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August 20, 2009
Contesting an Appraisal?
We are trying refinance our Bed Stuy brownstone and our appraisal came back with an absurdly low number (37% less than 2006 purchase price). Property values in our section of Bed Stuy have held up well with recent sales on our block 7% less than our 2006 purchase price. Our neighbor across the street has their house appraised 3 months ago and it came in a 6% below our 2006 purchase price. Not bad considering the economic situation. We have given the broker/bank a list of recent comparable property sales to support a higher value, but have not heard back. Has anyone been in a similar situation and had the bank make the loan eventually? We are trying to decide whether we should give up with this application and reapply with another broker or keep waiting. It seems getting an accurate appraisal is a game of chance. Thank you for sharing any of your experience.
Comments
so what happens to you? Did the bank say? Are you supposed to sell the house? Do you have an expiring ARM?
Posted by: brickoven at August 20, 2009 4:08 PM
Brownstones 37% off?
Posted by: whichbrk at August 20, 2009 4:17 PM
We had this happen, and yes, we had to start all over. You should give the bank the comps ASAP. I think we went from a direct loan to going to a broker.
Posted by: hooky at August 20, 2009 4:28 PM
37% off a 2006 price sounds like the current market to me. Wait til next year when its 60% off the 2006 price. People have really big psychological crises coming ahead when they realize that bricks and mortar aren't really worth several hundreds or thousands or dollars per square foot when you can buy and build for around $100 or less. Good luck with the breakdown.
Posted by: williamsburgguy at August 20, 2009 4:30 PM
That is absurd, I'm so sorry. And I have seen it happening more in Bed-Stuy, I think it is a take on red-lining (but of course nothing could be confirmed!). Definitely try a broker sooner rather than later - no need to close with them if other comes through but you may be pleased what they find for you. And give them your comps up front to work with. Good luck!
Posted by: amybnyc at August 20, 2009 4:42 PM
"Property values in our section of Bed Stuy have held up well with recent sales on our block 7% less than our 2006 purchase price."
All cash deals? If not, use the lenders involved with those purchases. Care to list these comps that have somehow escaped the NY Case-Shiller blanket drop of -21% from peak? Some would argue that Bed Stuy has fared worse than this -21% average/mean.
***Bid half off peak comps***
Posted by: Brownstones Half Off at August 20, 2009 5:19 PM
This is disturbing. Part of the appraisal process is connected to subjective thinking. An example of this is "There is no way that a house in this neighborhood should cost so much." Was your appraiser familiar with the neighborhood. With your comps in hand, go to your bank. If they don't budge, start again with a broker.
Posted by: BrooklynIsHome at August 20, 2009 5:31 PM
Call the appraiser down the block.
Posted by: big swinging nick at August 20, 2009 6:04 PM
Y'all should read this article from yesterday's NYT. Lenders are now controlling the process and they're hiring appraisers who not only lack highly local expertise but often aren't even from the borough. Makes for sobering reading.
Posted by: grand army at August 20, 2009 6:32 PM
@ Grand Army- It takes some appraisers years to build a book of business. They're clients are mostly mtg brokers and bankers.. and this could potentially ruin all the effort they put in to this point...even if they ran by the books. But i guess that's just the state of the industry as a whole.
Posted by: big swinging nick at August 20, 2009 7:04 PM
"Red-lining" is exactly what's happening in BS. Very sad.
Posted by: jack slade at August 20, 2009 10:06 PM
BHO, prices in Bed Stuy have not dropped nearly as much as you imagine. Just like prices in Park Slope have not dropped nearly as much as you would like.
Isn't all of New York redlined now? Whereas six months ago, it was only the subprime areas. Right, Adam?
Posted by: mopar at August 20, 2009 11:14 PM
HI-I am a certified NYS appraiser. The only thing to think about is what is your house's competition. No one is going to pay more for a house than they have to. Finding comps is pretty easy sometimes. Close, Current, Clone. Bed Stuy has been completed slammed in the past couple of years due to the foreclosure activity. What matters is , where is this house located. A busy road, next to a commercial building, school, etc.
To those who ask if the appraiser is familiar with the area-that is the most over-hyped media driven crap I've seen in a while. It doesn't take long to figure out a market area when we have all the internet tools, and sophisticated databases that the general public doesn't use on a regular basis. Don't get me wrong, I am certainly not defending a good bunch of the rotten crooked appraisers out there who have destroyed the public's trust along with a bunch of mortgage brokers.
As far as red-lining, there is no way for anyone to prove it. Markets rise, markets fall. Bed Stuy was a hotbed for flipping, speculation, greed and developer fraud. This is possibly the path on the way to a long hangover.
The person getting their house appraised, I feel badly that you may be underwater. You may have done the right thing all along. It is possible that homes may have sold for more on your block or immediate area recently. How do those comps match up with your property, and how do you verify information such as condition, bedroom count, construction quality, renovations, etc. There may be model matches on the market right now that sell for 30-40% less than what you paid back in 2006. Also, there may be active listings and pending sales nearby that have asking prices lower than the closed sales that you are talking about.
Median values can be skewed in the wrong direction. Areas that were highly speculative markets probably have significant short sale, foreclosure and REO activity. Foreclosures show up as recorded sales, usually with the buyer being the bank. Keep in mind the $ of the sale is the first lien, or mortgage on that property in most cases. There could 1 or 2 more mortgages after that. In most cases, these mortgages were juiced, 100-106% financing that had brokers pushing the appraiser to hit values so they could collect there huge commission checks. These mortgages were made in the heights of the bubble. Now, the recorded sale is what is owed to the bank . Alot of times, the mortgage owed is higher than asking prices of similar homes. So in effect, median values are too high. These sales should be taken out of median value calculations, and you will see that median values in the speculative areas are actually lower than stats are showing. On top of that, there is tremendous supply on the market, no credit available and people losing their jobs. Smart money is waiting on the sidelines with a big catchers mitt right now.
Anyone care to add to that ?
Posted by: Springs at August 21, 2009 12:39 AM
Spring,
That's for the insight. It's rare that somebody with any expertise of any kind comments on this website.
My own knowledge is much more limited than yours, but unlike most of the folks on this site, I firmly believe that what goes up, most certainly can fall back down.
Just six or seven years ago, I remember checking out buildings for sale in Bed Stuy for a small fraction of what folks are asking now. It's as if sellers think Bed Stuy has gone from ghetto to paradise over night.
It's certainly a bit safer and has a few more restaurants, but nothing I've seen on the streets justifies the crazy run up in prices seen over the last several years, and you don't have to be a "certified NYC appraiser" to know that.
Posted by: IronBalls at August 21, 2009 8:29 AM
Spring,
That's for the insight. It's rare that somebody with any expertise of any kind comments on this website.
My own knowledge is much more limited than yours, but unlike most of the folks on this site, I firmly believe that what goes up, most certainly can fall back down.
Just six or seven years ago, I remember checking out buildings for sale in Bed Stuy for a small fraction of what folks are asking now. It's as if sellers think Bed Stuy has gone from ghetto to paradise over night.
It's certainly a bit safer and has a few more restaurants, but nothing I've seen on the streets justifies the crazy run up in prices seen over the last several years, and you don't have to be a "certified NYC appraiser" to know that.
Posted by: IronBalls at August 21, 2009 8:30 AM
so what happens if somebodys ARM is expiring and they are appraised too low to refinance? Are they forced to sell or does the bank take the house?
Posted by: brickoven at August 21, 2009 9:09 AM
when an ARM refinances....it automatically resets to the current interest rates which are at historic lows, so in most cases the new interest rate should be pretty low. If the ARM is maturing and must be paid off that is a different issue. Either the person will refinance, sell the house or surrender it to the lender(or have it foreclosed on). If they can't refinance/sell at the face value of the loan, the lender will either write the loan down or foreclose. Most lenders(but not all) will do anything NOT to have to foreclose in the current market. Some have already purchased the mortgage at a decreased price and want to foreclose or have the property surrendered.
Posted by: smeyer418 at August 21, 2009 9:25 AM
"Alot of times, the mortgage owed is higher than asking prices of similar homes. So in effect, median values are too high. These sales should be taken out of median value calculations, and you will see that median values in the speculative areas are actually lower than stats are showing. On top of that, there is tremendous supply on the market, no credit available and people losing their jobs. Smart money is waiting on the sidelines with a big catchers mitt right now.
Anyone care to add to that ?" - Posted by: Springs at August 21, 2009 12:39 AM
Oh moparrrrrrrrr! Where are you ?
***Bid half off peak comps***
***Bid half off peak comps***
Posted by: Brownstones Half Off at August 21, 2009 2:40 PM
I rent in Bushwick and have been in the market for property there and in Ridgewood and Bed Stuy for two years.
What I see is that short sales, foreclosure and REOs were almost 100 percent of the for-sale market (for small residential properties) in Bushwick in 2007 and 2008. All of them were purchased in 2005/2006 (in other words, subprime and ARM.) Some were fraud. Now those properties are clearing out, they are selling to speculative developers for very low prices -- below $200 a square foot.
There is virtually NOTHING available for sale at the moment. NO inventory. People who bought before the subprime bubble continue to live happily in their homes and do not have the slightest interest in selling or moving.
Over in Bed Stuy, you also have this, but less of it. You have more nice property and regular sales. You also have slightly more buildings that have been in families for years, with unclear ownership, squatters, unpaid liens, and so on. Speculative developers continue to buy distressed properties for all cash and flip them.
There is far more on the market over in Bed Stuy -- largely because it has more small buildings to start with.
Prices on houses in Bushwick have dropped 40 percent since peak in 2006. Those are all short sales. Prices in Bed Stuy of regular, not distressed sales, seem to have dropped about 20 percent. Houses that were $600,000 are going for about $500,000. The uninhabitable properties go for much less -- around $300,000.
It's very confusing when you have three apparently identical properties within a 15-block radius going for $300,000, $480,000, and $600,000, as I have seen recently. My explanation is the first is a foreclosure and doesn't qualify for a mortgage, the second is an ordinary two-family frame home, and the third was a real brownstone with original details and the sale was not a distressed one.
Posted by: mopar at August 21, 2009 4:21 PM
Times covers this issue this weekend. I have a question for the professional appraisers: Should foreclosures and non-distressed sales be treated as the same, or separated out when doing an appraisal? Why or why not? It appears that they are usually lumped together in reported statistics about overall price declines.
http://www.nytimes.com/2009/08/23/realestate/23lizo.html?_r=1&ref=realestate
Posted by: mopar at August 22, 2009 12:33 PM
That article is spin control crap from brokers. Notice the critics of the new law are mostly brokers ( both real estate and mortgage ). They used to have the ability to pick their own appraisers who would play ball with them and hit values that they needed, so they could collect their fat commission checks. These brokers have now lost their ability to strong arm appraisers as easily as before. Now, FHA loans do not fall under these guidelines, and this type of loan is called the " new subprime ". These brokers are strong arming appraisers as they have in the past.
Trust me, some appraisers out there are idiots. But send a good appraiser to anywhere USA, and all they need to do is have access to public records, a local MLS system, Trulia or Zillow. Then, call a couple of local realtors, give then the street name of the subject property, and ask them what the market boundaries are. Not rocket science, as all of the jerks in the NYT article will have you believe. Location, style, lot size, quality, condition, bedroom and bath count are all dominant features that appraisers use to match up the subject with comparable sales.
Typical complaints ( the real deal )
BOO-HOO!!!! I need my house to be worth X so I can go buy myself something in a nicer town!!
BOO-HOO!!! I need the subject to be worth $500k because the loan amount of my customer is $400k. I stand to make 4 points on this deal dammitt. Make it happen, and I will send tons of deals your way. The bank won't close if the house is worth less than $500k. Therefore, it has to be worth $500k , because I have a commission riding on it. "
Definition of market value-
the definition of market value provided by USPAP is:
The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
buyer and seller are typically motivated;
both parties are well informed or well advised, and acting in what they consider their best interests;
a reasonable time is allowed for exposure in the open market;
payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.1
Posted by: Springs at August 23, 2009 9:52 PM
Glad to hear appraisers are doing their jobs.
Posted by: mopar at August 24, 2009 10:59 PM
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