Home appraisals -- help! Advice needed. Can I trust an appraisal??

[sunshine girl]

Has anyone ever had an appraisal on your home come in low when you are buying/selling? Or a situation where a house was appraised inaccurately - too high? Looking for appraisal stories here.

Edited to add: I guess what I really want to know is can I trust the appraisal process to fairly value the house in the current market??? I know I should be able to... but want to hear others' experiences

I am bidding on a house, but I think it might be overpriced. I can afford it, but I don't want to overpay. The sellers have countered my offer and it is a firm counteroffer. I have to either take it or walk. I do have a clause in the contract that the house must appraise at or above contract price.

The comps in the area are 95% short sales. There is ONE comparably priced sale from 6 months ago, but the rest sold for less (from 5% - 17% less, plus one recent foreclosure that sold for 25% less). The one I'm looking to buy is not a short sale.

My realtor said she'd bet money it won't appraise. I just wonder if anyone has experience with appraisals coming in low, or coming in high even though everything in the comparable area is a short sale. Is it true that if the "market" contains almost entirely short sales, then the short sales are the market??

Thanks for any advice.

 

[The Mystery Machine]

If it were me, I would walk unless I REALLY wanted the house and the house price was just a tiny bit off. As you know you are going to have to pay CASH at closing for anything above the appraisal number.

How much off are you thinking the house is? That would determine my next step.

ETA...Is that your only clause? You have the dreaded repairs with the home inspection as well.

 

[sunshine girl]

Hi, thanks for responding -- no, the appraisal clause is not my only clause. I have clauses in for various home inspections, etc. All the standard buyer protections.

Again, I haven't accepted their counteroffer yet -- nor have I had an appraisal. No contract yet! If I do accept and then if it DOES appraise for less, then I'm definitely walking away, unless the sellers want to reduce the sales price for the appraisal price. (sellers are way underwater and have to bring a big chunk of cash to closing no matter what)

The price could be anywhere up to 5-10% too high based on the current comparables (but best comparables are all short sales)...

My sister had an appraisal 2 months ago in which the house was appraised at the exact sales contract price, but then the appraiser privately told my sister that he "actually thought it was worth about 20k less."

This seems unethical but she was at the mercy of this appraiser. My sister was able to get out of the contract due to other issues, but her experience makes me want to find out as much as I can about the appraisal process and other people's experiences.

Thanks for any info!

 

[The Mystery Machine]

Hi, thanks for responding -- no, the appraisal clause is not my only clause. I have clauses in for various home inspections, etc. All the standard buyer protections.

Again, I haven't accepted their counteroffer yet -- nor have I had an appraisal. No contract yet! If I do accept and then if it DOES appraise for less, then I'm definitely walking away, unless the sellers want to reduce the sales price for the appraisal price. (sellers are way underwater and have to bring a big chunk of cash to closing no matter what)

The price could be anywhere up to 5-10% too high based on the current comparables (but best comparables are all short sales)...

My sister had an appraisal 2 months ago in which the house was appraised at the exact sales contract price, but then the appraiser privately told my sister that he "actually thought it was worth about 20k less."

This seems unethical but she was at the mercy of this appraiser. My sister was able to get out of the contract due to other issues, but her experience makes me want to find out as much as I can about the appraisal process and other people's experiences.

Thanks for any info!

Here is the problem you have. You say that you can afford the house at the current price. That does throw a monkey wrench into it because the lender appraiser may appraise it high knowing you can afford the loan.

So yes, you are going to be snowed more than likely with an appraisal from your lender, I would think since they know you can cover the difference.

The short sale price for your area is probably the "new price" for the homes in the area where you are buying.

How much can you afford to "eat" if the market for your area drops even further? That is really what you have to answer for yourself. How much can you afford to lose on this house?

Is this a home for long term and something that you REALLY want? That makes a difference. If this were a short term house, like under 10yrs then you have to walk.

No one has a crystal ball so you really have to go with how much can YOU risk on the deal. Housing could go up or down. Anyone's guess at this point.

 

[Sanchez]

An appraisal is an opinion (one person's opinion) of the market value of property on a certain date. I think that most people fall into the trap of assuming that because an appraiser makes a finding then that is the absolute value of the property. Sales immediately following the appraisal will affect value. You could be purchasing in an area where values continue to decline and therefore the property may be worth less 30 days after closing. The process is as much art as science.

At a time when there are very few comps available the opinions of appraisers can vary widely.

It seems that you have protected yourself with the appropriate contingency. If the appraiser feels that the fair market value is less than the contract price then you have an out. Keep in mind that the contract price is a prime indicator of fair market value and that is why many times the FMV estimate is close to the contract price.

Not sure exactly what you are asking but the bottom line is that you need to feel satisfied with the purchase price.

 

[horseshowmom]

My experience with appraisals is that they have become more accurate lately. Of course, your sister's appraisal seems to disagree with that.

We recently had our house appraised since we are considering selling it. They were MUCH more particular than they were when it was appraised in the past. Honestly, I've never had an appraiser set foot inside the house before, but this time they came in and took pictues of everything.

Sooo, I guess I'm not much help. In our case, I think that what the appraiser came back with was very accurate (pretty much in the ballpark of what I was guessing), but your sister's experience seems to be very different than ours.

 

[dis-happy]

To start, I would pick my own independant and certified appraiser. Make sure he has no connection with the bank or either real estate agent involved (both have an incentive for a higher sales price resulting in a higher commission). On the actual appraisal, he has to show HOW he got the figures---comparable sales, etc. If you still don't agree it sounds like you can still walk away from the deal. Good luck.

 

[sunshine girl]

Here is the problem you have. You say that you can afford the house at the current price. That does throw a monkey wrench into it because the lender appraiser may appraise it high knowing you can afford the loan.

So yes, you are going to be snowed more than likely with an appraisal from your lender, I would think since they know you can cover the difference.

The short sale price for your area is probably the "new price" for the homes in the area where you are buying.

How much can you afford to "eat" if the market for your area drops even further? That is really what you have to answer for yourself. How much can you afford to lose on this house?

Is this a home for long term and something that you REALLY want? That makes a difference. If this were a short term house, like under 10yrs then you have to walk.

No one has a crystal ball so you really have to go with how much can YOU risk on the deal. Housing could go up or down. Anyone's guess at this point.

Yikes, this is scary. I don't like the idea that just because I can afford more, it's worth more. I hope this isn't the way appraisals usually work...

 

[The Mystery Machine]

Yikes, this is scary. I don't like the idea that just because I can afford more, it's worth more. I hope this isn't the way appraisals usually work...

The thing is you are in Florida and the banks are dying there. It is something that you have to factor in.

I would like to think that appraisers and lenders are on the up and up but you do have to think about what is going on in the neighborhood you are buying into.

Tons of short sales and only 1 reg. sale? Let's just say it does not bode well.

If you are truly serious, then hiring an independent appraisal before you get your lender appraisal is probably a good idea to work into the negotiations as dis-happy said.

Now you are going to have to lay out extra money for that, but it might be money well spent.

Hard to tell. I don't envy you. We bought this house in 2008. We hammered them to the wall and rightly so. We trusted our gut and if we would have paid what they wanted we would have been hosed. It was a model home with a new build.

 

[Skatermom23]

To start, I would pick my own independant and certified appraiser. Make sure he has no connection with the bank or either real estate agent involved (both have an incentive for a higher sales price resulting in a higher commission). On the actual appraisal, he has to show HOW he got the figures---comparable sales, etc. If you still don't agree it sounds like you can still walk away from the deal. Good luck.

I just had an appraisal done on my house last week. From the way I understand it, the new law is that appraisers do not have contact with the real estate agent or the bank. All appraisals are ordered through a clearinghouse and they report to them, who in turn reports to the bank/agent. This was all in an effort to keep "funny stuff" from happening. I think appraisers are being watched pretty well right now and no appraisals are coming in "high." If anything it will come in low. Only you know what price you will be happy with.

I have a new neighbor that was in the OP's situation. They knew that the house would appraise for 20K less but this was where they wanted to be and they knew the asking price was fair. So they brought the cash to the table to close.

 

[Jestocost]

You have to understand just what an appraisal is intended to be to have a sense of what it means to an individual buyer or seller. An appraisal is not designed to tell a seller how much they should be selling for or a buyer how much they should be paying. While an appraisal does use market comps (insofar as any reasonable comps may be available) and is based on market factors, the real purpose of an appraisal is to provide the lender (and/or subsequent investor/guarantor for the mortgage loan) with an assessment of the value of the underlying collateral so that they can make a loan decision.

The lender doesn't care what you pay for the home per se. What they care about is how much are they financing vs. what they believe the value to be.

 

[ccgirl]

You have to understand just what an appraisal is intended to be to have a sense of what it means to an individual buyer or seller. An appraisal is not designed to tell a seller how much they should be selling for or a buyer how much they should be paying. While an appraisal does use market comps (insofar as any reasonable comps may be available) and is based on market factors, the real purpose of an appraisal is to provide the lender (and/or subsequent investor/guarantor for the mortgage loan) with an assessment of the value of the underlying collateral so that they can make a loan decision.

The lender doesn't care what you pay for the home per se. What they care about is how much are they financing vs. what they believe the value to be.

Exactly! An appraisal is to protect the banks financial interest. They want to make sure the house is worth what you are purchasing for it, in case you fall into a foreclosure situation. The house is the banks, not yours, until you pay it off so they want to make sure they are getting their monies worth.

 

[sunshine girl]

You have to understand just what an appraisal is intended to be to have a sense of what it means to an individual buyer or seller. An appraisal is not designed to tell a seller how much they should be selling for or a buyer how much they should be paying. While an appraisal does use market comps (insofar as any reasonable comps may be available) and is based on market factors, the real purpose of an appraisal is to provide the lender (and/or subsequent investor/guarantor for the mortgage loan) with an assessment of the value of the underlying collateral so that they can make a loan decision.

The lender doesn't care what you pay for the home per se. What they care about is how much are they financing vs. what they believe the value to be.

Yes, this is true. Thanks everyone for your sensible responses! I think I have a plan that will work for me and we'll have to see how it all shakes out. That's why I love the DIS ... you can ask any question here, and there will be plenty of help offered!

 

[The Mystery Machine]

Yes, this is true. Thanks everyone for your sensible responses! I think I have a plan that will work for me and we'll have to see how it all shakes out. That's why I love the DIS ... you can ask any question here, and there will be plenty of help offered!

Close your eyes and roll the dice.

Good Luck to you!!!

 

[ndelaware]

My sister had an appraisal 2 months ago in which the house was appraised at the exact sales contract price, but then the appraiser privately told my sister that he "actually thought it was worth about 20k less."

You are saying this appraiser broke the law. Because if he did what you said, he commited fraud.

 

[golfgal]

We had 2 houses back when we were trying to buy our first house come in pretty far under the "agreed upon" price. Both were for what our first offer on the house was (surprise, surprise). In the first case the home owners decided not to sell and pulled the house off the market and in the second case our lender said no way would they finance the house at the agreed upon price so we backed out (we had it contingent upon financing so it was legal). Lenders are not going to finance for more then the value so you have your appraisal contingency and your financing contingency to back you up. Our last house we were in a similar situation where we thought the house was overpriced so we made the offer at XXX dollars or the appraised price, which ever was lower and they took that. The appraisal came out higher then our offer price so we "won" in the end.

 

[arminnie]

Many years ago in a really down market (very high interest rates) I sold a home after it being on the market for several months. I literally painted it and put it back on the market as I HATED my job transfer and did not want to stay.

I ended up having two offers - first one and a backup waiting. The appraiser was really shaking his head at the appraisal number. It was at least 15% over what he thought it should be - but because I had TWO willing buyers at that price he had to appraise it at that price.