Are houses appraising low right now?

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Submitted by applejack on April 20, 2015 - 11:26am

Hello! We are in escrow for a house right now and the appraisal came in very low. My agent is telling me that is just the nature of the market right now, but I am not so sure. The appraisal came in over 50,000 low. Are others experiencing this right now, or is my situation an anomaly?

Submitted by flu on April 20, 2015 - 12:12pm.

It depends on a lot of things. If you happen to be buying in an area which doesn't have much turnover in sales, it might be hard for an appraiser to find a real comparable. So that might give a much lower appraised value. Some people also end up working with an appraiser out of the area. And that appraiser might be clueless. That happened with one of my refinances. It depends. So many variables.

Submitted by Doofrat on April 20, 2015 - 12:49pm.

We just had an appraisal done on a house that we bought for quite a bit higher than the comps would support. There wasn't a lot of activity in the area, most of the comps were a few years old and were forclosures, and it appraised for what we payed for it.
One of the factors that I think helped with the appraisal was that there were multiple offers all near the price we paid and that fact was in the appraisal report.

Submitted by CA renter on April 21, 2015 - 1:41am.

If the appraisal came in low, use it to your advantage. Tell the seller than you can only pay the appraised amount. See if they reduce it all the way, or part of the way.

Good luck!

Submitted by flu on April 21, 2015 - 1:57am.

CA renter wrote:
If the appraisal came in low, use it to your advantage. Tell the seller than you can only pay the appraised amount. See if they reduce it all the way, or part of the way.

Good luck!

In this market? ha ha ha ha. If I were the seller, I'd say... See ya, next buyer.

Submitted by fun4vnay2 on April 21, 2015 - 11:32am.

The housing market is quite hot right now, so asking for reduction base don reduced appraisal won't fly.
Or wait if you can for the market to cool down..

Submitted by FlyerInHi on April 21, 2015 - 12:23pm.

I find it very interesting that people insist on appraisal coming in at or above what they want to buy/finance at. Some people actually get angry/upset when they don't want the appraisal they want.

So much for independent appraisals.

Submitted by SD Realtor on April 21, 2015 - 1:20pm.

50k low seems a bit out of the norm. Have you presented the appraisal to the listing agent and have them see if they can find comps that the appraiser may have missed. Similarly there may have been improvements to the home such as rooms added or square footage that are not on the tax roll meaning they were done without permits. Thus the seller may believe the home should be valuated as a larger home but the appraiser didn't give the full ppsf on the improvements because they were made without permits.

Or the sellers just priced the home way above market rates and are convinced someone will come along and pay more then appraised value.

I would advise you to attempt to get a little price relief, perhaps split the difference with the seller. Alternately you can offer to get a second appraisal and split the cost of that with the seller. There are several options.

Submitted by CA renter on April 21, 2015 - 5:55pm.

flu wrote:
CA renter wrote:
If the appraisal came in low, use it to your advantage. Tell the seller than you can only pay the appraised amount. See if they reduce it all the way, or part of the way.

Good luck!

In this market? ha ha ha ha. If I were the seller, I'd say... See ya, next buyer.

Sure, if there are cash buyers or buyers with extra cash over the 20% who are willing to pay an inflated price. I'd still take my chances as a buyer to negotiate. IIRC, if they show the appraisal to the listing agent/seller, it's supposed to be included as part of the disclosure package. SDR, please correct me if I'm wrong on this.

Submitted by flu on April 21, 2015 - 7:17pm.

CA renter wrote:
flu wrote:
CA renter wrote:
If the appraisal came in low, use it to your advantage. Tell the seller than you can only pay the appraised amount. See if they reduce it all the way, or part of the way.

Good luck!

In this market? ha ha ha ha. If I were the seller, I'd say... See ya, next buyer.

Sure, if there are cash buyers or buyers with extra cash over the 20% who are willing to pay an inflated price. I'd still take my chances as a buyer to negotiate. IIRC, if they show the appraisal to the listing agent/seller, it's supposed to be included as part of the disclosure package. SDR, please correct me if I'm wrong on this.

With the way lending requirements are these days, provided the person can qualify for the loan, I'd take the one(s) that gave me the higher offer, who had more than 20% down, but I wouldn't require them to pay 100% cash, especially if the house is over $1million. I think it would depend on how much activity there is in that area. If there has been many sales nearby of comparable, then the that might be a red flag. But if the sales history in that area has been spotty, and especially if the appraiser isn't from san diego, that might have a lot to do with it. I don't follow what you said about "the 20% who are willing to pay an inflated price". I'm not sure where you got 20% from. And as far as inflated price. One can determine if the price is inflated if there is a reasonable comparable.

Submitted by spdrun on April 21, 2015 - 8:37pm.

Appraisals should be conservative. Banks shouldn't lend based on inflated offers, but rather on value history over the past 12-24 months. If prices can increase quickly, they can also go down, and the bank needs to protect itself and its investors. If people can't get a loan, too fucking bad for them. Not everyone needs to own a home.

Submitted by Essbee on April 21, 2015 - 9:13pm.

Three years ago (March 2012), we were in escrow, and our (now) home in 4S was appraised low. Not only that, the appraiser indicated that it was a "declining market." Because of this, we had to put 25% down (rather than the 20% we had planned.)

Three years later, it is worth about $300K MORE than the price we paid.

I guess I'm glad now that we put down 25%, but it left us without much savings for a little while...

I don't think there is much science behind this business.

Submitted by CA renter on April 21, 2015 - 11:08pm.

flu wrote:
CA renter wrote:
flu wrote:
CA renter wrote:
If the appraisal came in low, use it to your advantage. Tell the seller than you can only pay the appraised amount. See if they reduce it all the way, or part of the way.

Good luck!

In this market? ha ha ha ha. If I were the seller, I'd say... See ya, next buyer.

Sure, if there are cash buyers or buyers with extra cash over the 20% who are willing to pay an inflated price. I'd still take my chances as a buyer to negotiate. IIRC, if they show the appraisal to the listing agent/seller, it's supposed to be included as part of the disclosure package. SDR, please correct me if I'm wrong on this.

With the way lending requirements are these days, provided the person can qualify for the loan, I'd take the one(s) that gave me the higher offer, who had more than 20% down, but I wouldn't require them to pay 100% cash, especially if the house is over $1million. I think it would depend on how much activity there is in that area. If there has been many sales nearby of comparable, then the that might be a red flag. But if the sales history in that area has been spotty, and especially if the appraiser isn't from san diego, that might have a lot to do with it. I don't follow what you said about "the 20% who are willing to pay an inflated price". I'm not sure where you got 20% from. And as far as inflated price. One can determine if the price is inflated if there is a reasonable comparable.

Whoops! Sorry about the totally horrible syntax there, as I was posting in a hurry.

What I meant was that the seller could sell to all-cash buyers if the house is in an area that attracts these types of buyers, or simply to someone who is willing to fork over additional money that exceeds the 20% down payment, like Essbee did. A mortgage company won't usually increase the amount they're willing to lend beyond 80% of the appraised value if it's a conforming loan, so the buyer has to increase the amount of cash they're willing to contribute above the 20% down payment.

In our case, the appraisal came in low; and even though we were all-cash buyers, we still insisted on purchasing at the lower, appraised price. We offered to pay for the seller to hire their own appraiser to see if they could get a different number, but they weren't able to find any comps that would justify their higher list price. In the end, we paid the appraised price plus $10K toward our agent's commission. We also let them forgo a lot of the repairs that they would have had to do for buyers who were using a mortgage (required termite work for mortgaged properties) which saved them thousands of dollars. The appraisal came in $50K below the list price.

The appraisal also noted that the market was declining, so even though they wanted to test the market some more, they knew that they had a solid buyer who could close in a matter of days, so we got the house.

Submitted by CA renter on April 21, 2015 - 11:11pm.

Essbee wrote:
Three years ago (March 2012), we were in escrow, and our (now) home in 4S was appraised low. Not only that, the appraiser indicated that it was a "declining market." Because of this, we had to put 25% down (rather than the 20% we had planned.)

Three years later, it is worth about $300K MORE than the price we paid.

I guess I'm glad now that we put down 25%, but it left us without much savings for a little while...

I don't think there is much science behind this business.

Congratulations on the price increase! :)

Agree with your last sentence. As a result of the bubble, appraisers had requested changes to the system that would have enabled them to appraise a property without any pressure from the sellers or RE agents. It seemed to be working for a while, but it looks like things have reverted to the appraisers hitting the numbers for the RE agents/sellers.

Submitted by SD Realtor on April 22, 2015 - 7:09am.

Agreed 100% with you FLU. Cash buyers are not needed just because the home doesn't appraise.

Every case is unique and to make blanket statements without understanding or seeing the actual home and comparing it comps in the area is ridiculous.

Submitted by flu on April 22, 2015 - 8:51am.

CA renter wrote:
flu wrote:
CA renter wrote:
flu wrote:
CA renter wrote:
If the appraisal came in low, use it to your advantage. Tell the seller than you can only pay the appraised amount. See if they reduce it all the way, or part of the way.

Good luck!

In this market? ha ha ha ha. If I were the seller, I'd say... See ya, next buyer.

Sure, if there are cash buyers or buyers with extra cash over the 20% who are willing to pay an inflated price. I'd still take my chances as a buyer to negotiate. IIRC, if they show the appraisal to the listing agent/seller, it's supposed to be included as part of the disclosure package. SDR, please correct me if I'm wrong on this.

With the way lending requirements are these days, provided the person can qualify for the loan, I'd take the one(s) that gave me the higher offer, who had more than 20% down, but I wouldn't require them to pay 100% cash, especially if the house is over $1million. I think it would depend on how much activity there is in that area. If there has been many sales nearby of comparable, then the that might be a red flag. But if the sales history in that area has been spotty, and especially if the appraiser isn't from san diego, that might have a lot to do with it. I don't follow what you said about "the 20% who are willing to pay an inflated price". I'm not sure where you got 20% from. And as far as inflated price. One can determine if the price is inflated if there is a reasonable comparable.

Whoops! Sorry about the totally horrible syntax there, as I was posting in a hurry.

What I meant was that the seller could sell to all-cash buyers if the house is in an area that attracts these types of buyers, or simply to someone who is willing to fork over additional money that exceeds the 20% down payment, like Essbee did. A mortgage company won't usually increase the amount they're willing to lend beyond 80% of the appraised value if it's a conforming loan, so the buyer has to increase the amount of cash they're willing to contribute above the 20% down payment.

In our case, the appraisal came in low; and even though we were all-cash buyers, we still insisted on purchasing at the lower, appraised price. We offered to pay for the seller to hire their own appraiser to see if they could get a different number, but they weren't able to find any comps that would justify their higher list price. In the end, we paid the appraised price plus $10K toward our agent's commission. We also let them forgo a lot of the repairs that they would have had to do for buyers who were using a mortgage (required termite work for mortgaged properties) which saved them thousands of dollars. The appraisal came in $50K below the list price.

The appraisal also noted that the market was declining, so even though they wanted to test the market some more, they knew that they had a solid buyer who could close in a matter of days, so we got the house.

i think though the difference between when you bought and now is back when you bought the housing market was cold. Many people couldn't either qualify to buy or weren't in the buying mood. You idea of asking for the seller to reduce a price really only works if it's a buyer's market and if you have other homes you are interested in and don't really mind walking away.

Today, it's a sellers market. These days, for a good home, more than enough, the choices are (1) buy the home or (2) walk and let someone else buy it and wait to find something better (perhaps wait a long time).

Asking him/her/them to reduce the price significantly due to an appraisal imho is unreasonable, if he had other offers and if the home went pending really fast. That to me tells the seller priced his/her home fairly given current market conditions. If the home has been sitting on the market for ages, then maybe there's wiggle room there. But if the home went on the market and then went pending a week or less, then like I said...good luck renegotiating with the seller. I wouldn't.

Submitted by fun4vnay2 on April 22, 2015 - 10:20am.

This is a hot seller's market. Don't think you would be able to negotiate the price down but no harm in trying unless your heart is set on the house and you'd pay a perceived premium on the price..

Submitted by SD Realtor on April 22, 2015 - 10:45am.

We need more of the variables. How long was the house on the market, where are the comps, lets take a look at the appraisal, etc... Answers to those questions would help dictate a strategy that may help the buyer somewhat and not offend the seller. Without more data, speculation and blanket statements don't apply.

Your realtor should be able to figure out a decent strategy based on several factors.

Submitted by spdrun on April 22, 2015 - 1:38pm.

I don't think the market is nearly as hot as people assume any more. I was at two well-priced (~$500k range) open houses in decent areas last week, and they weren't exactly crawling with people. They were also on the market for a few months without accepted offers.

Submitted by applejack on April 22, 2015 - 8:40pm.

Wow, thanks for all the comments! A little more background: We knew we would be paying more for the house than the recent sales, but it is due to (in our mind) the size of the lot and the beautiful landscaping. It's the type of yard where you feel like you are in a resort. I guess we thought that would be accounted for in the appraisal, especially since many of the recent sales in the area had very small and undeveloped back yards. Another issue is that we are only looking in a small area of a certain neighborhood, and it seems like someone has to die before a house comes on the market! There haven't been too many sales in the past year in the particular area we like, but of those, many of the sales were estate sales. I am pregnant, so that adds some urgency to our situation. However, I feel like we are back in the the 2006/2007 crazy housing mania, and I don't want to be paying 50k over the appraised value if the market is going to turn south! Or maybe I am just having cold feet...or pregnancy hormones...

Submitted by flu on April 22, 2015 - 8:48pm.

applejack wrote:
Wow, thanks for all the comments! A little more background: We knew we would be paying more for the house than the recent sales, but it is due to (in our mind) the size of the lot and the beautiful landscaping. It's the type of yard where you feel like you are in a resort. I guess we thought that would be accounted for in the appraisal, especially since many of the recent sales in the area had very small and undeveloped back yards. Another issue is that we are only looking in a small area of a certain neighborhood, and it seems like someone has to die before a house comes on the market! There haven't been too many sales in the past year in the particular area we like, but of those, many of the sales were estate sales. I am pregnant, so that adds some urgency to our situation. However, I feel like we are back in the the 2006/2007 crazy housing mania, and I don't want to be paying 50k over the appraised value if the market is going to turn south! Or maybe I am just having cold feet...or pregnancy hormones...

What does your agent say. What does the seller's agent say?

Submitted by applejack on April 22, 2015 - 9:00pm.

My agent says that houses are appraising low right now due to the rapidly rising market. Sellers agent says the house will be worth a lot more by the end of he summer, and they already have a back up offer in place so they don't care about our appraisal. Apparently they had a lot of offers. House went pending within days. Mortgage broker says they deal with a lot of transactions and they haven't been seeing low appraisals. Is it pretty normal for houses with really nice landscaping and back yards (very beautiful pool, etc) to appraise low?

Submitted by flu on April 22, 2015 - 9:14pm.

applejack wrote:
My agent says that houses are appraising low right now due to the rapidly rising market. Sellers agent says the house will be worth a lot more by the end of he summer, and they already have a back up offer in place so they don't care about our appraisal. Apparently they had a lot of offers. House went pending within days. Mortgage broker says they deal with a lot of transactions and they haven't been seeing low appraisals. Is it pretty normal for houses with really nice landscaping and back yards (very beautiful pool, etc) to appraise low?

It depends. If it really bothers you, have you considered just paying for another appraisal? Or maybe you can PM one of the agents that posts around here and give them the specifics of that property to see what they think. I don't think anyone can really provide a blanket statement one way or the other, because it differs in so many different ways..

Submitted by spdrun on April 22, 2015 - 10:45pm.

Seller's agent's job is to sell the home at the highest price. OF COURSE s/he/it will say what they think you'll need to hear to up your offer, even if the "backups" that you're competing against are illusory.

As far as the market rising rapidly, it hasn't been since late 2013. Maybe rising moderately. But I doubt that prices will be much higher by summer's end. If anything, things slow down by August/September.

Lastly, landscaping is irrelevant. You can do it yourself incrementally as time goes on. Look for houses with crappy landscaping, dirty interiors and exteriors. Keeps the schmucks with no imagination out of the competition.

And think with your brain, not your hormones. Schools won't be a consideration for another few years. No harm in staying pat or renting till you find the right place.

Submitted by CA renter on April 23, 2015 - 1:32am.

SD Realtor wrote:
Agreed 100% with you FLU. Cash buyers are not needed just because the home doesn't appraise.

Every case is unique and to make blanket statements without understanding or seeing the actual home and comparing it comps in the area is ridiculous.

I never said that cash buyers were needed, only that if the house was in an area that attracted either cash buyers or buyers who would be willing to put down more than 20%, then it would be more difficult to negotiate than if the house/neighborhood were in an area where these buyers weren't very common.

Again, please correct me if I'm wrong, but the point was that the buyer would have to make up the difference between the appraised price and the list price, and this would be in addition to the 20% (assuming conforming mortgage) that they are putting down.. It's unlikely that the lender would increase the amount that they're willing to lend.

Submitted by SD Realtor on April 23, 2015 - 8:52am.

It sounds like it is a moot point applejack. If the seller is dug in and if they have a backup then they are going to most likely dig in. If they are smart they will inform the backup offer about the appraisal so that they don't run into the same issue.

If you look at the appraisal you can generally see line items of where the appraiser either added or subtracted monetary value to the comps on a feature by feature basis. If the lot substantially larger for this home then for the comp properties you can see how much the appraiser accounted for that feature. Obviously it doesn't sound like much.

The bottom line is that the issue reverts to how much you love the home.

***************

As for the general market conditions, it is somewhat mixed a little bit. Out of the gates the market was very hot. It has slowed up for some properties. First off there was the group of sellers who just priced way out of whack for properties that did not deserve such pricing. Most of those homes have sat. There are alot of sellers that did this. Homes that are priced within comps and are in good shape are selling. Not at the clip as we saw in late Feb and early March though.

Still many buyers are still running into cases of certain communities having little to no listings and when a listing in that community comes on the market the homes go fast.

Submitted by AN on April 23, 2015 - 9:46am.

SD Realtor wrote:
It sounds like it is a moot point applejack. If the seller is dug in and if they have a backup then they are going to most likely dig in. If they are smart they will inform the backup offer about the appraisal so that they don't run into the same issue.
I totally agree. If the property went pending in a few days and they have plenty of back up offer, then you have to roll the the dice and be willing to walk. You don't know about the other offers. It's possible that one or more of the backup offer have the appraisal contingency removed.

Submitted by applejack on April 24, 2015 - 3:14pm.

Update: We decided to move forward with the house, despite the low appraisal. Our mortgage broker helped us appeal the original appraisal, and the new appraisal was was only 30k below our agreed upon price. These are the reasons:

1. The PITI is equivalent to the rent we are paying, but the house is nicer than our rental. Monthly expenses will actually go down due to solar panels on new house.

2. We think the stock market and housing market are BOTH over valued right now. If we keep renting, we do not want to put the down payment money into the stock market. Bonds are also a bad option right now, and I don't want to hold that amount of money as cash. The downpayment is 20% of our net worth. It makes sense to diversify where we are holding our money.

3. We like the house and think we will stay there at least 5 years.

4. If they had multiple offers at list price, it seems like the price we are paying is actually the true market value. (or the market is too heated, not sure about this one.)

5. My husband wouldn't let me not buy it. He really likes it. I actually wanted to walk away from the deal and wait until the market cools, but he was pretty upset about that idea. All of the upgrades and style choices are exactly what we would have chosen.

So there you have it -- a case study on the fools that pay inflated prices for their house! Haha!! I hope it works out!

Submitted by AN on April 24, 2015 - 3:32pm.

Sounds like you've made a sound decision. You said PITI is equivalent to rent, but you're getting a nicer house and it has solar. So, as a home, it's costing you less to rent than own. Not to mention the tax deduction as well as paying down the mortgage. So, although you'd miss out on the interest you'd make from investment of the 20% down, you'd make it up by appreciation of the house as well as pay down of the principal. So, after 30 years, your cost of living will reduce dramatically.

Submitted by CA renter on April 25, 2015 - 2:59am.

applejack wrote:
Update: We decided to move forward with the house, despite the low appraisal. Our mortgage broker helped us appeal the original appraisal, and the new appraisal was was only 30k below our agreed upon price. These are the reasons:

1. The PITI is equivalent to the rent we are paying, but the house is nicer than our rental. Monthly expenses will actually go down due to solar panels on new house.

2. We think the stock market and housing market are BOTH over valued right now. If we keep renting, we do not want to put the down payment money into the stock market. Bonds are also a bad option right now, and I don't want to hold that amount of money as cash. The downpayment is 20% of our net worth. It makes sense to diversify where we are holding our money.

3. We like the house and think we will stay there at least 5 years.

4. If they had multiple offers at list price, it seems like the price we are paying is actually the true market value. (or the market is too heated, not sure about this one.)

5. My husband wouldn't let me not buy it. He really likes it. I actually wanted to walk away from the deal and wait until the market cools, but he was pretty upset about that idea. All of the upgrades and style choices are exactly what we would have chosen.

So there you have it -- a case study on the fools that pay inflated prices for their house! Haha!! I hope it works out!

Great news, applejack! These are all excellent reasons for making the move to buy. As you've noted, even if the housing market is overvalued (and I think it is), there's still a risk holding any other assets, including cash. At least with a house, you're getting a roof over your head. Having lower payments than then rental, along with a superior property, makes it an excellent choice.

Hope you have a smooth escrow and transition to your new home! :)

Submitted by SD Realtor on April 25, 2015 - 9:44am.

Great news, enjoy the home and best of luck!

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