loss on a deal for just this reason.  Replacement cost is one method to determine value, but that's not commonly used for making a loan.  The third approach is income.  You can try to find other income properties in the area, determine cap rate, then see what value that produces for your property.

The bank is all about managing risk.  You can try another bank, but you have two appraisals that have similar issues.  Another bank may have the same problem with this property.  You could view this as a way to renegotiate price with the seller.

Jon Holdman · Answer

This is always the challenge with getting a loan on an unusual property.  Its easy if your property has three identical neighbor properties that just sold last week.  With oddball properties, the buyer and seller may be satisfied with a price, but the bank want's to be sure they will get their money back if there is a foreclosure.  There's a warning for your buyer there, too.  Even if they are OK with the price, they may be paying too much.  If they are forced to sell the next buyer may be more conservative.  Be careful not to become "the greater fool."

Account Closed · Answer

Just got off the phone with the bank. The determination is 'value not supported' and they may not be providing an alternative value. That is effectively saying the property has no value.

To put that into context - this is a 13 year old quad of 2-2, 1,100sf units, with near-zero vacancies since building. It did not flood during Harvey, it was built on 2 acres in great location with enough land and infrastructure to expand to 3 more identical quads.

Not sure why they wouldn't come back with an alternative valuation?

Account Closed · Answer

@Jon Holdman - thank you sir for the feedback. The bank says they are escalating to their appraisal quality control department to validate what they have. We'll see what they come up with. The cap rate comparison is tough in that area, but I am going to try that route as well.

If we end up at an impasse with appraisal, sounds like all we have is renegotiation. Last resort would be buyer coming to table with more money.

Account Closed · Answer

I feel like we need a new bank - lol

I've got a hunch the replacement cost of this place is at least as much as the contracted price. Wouldn't that make the comps moot? If the appraiser is having trouble with comps, isn't that the solution?

Account Closed · Answer

I hear you @Robert Freeborn. There is no disputing the fact that the comps used are not ideal. There simply are no comps in the immediate area that the quad exists.

I forgot to mention that the bank has performed their own appraisal in addition to the previously generated one. Same problems.

Sean Cole · Answer

I think an appraiser would argue that almost anything can be a comp to anything else.  That's what they use adjustments for.  As long as the appraiser can "show me the math" on how they arrived at a specific adjustment, we're good.  Each property and sale is unique, so there's NEVER going to be an exactly identical property in all ways.

Robert Freeborn · Answer

Wow. Sounds like you need new appraisers then. I'm not sure what other suggestions I could make.  Anyone else have this experience?

Robert Freeborn · Answer

The bank claims the comps are mostly inferior to the subject property, but also that they are in a different area - a more expensive area within 20 miles. Shouldn't that be a positive indication of the appraised value?

request of the seller prior to listing.

This sounds like your problem right there. It was a seller requested appraisal, and the comps used are NOT comps. They are from a different area completely.

It sounds like either your client or the bank needs to pay for a new appraisal.

Bank Overthinking Quad Value?

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