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Two wildly disparate appraisals on a house. (1 Viewer)

Sabertooth

Sabertooth

Footballguy
  I bought a house to flip for $70k.  My appraisal came back lower than I had anticipated at $84k.  I thought it would be near $100.  I bought it anyway.

I had a buyer lined up within a week.  He is buying for $84k.  As he works through his financing he needed his own appraisal.  His includes a garage he is putting up for $25k.  

Closing is set for May 25.  He got the appraisal back yesterday and it came in at $174k.  And he told me right away.  I felt like I got kicked in the bag.  

Do I have any recourse on my appraiser?  I believe that before I bought it, it was appraised at $135900 based on initial sales price.  But I don't have a copy of that appraisal.

Whats my play here?  Also he isn't going to be able to close on time and will be asking me for an extension.  So if I want to walk, while I'd feel like a ####, I could legally do so.  

 
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It's highly unlikely you have a claim against your own appraiser, but you might want to speak with him to get his opinion on the buyers appraisal. It's more art than science in some markets. If you really want to consider options on the sale, you need to take a hard look at the outs in your purchase contract and probably speak with a lawyer. Before doing anything, I'd want to see the buyers appraisal and speak with a couple brokers or other knowledgeable RE people in the area. As Juxtatrot noted, it's not common for garden variety home appraisers to include assumed values for additions. That is common for valuations in large commercial projects, but it's going to be loaded with conditional cya language. 

 
Sabertooth said:
  I bought a house to flip for $70k.  My appraisal came back lower than I had anticipated at $84k.  I thought it would be near $100.  I bought it anyway.

I had a buyer lined up within a week.  He is buying for $84k.  As he works through his financing he needed his own appraisal.  His includes a garage he is putting up for $25k.  

Closing is set for May 25.  He got the appraisal back yesterday and it came in at $174k.  And he told me right away.  I felt like I got kicked in the bag.  

Do I have any recourse on my appraiser?  I believe that before I bought it, it was appraised at $135900 based on initial sales price.  But I don't have a copy of that appraisal.

Whats my play here?  Also he isn't going to be able to close on time and will be asking me for an extension.  So if I want to walk, while I'd feel like a ####, I could legally do so.  
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Don't grant the extension. Try to flip for more, if his appraisal is correct. Maybe he's a flipper too. No need to feel bad.

 
SoBeDad said:
Don't grant the extension. Try to flip for more, if his appraisal is correct. Maybe he's a flipper too. No need to feel bad.
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Yeah, suddenly this morning he said they are going to be able to close on time.  Weird.  

He's not a flipper.  He's already got somebody to buy his current hour lined up.  

 
CletiusMaximus said:
It's highly unlikely you have a claim against your own appraiser, but you might want to speak with him to get his opinion on the buyers appraisal. It's more art than science in some markets. If you really want to consider options on the sale, you need to take a hard look at the outs in your purchase contract and probably speak with a lawyer. Before doing anything, I'd want to see the buyers appraisal and speak with a couple brokers or other knowledgeable RE people in the area. As Juxtatrot noted, it's not common for garden variety home appraisers to include assumed values for additions. That is common for valuations in large commercial projects, but it's going to be loaded with conditional cya language. 
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I will request a copy.  I did speak with two realtors.  They said they'd say it's worth around 130 after about 20k worth of improvement.  Flooring, boiler replacement, paint. 

 
SoBeDad said:
Don't grant the extension. Try to flip for more, if his appraisal is correct. Maybe he's a flipper too. No need to feel bad.
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I'm not so sure about this. I think the appraiser issue is most likely the second one.  The second one smells fishy.  

 
UncleZen said:
The biggest factor in the appraisal will be the comps in the general neighborhood. They will be listed on the appraisal.
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I haven't seen the highest appraisal.  My comps were from municipalities with property tax rates much higher than the subject house, which is a township house.  Like triple the taxes.  

I think what my appraiser did was look at my purchase price, find some houses that could pass the sniff test if challenged, and worked to make them fit.  Instead of looking at comps first, he went backwards.  

 
Three appraisals I have seen all within the last year came in at 

135,900

83500

174000 with added pole barn that costs 25000

 
I called my appraiser and also asked the bank to look into it.  Buyer is using the same bank.  I don't know how anyone can look at me with a straight face and say this is legit.  Maybe I should start building hiding polebarns.  

 
Your bank is doing both sides of the thre transaction and they have an appraisal from you when you bought it and now another appraisal from him a month later? Maybe it's a drive-by. 

Also, did you consult any other sources when setting your price? Appraisals usually trail an ascending market. 

 
dickey moe said:
Appraisals are a racket. Reminds me of credit ratings institutions. It's 95% bull####.
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Commercial appraising is a real financial profession and commercial appraisers do legit valuation work.

Residential appraisal is a lot less legit. Some appraisers are really good, but many aren't. And you are right that it is primarily a box-checking exercise for the lender, like it is for the ratings agencies. I don't think it is an inherently crooked at the ratings agencies are though.

The other thing to remember is that for lender appraisals the underlying incentive is for them to be conservative enough to protect the bank's capital, but not so conservative that they blow up financing deals left and right.

 
Appraisers see what you paid for the house and how recently that it was purchased and are afraid to give you the boost to reality that you deserve. You buy a spot for cheap by getting a disaster or just a great deal and it can hurt you on flip because of it.

You need to have that discussion when the appraiser is there with all the fixes and upgrades that you did or how you got the house at a tremendous price because of old owners divorce etc.

 
Sabertooth said:
I called my appraiser and also asked the bank to look into it.  Buyer is using the same bank.  I don't know how anyone can look at me with a straight face and say this is legit.  Maybe I should start building hiding polebarns.  
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The purpose of your appraisal was for your purchase, and almost certainly limited to the bank's use in making a mortgage loan. It wasn't created to guide you in a subsequent sale. You probably paid about $200 and the guy probably didn't even step inside the house. It isn't an insurance policy against you making a bad deal in the future.

 
Thorpe said:
The house is worth what someone will buy it for, not what an appraiser says.
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I know it doesn't directly answer the OP's seeming issue, but this is the part that I was thinking about too.  You still can obviously set the sales price at whatever you want.  Setting it at the appraised value isn't really the appraiser's problem.

 
Back in the 2000's before the crash when everyone and their brother was either a mortgage broker or an appraiser my wife's good friend was a broker with a decent sized business and a bunch of appraisers.  I wouldn't trust what those knuckleheads said the value of a loaf of bread let alone a house.  Just pure lazy, not too bright shysters doing whatever the broker told them.  And they all made really good cash.

 
James Daulton said:
Back in the 2000's before the crash when everyone and their brother was either a mortgage broker or an appraiser my wife's good friend was a broker with a decent sized business and a bunch of appraisers.  I wouldn't trust what those knuckleheads said the value of a loaf of bread let alone a house.  Just pure lazy, not too bright shysters doing whatever the broker told them.  And they all made really good cash.
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And that is why the mortgage brokers are not allowed to directly hire or talk to appraisers today.  They are hired via a centralized center now.

 
If the second appraiser is pulling comps from better neighborhoods, it is kind of dubious as immediate surroundings are what is important.   When you invest, you need to be the expert and understand the market you are in. Most appraisers are just looking to make sure you are not over paying so that the property is in fact worth more than the loan which the government insures.  I would not trust it for market value.  If you don't understand the local market, you probably should have talked to some brokers who do. 

 
It sounds like your township has a bunch of lousy appraisers, and an expensive plumber.

 
Thorpe said:
The house is worth what someone will buy it for, not what an appraiser says.
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Not when that someone is borrowing money to buy said house.

If your son wants to borrow money from you to buy his 1st car. You (as an appraiser) are not gonna lend him 10k if he has his heart set on using it on a 1984 Ford Tempo.

 
comfortably numb said:
Not when that someone is borrowing money to buy said house.

If your son wants to borrow money from you to buy his 1st car. You (as an appraiser) are not gonna lend him 10k if he has his heart set on using it on a 1984 Ford Tempo.
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OP is not the lender, is he? If I appraise your 1984 Ford Tempo as valued at $10 is that what you have to sell it for?

 
I always get a kick out of these appraiser bashing threads.  To be sure, there are bad appraisals and appraisers out there.  But if I have to trust a value given by a borrower vs. an appraiser, I'll trust the appraiser over 95% of the time.

 
Juxtatarot said:
I always get a kick out of these appraiser bashing threads.  To be sure, there are bad appraisals and appraisers out there.  But if I have to trust a value given by a borrower vs. an appraiser, I'll trust the appraiser over 95% of the time.
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You're really setting the bar high for appraisers. 

 
comfortably numb said:
There is a lender involved. The house isn't worth what someone is willing to pay for it anymore is my point.
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I am either misunderstanding you, or you are splitting hairs. 

Generally, when someone is willing to pay a certain amount for something, it is assumed they have that amount to pay. 

If the lender thinks it is worth less, the buyer can make a bigger down payment or pay all cash (which is not unheard of in a lot of markets these days).

 
comfortably numb said:
There is a lender involved. The house isn't worth what someone is willing to pay for it anymore is my point.
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I am either misunderstanding you, or you are splitting hairs. 

Generally, when someone is willing to pay a certain amount for something, it is assumed they have that amount to pay. 

If the lender thinks it is worth less, the buyer can make a bigger down payment or pay all cash (which is not unheard of in a lot of markets these days).

 
Thorpe said:
I am either misunderstanding you, or you are splitting hairs. 

Generally, when someone is willing to pay a certain amount for something, it is assumed they have that amount to pay. 

If the lender thinks it is worth less, the buyer can make a bigger down payment or pay all cash (which is not unheard of in a lot of markets these days).
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The confusion is largely due to common misperceptions of valuation concepts. A mortgage lender is often looking at a foreclosure value, which is typically less than market value, which is what buyers and sellers are concerned with. An insurer, for example, is looking at replacement value, which is typically higher than fmv. An appraiser's conclusion of value is driven by his client's anticipated use, which determines the definitions, assumptions and the like which feed his conclusions. Confusion often results when the party paying for the appraisal (borrower) is not the intended user of the appraisal (lender). 

 
CletiusMaximus said:
The confusion is largely due to common misperceptions of valuation concepts. A mortgage lender is often looking at a foreclosure value, which is typically less than market value, which is what buyers and sellers are concerned with. An insurer, for example, is looking at replacement value, which is typically higher than fmv. An appraiser's conclusion of value is driven by his client's anticipated use, which determines the definitions, assumptions and the like which feed his conclusions. Confusion often results when the party paying for the appraisal (borrower) is not the intended user of the appraisal (lender). 
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Most people, including me, think it shouldn't matter who is ordering an appraisal which is supposed to assess value, especially when the guys doing so have to have little in the way of credentials. 

Everything about real estate can be a racket. Surveyors often have subdivisions on file and will just send in an old one when requested. I added onto the house and put up a fence. I think there's a 50/50 shot either will show up on the survey when I sell this year. 

Just like finding a real estate agent who will do more than put your property on MLS, it all depends on your area and luck. I'm in the title insurance industry, and about the only reason I'm even going to use an agent is because it is a husband and wife couple who send us tons of business.

Speaking of my own industry, it is probably even more comically bad at times, but at least we have to be insured against errors and omissions. 

 
Going to be an interesting week.  I've asked the lender to look into the values.  

We are both using the same lender.  If he order another appraisal to verify value, this thing will die on the vine as contract expires on the 20th.  

If he lets it slide I'm just going to sign the dotted line and move forward. 

 
Reading over the contract, there is a section in the appraisal bullet point that reads as follows.  And this is Michigan.

"The buyer and/or lender shall have 10 calendar days (unless otherwise declared by law), from the date this contract is fully endorsed, to have an appraisal performed by a licensed/certified appraiser.  If the contract purchase price exceeds the appraised value, the buyer shall have the right to cancel this contract.  If the appraisal is not completed before the expiration of the time frame stated herein (or declared by law), the seller shall have the right to cancel this contract, resulting in a return of the binder deposit in this contract to the buyer."

The signature date from all parties is 4/20/17.

As of May 4th, he was asking me via text if the appraiser would be able to get into the house.  So it hadn't been performed by that date.  Which is obviously past the 10 calendar days. Thoughts?  

@Henry Ford

@Random

 
PIK95 said:
I just had one totally ruin a transaction of mine.  Dude showed up with a team of young dudes carrying ladders.   I knew we were in trouble.  
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Haha. Had same experience. I wouldnt mind if they were consistent. What sucked though is what i got pinched for was missed by my home inspector when i bought the place. 

 
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