Any of you Fine Folks in Real Estate? Appraisal Complexities

[FjordBCRF]

Details:
2020 Home
Purchase Price $10,000 above asking

Just got the appraisal back at $17,500 less that the agreed purchase price.

I was told the appraiser used data on homes that sold last year, and many have sold recently much closer to or higher than our purchase price. Realtor is asking the appraiser to review the more recent comps as they are much more indicative of the current market. Realtor is hoping to get them to adjust closer to the list price…does this happen that often?

Second question: how willing are sellers to negotiate down in a situation like this? We are able to pay more cash towards the house but if they don’t revise the appraisal and in my mind, it would be akin to putting down a larger down payment. I also don’t want to get hosed paying more if it’s not worth it, but then I think we just drew an appraiser that didn’t look at the big (current) picture.

In the sellers shoes, I would be inclined to negotiate to some degree as this could happen again with another buyer, so I’m really hoping they will reasonable. The market is so crazy right now I have no idea what to expect and really don’t want to lose out on the house.

Closing has been set for Nov 5th and we waited over two weeks for the appraisal to get finalized so it feels like we’re really coming down to the wire

[beowulf]

Is this a residential appraiser or a commercial appraiser? And where did they get their info (assuming Assessor’s office?) – how many comps did they use, and, were they truly comps (similar structure, acreage, amenities) or were they just homes in the same location/area?

An appraiser has to use recent comps to find out the fair market value. If they aren’t pulling from recent data, their appraisal won’t be correct. They are supposed to use sales from the last year. Sometimes if there are not any viable comps within the last year (very possible in certain parts of the world) they might use sales from years prior, and adjust with market inflation.

Your Assessor’s office is a huge source of knowledge for these questions; while they can’t answer questions about whether or not the seller would be willing to negotiate, what they can answer is what properties (comps) in their city or town are have similar amenities to your own (subject), and what the assessed value of these properties are. If they tell you that’s what an appraiser is for (I’ve found many Assessors are L-A-Z-Y), you can remind them that your tax dollars are at work and they are there to help you.

While I wouldn’t say that $17,500 is peanuts in the scheme of things, we really need more information – like what the total assessed value of the home is for the appraiser, the Assessor, and what the list price is of the home. If it’s a $100k home, then $17,500 is a huge disparity. If it’s a $800,000 home, not so much.

I worked for five years in the Assessor’s Office in one of the towns local to me. It was not uncommon for the appraisers to have a wildly different assessment of the home than the Assessor’s, and the Assessor’s (fair market value) is more in line with what homes were often listed or sold for. The average Assessed value of a home in the town I worked for was $1.1 million. Often the appraisers were anywhere from $100,000 to $300,000 different than our Assessed value and commonly much lower or much higher than direct asking price.

In the end, other than for insurance or bank purposes, an independent appraiser’s assessment of the property really doesn’t matter in a governmental context. What matters in terms of taxes and value is the Assessor’s assessment. Assessors do not use your appraiser’s assessment in factoring into their (the town’s) value of the property. The only time they might, is if you file an appeal and provide that info yourself.

P.S – only you can decide if paying more is worth it for you if it means closing the deal. I paid a little bit more than what FMV was for a home in June, but I don’t regret it for a minute - the market has changed so much in the last three months I could sell it tomorrow and walk away with 100k more than I started with. That is location dependent though.

[FjordBCRF]

@beowulf

List price was $185,00. This is residential in a newer Ryan Home neighborhood of townhouses. Each house there starts off a nearly identical base model floor plan. Sq footage varies a couple hundred sq ft and ours is the higher option (1560sq ft) Our unit has some upgrades (finished basement) and is on a cul-de-sac that has less traffic which we were told generally increases the price a bit. I’ve not seen the report yet since they are trying to get it revised, but the homes compared would have been in the same neighborhood from my understanding.

Not that it’s anything official, but I looked on Zillow at recent sale prices in the neighborhood and our offer price was higher than some but not by a lot, and others were higher. Our realtor also said they looked a base models which start closer to $160,000 which ours isn’t.

I will look into contacting the Assessors office (I didn’t know this existed!!) This could help us decide if paying the asking price would be worth it. I am inclined to pay it, my partner I think is going to be a harder sell if the sellers play hardball and don’t budge. They aren’t in a hurry so they very well could. I love the home and location and was willing to pay the agreed price anyways and I have the liquid cash handy to cover the difference. (I hope the sellers aren’t horse people here )

[FjordBCRF]

Oh and if it helps, they purchased the place for $167,500 last year. Our realtor said that the increase is due to build costs when I asked him if a 20% hike made sense.

[lenapesadie]

You can appeal the appraisal. Whatever value is assessed by appeal will stand.

Generally speaking, if the appraised value is lower than the agreed upon selling price, the buyer will make the difference. If you are mortgaging, there maybe additional factors ie ltv based on appraised value can impact interest rates on conventional mortgages or even the viability of the loan dependent on product and lending guidelines.

In my local market RE is still hot enough that sellers are less likely to negotiate based on low appraisal as there are enough cash buyers willing to pay asking price.

Generally speaking, the number of legit errors made by appraisers is low. Everything they do, they do for a reason.

[frugalannie]

@Beowulf, thanks for your perspective from working in an Assessor’s office. Mileage in my town varies from that quite a bit. Around here, word is that Assessor’s value is maybe half or less than market price, and in today’s market much less than half despite a revaluation just a couple of years ago. It kind of doesn’t matter if the absolute values are low as long as the relative values are accurate. (What I mean is that absolute value is what a property would sell for in this market. Relative value is that the no frills 1200 square foot house should be valued at 1/3 of what a no frills 3600 sf house in the same neighborhood. This is just a very broad example to explain the terms, not the valuation of houses!)

Anyway, if the relative values are correct, the tax rate takes up the slack ($X Per $1000 valuation where X is set every year).

Sorry for the semi-hijack. I did a deep dive in the the Assessor’s value of our property a few years ago and found out all sorts of interesting stuff. It makes me a fun conversationalist at cocktail parties because I know about so many houses in town: it’s all public record and available on-line.

[lenapesadie]

@frugalannie

word is that Assessor’s value is maybe half or less than market price,

In my area, this is fact. Tax assessed value is like 58k as of 2020. Appraised value was 225k as of 2020. Tax assessed value is 60k for 2021. This on my residence here. Other places tax values are very in line with appraisal values

[beowulf]

Your mileage will definitely vary on the Assessor’s willingness to help, depending on the quality of your town officials and… how much work they want to do. I’ll stop there because I still work tangentially with the Assessor’s office and need my friends in the business world

By MA law the published assessed values have to be within 10% range of that year’s FMV; these values are audited by the DOR every year. Assessors must submit their yearly town-wide assessments, in spreadsheet form, to the DOR and it must be approved by the DOR before they can finalize the values and establish their tax rate. Every five years the DOR goes through your Municipalities’ records and audits everything from property values to whether or not the Assessor is handling appeals in a timely fashion.

It is probably one of the more onerous departments to work for in a municipality sense. You(g) won’t get away with fuddling numbers or having any incorrect assessments for very long, if at all. The DOR will catch you instantly.

Something that many residents aren’t aware of is that the year’s published values are reflective of last year’s sales – in the simplest explanation possible, the valuation on which you are taxed is always lagging a year behind your present year. MA is a good example - our house values have been steadily rising the last five years, but in the last six months certain locations have almost doubled their value --that won’t show on your Assessed Value (which you are taxed on) until next year (2022).

A slight tangent – (not directed at you FrugalAnnie) Assessors can’t just set a value and declare that is what the value is based on their intuition, although this is the perception of many residents and taxpayers. Municipalities use software to generate the values based on a universal cost manual built into the software – the cost manuals are revised, nitpicked, and edited every year, and these software programs are exorbitantly expensive and constantly upgraded. In some parts of the country Assessors may still be using manual cost manuals, but these are only in very small counties with sparse human settlement. If you are in a town or a city with more than 1,000 homes, your values are generated by a cost manual which takes in all features of your home (house dimensions, rooms, location, acreage, any functional obsolescence on the home like a nearby airport or train station) and generating an assessed value from that information – which is why it is imperative to go to the town hall and get your ‘Property Record Card’ (also known as: Field Card, Assessor’s Card, Record Card) and make sure the information the Assessor has is correct because the values are pulled in from those known figures.

A second side-track, but germane to the topic of Assessor records being outdated or incorrect: I work for one of the wealthiest towns in MA. Many of these homes are valued on the “low end” (in the $1mill sense versus 3mill sense) because the home owner has never let the Assessor inspect the property. By law, you are not required to let an Assessor into your home. When that happens, the Assessor has to pull from external condition and original house design plans only - so that is another common reason here that there is a disparity in the values between an Assessor and an Appraiser.

We actually had a really interesting case a few years ago - home owner came in for an abatement on a $1 million home and said our records were incorrect. The last time they had let someone from the Assessor’s office on the property was in 1978… In the end they were right, our records were incorrect – they’d built several additions without a permit and their home was actually worth nearly twice what it was assessed.

From the outside looking in, I can say it’s been my professional experience that appraisers are not always genuine in their assessments - I prefer to use municipality-trained officials over private appraisers.

[beowulf]

@lenapesadie

In my area, this is fact. Tax assessed value is like 58k as of 2020. Appraised value was 225k as of 2020. Tax assessed value is 60k for 2021. This on my residence here. Other places tax values are very in line with appraisal values

I just shadow posted you, but touched base on why this is in my post.

Appraised Values are based on right-now’s market. Sales from yesterday to two years ago are collected to find the fair market value.
Ex.
Home A - Sold 2019 500,000
Home B - Sold 10/21/2021 780,000
Home C - Sold 5/15/2021 650,000

Assessed Values are based on sales from the previous calendar year.
Ex: only homes sold between 1/1/2019 and 12/31/2019.

If your home “only” went up 5k, it may be that this is what arms-length-sales are selling for. It doesn’t matter what an appraiser appraises your home for – until that house sells for $225k, the FMV is what it sold for last, plus/minus costs of inflation and improvements. This is what Assessors go off of in conjunction with their cost manual approach.

When the market collectively suddenly takes a swing in either direction (like it did at the beginning of this year and continued into summer), you won’t see it reflected in your Assessed Value until the next calendar year.

[frugalannie]

Beowulf, I too am in MA, and I’d love to have a longer chat on this subject. Maybe we can start a different topic? And thank you for the info!

[quietann]

I’d be interested too… also in MA and our assessments are like FA’s town… way under market value.

[lenapesadie]

I dont think that’s how the assessed values work in my county. It’s common across the board for tax values to be far below appraised value. Like a quarter of appraised value. When I work mortgages in the NE I see assessed values more in line with appraised values.

Typically with a purchase, provided the buyer is mortgaging the property, the appraisers are picked at random from a qualified pool once the lender orders the appraisal. The appraisal form and process is somewhat dictated by the investor, ie Fannie Mae, that buys from the lender. This is all controlled by federal regs. The lender doesn’t give a damn what the county tax assessed value is except to know how much property tax to escrow. This based on the presumption of a residential mortgage.

Now, commercial mortgages and sales that involve no mortgage or private mortgage are/may be very different and I can’t speak to how the appraisal works in those situations

[beowulf]

Gotcha. I can’t speak for any state other than MA, though from what I understand of the continuing education I’ve had out of state, there are other states in the NE that function the same.

What you’re describing with the banks and appraisals are totally separate from Assessments and have nothing to do with AVs and likely don’t even use the same cost approach to define value (This is a whole 'nother thread, too). Bank appraisals for residential purchases do not factor in any way into the yearly published AVs by your Assessor’s office.

Assessed Values are proof positive values and are a snapshot in time (what the home was worth Jan 1st of the previous yr).
Appraised values are based on a current market and are constantly in flux.

Best thing I can liken it to in the horse world, is someone (appraiser) saying a horse is worth 300k. Well, that’s all fine and good – but go ahead and try to sell it for that. If it is worth 300k, it will sell for that or more the second it’s listed. If it isn’t, it sits on the market.

[lenapesadie]

Right. The OP is having issues with the assessed value established by appraisal. Once an appraisal is completed, this is also called an assessed value. Nice and confusing.

If the OP lives in an area where county tax assessed values are in line with appraisal assessed values and if a county tax value has been issued for the subject property then the OP may be able to submit a copy of the tax assessment showing a higher value than the assessed value by appraisal as part of her appraisal appeal. The appeal may or may not take that into consideration. On average, appraisal appeals are not beneficial to the borrower. However, if an actual error has occurred then that is different.

In some areas, there are other descriptions instead of “county tax assessed value”.

@FjordBCRF has your lender provided you with your copy of the appraisal yet? Or has the lender even completed their appraisal review yet?

[FjordBCRF]

We got the appraisal today, and after spending some time this evening digging into things and talking with my realtor again, I agree that this appraiser was possibly lazy in her assessment. This development is a year old so there isn’t much as far as tax history go, but structurally these townhomes are pretty much the same, with the exception of an additional half bath. Nearly all the units she appraised were all sold over 6 months ago…closer to 12 months ago. They didnt have finished basements or the extra half bath like ours does, ours also is an end unit, backs up to green space and isnt in a thru area which I am told all would cause the price to be a little higher.

We found 8 that were sold between July and now and are much more in line with the asking/selling price. Please feel free to take a look! If nothing else, I feel like if we have to come out of pocket for the full difference, we are in the ballpark.

[lenapesadie]

You have reviewed the appraisal to verify that the basics are correct? Address? Number of beds/baths? PPIN or similar? The pictures are of the subject property? Did the appraiser make note of anything needing repair or suboptimal finishes?While the appraiser is not a home inspector, if something is in clear disarray (major items may stop an appraisal all together) that will detract value or if a home has builder grade finishes and some similar homes have custom grade finishes that can factor.

What’s the form ID on appraisal? Like Fannie Mae residential appraisal form 1004 or similar

The appraiser only used older comps? No more recent comps? That’s interesting. There’s a few explanations. 1. Appraiser error not pulling correct comps 2. Those recent comps aren’t actually comps for some yet unexplained reason 3. The lender’s investor isn’t interested in using recent (read astronomically high) comps due to risk of bubble busting

You’re financing with a conventional primary residence mortgage?

[FjordBCRF]

Everything appears to be correct in the report from the outside anyways. Nothing noted to detract from value, as everything is brand new or pretty close to it, everything is in very good shape.

Report did note that there were 0 comps within 3 months and only 2 between 3-6 months which seems like they aren’t taking something into consideration based on what we found.

This was what I found on the report - Form GA1V - “TOTAL” appraisal software by a la mode, inc

And yes, conventional primary residence mortgage.

[lenapesadie]

Hmmmmm….

Certainly asking, or having realtor ask on your behalf or lender if applicable, about the comps isn’t going to hurt.

You mentioned the subject property has an additional half bath and a finished basement and that’s not as common in the development? The comps used, are you able to verify if they also have the half bath? And the more recent comps you found do they have half baths also?

[lenapesadie]

I ask about half baths as it’s possible that they only used comps that had identical number of beds / baths.

[FjordBCRF]

@lenapesadie My realtor has submitted the appeal with the newer comps and I think the other considerations as well.

When I looked up the addresses for the ones in the report, they all said 2 bathroom on either Zillow or Realtor.com, no additional half bath. The report said they were all the 2.5.