Zillow Advice: Refinance - Appraisal in Error (Part 3) http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ Zillow Advice | Zillow Real Estate Homes are not appraised by ... http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ Homes are not appraised by the price per sq ft, you need to look at the adjusted values at the bottom of the grid.&nbsp; Differences in sq ft are commonly adjusted at a small fraction of the overall $/sq&nbsp;ft, so it is normal and accepted practice to adjust $25/sq ft on homes that sell for $75-$100/sq ft (I'm not saying I agree with it, but that's the way it is done).&nbsp; Finally, I don't know of any lender that wants an appraisal that is inaccurate (high or low).&nbsp; If it comes in too low the deal is dead, and the lender has wasted a bunch of time and money since they don't make money on deals that don't close.&nbsp; They make money by selling closed loans, not by denying them.&nbsp; If it came in low, but not low enough to kill the deal, the lender still doesn't benefit.&nbsp; Any additional costs (PMI, price changes, etc.) you incur because of the higher LTV goes to other parties besides the lender, so there is no upside for the lender in having the appraisal come in low.<br/><br/>You could try again with a broker or another lender, and hope the next appraisal comes back higher, but what you've posted so far doesn't indicate that the value is in error.&nbsp; That's not to say it is correct, but what you've posted so far doesn't indicate that it is necessarily wrong.&nbsp; Depending on who owns your loan (Fannie Mae,&nbsp;Freddie Mac, etc.) and the type of refinance you are doing (rate/term or cashout?&nbsp; Paying off a first and a second?&nbsp; Lowering the LTV to eliminate PMI?) it may be possible to refi without an appraisal at all, but some lenders are requiring one whether it is required or not, so you may have better luck with a broker that has a wider range of options available. Sun, 20 Jun 2010 05:40:00 GMT http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ 2010-06-20T05:40:00Z Great info Brian.Exactly ... http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ <p>Great info Brian.<br/><br/>Exactly Bruce, ideally you want to have the smallest house in the neighborhood, not the biggest and/or nicest because if all the comps are smaller or of lesser quality the adjustments will never be adequate to justify a value you wouldn't find insulting.</p> Tue, 22 Jun 2010 04:46:00 GMT http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ 2010-06-22T04:46:00Z Thank you, Brian and Martin; ... http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ Thank you, Brian and Martin; now I am starting to understand some of the constraints associated with the appraisal process.<br/><br/>As you both surmised, very few comps were available back in January/February in the neighborhood.&nbsp; Now there are more.&nbsp; From your posts, I conclude that the closer the comps in SF to the subject, the better off the refi loan-seeker.&nbsp;&nbsp;In any case, low SF&nbsp;comps may not be good&nbsp;because it is unlikely that they will be adequately adjusted.&nbsp;This is beginning to sound to me like same song, second verse of the old refrain that it is&nbsp;generally not a good idea to&nbsp;be at the high end of the price scale associated&nbsp;with a given neighborhood.<br/><br/>Thanks again,<br/>Bruce<br/> Tue, 22 Jun 2010 04:06:00 GMT http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ 2010-06-22T04:06:00Z &nbsp; As a REALTOR with ... http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ &nbsp; <p><br/></p><p><br/></p><p>As a REALTOR with an extensive appraising history, I wanted to offer additional insight.</p><p><br/></p><p>First, the Price Per Square foot for a property, as depicted within sales offices all over the nation, more often than not is reflective of the price paid for the property <em><u>including the land.</u></em>For example, real estate agents (legally referred to as "brokers" in WA after July 1, 2010) will take a home that sold for $200,000 that contains 1,500 sq. ft. and 0.25-acre lot size and determine the PPSf to be $133.33 although this dollar figure represents the price paid for the construction and land as a whole.</p><p><br/></p><p>Secondly, as defined by USPAP (Uniform Standards of Professional Appraisal Practice), line-item adjustments must not exceed 10%, net adjustments must not exceed 15%, and gross-adjustments must not exceed 25%. You can begin to see how the hands of the appraiser are so often hand-cuffed. Going back to the previous example: if you have a comparable home that is 1,200 Sf and sold for $200,000 while your subject home is 1,500 Sf, applying an adjustment of $75 PSF would lead to a $22,500 adjustment which exceeds USPAP rules. Once you take into consideration other adjustments made within the grid, you can quickly begin to see how the net/gross adjustments are affected by excessive line item adjustments.</p><p><br/></p><p>Thirdly, the appraiser is to make adjustments as based on "Paired Sales Analysis". This means that the appraiser is to research a sample of comparable sales in the area, and through comparing differences in sales price the appraiser is to be able to determine estimated market reactions to property differences which contribute to value and adjust accordingly. It may be determined that some items warrant adjustments while others do not. All conclusions must be explained in the Comment Addendum within the appraisal report.</p><p><br/></p><p>Finally, all figures within an appraisal are to be Reconciled. For instance, let's say that the highest adjusted comparable within the appraisal report is the most similar to the subject home being appraised due to an overall high level of updating/remodeling. The appraiser has the power to put additional weight on this comparable, so long it is logically supported throughout the appraisal report and therein yields a <em>credible</em> estimate of value.</p><p><br/></p><p><br/></p> Tue, 22 Jun 2010 01:06:00 GMT http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ 2010-06-22T01:06:00Z Given that we are stuck with ... http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ Given that we are stuck with these new appraisal rules because of a big bank's desire to get inflated appraisals...<br/><br/>Anyway, looking at your appraisal it is obvious why your value came in lower than you expected.&nbsp; <br/><br/>I don't really see any problems with the adjustments made, they look about like I see on every appraisal,&nbsp;but would note that adjusting by a larger amount for size differences is a two-edged sword.&nbsp; Let's say he adjusted by $75/sq ft instead of $25/sq ft.&nbsp; Now your Adjusted Sales Prices For The Comps would go from $296,625, $267,775, and $286,900 to $314,275, $297,725, and $254,900.&nbsp; That probably isn't going to change the answer.&nbsp; In fact, the average for both sets of numbers barely changes (not that they average them to come up with your value).&nbsp; At $88.79/sq ft your appraised value is not out of line with the sales that ranged from $83.53 to $101.12/sq ft.<br/><br/>Your main problem is that&nbsp;one of the 3 sales&nbsp;is much smaller than your house, and another is much larger.&nbsp; This virtually forces the appraiser to make a small adjustment for differences in living area or else his adjustments will be too large and the U/W will reject the appraisal.&nbsp; Ideally the sales would have been much closer to your home like the pending sale that was used for comp 4, or even comp 1 and the listing used for comp 5, so an adjustment would not be necessary or would be minimal.<br/><br/>The appraisal was done 5 months ago, so if there are some better sales now like comps 4 and 5, the answer may be dramatically higher now depending on whether they or others sold and for how much.&nbsp; Unfortunately the appraiser is limited to what is available, and it is kind of garbage in/ garbage out.<br/><br/>As an aside I recognize the appraiser's name that did your appraisal, and he has done work for me in the San Antonio area, and I've never had a problem with his valuations.<br/><br/>I suggest you talk to a Realtor that is familiar with the area, and see if some more homes have sold within a 1 mile radius of yours in the last 3 months that are roughly the same size, age, etc., and find out what they sold for.&nbsp;<br/><br/>I'm assuming you didn't go through with the refi back in January, because in TX you have to wait 12 months between c/o refis, and once you do one we have to treat all subsequent refis as a TX cashout refi whether you are receiving cash or not.<br/><br/>Hope that helps.<br/> Mon, 21 Jun 2010 23:49:00 GMT http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ 2010-06-21T23:49:00Z Why don't you just forward ... http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ Why don't you just forward the appraisal to me at [contact info removed by moderator]&nbsp; and I will use specifics from your appraisal to answer your questions? Mon, 21 Jun 2010 14:04:00 GMT http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ 2010-06-21T14:04:00Z (Sorry; duplicate ... http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ <p>(Sorry; duplicate post...)</p> Mon, 21 Jun 2010 08:45:00 GMT http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ 2010-06-21T08:45:00Z Thank you, Martin, Andrew, ... http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ <p>Thank you, Martin, Andrew, and Sunnyview for your kind responses.</p><p>I do not wish to belabor the question of Big Bank's incentive to seek conservative appraisals.&nbsp; Understanding what seem to be alarming elements of the subject appraisal are much more important to me.&nbsp; That said, the subject application is for a cash-out refi in Texas.&nbsp; Big Bank's potential incentive to procure a low appraisal is the following: For a cash-out refi, a low appraisal would not increase the LTV, Martin, it would decrease it and consequently decrease the risk to Big Bank.&nbsp; The "value" (denominator) of the LTV quotient (the appraised value) is the independent variable.&nbsp; The loan amout (numerator) is simply 80% of the equity (value - existing loan balance).&nbsp; 0.8V/V yields a decreasing quotient as V decreases.&nbsp; Said differently, Big Bank can effectively decrease the LTV (thereby decreasing their risk exposure) by simply pushing for a more conservative appraisal.&nbsp; So, instead of cashing out equity corresponding to an 80% LTV, for example, a borrower may have to accept a smaller amount of cash that in reality (based upon a higher, more realistic valuation) would correspond to a 70-75% LTV.&nbsp; I do not know if Big Bank does this; however the incentive for them to do it is clear.&nbsp; Banks are like insurance companies; it is all about the risk vs. the premiums.</p><p>I have found at least one error in my analysis.&nbsp; I normalized the Adjusted Sales Price (ASP) for each of the comparables&nbsp;by dividing each ASP by the actual Gross Living Area (in square feet) of the comparable.&nbsp; This yields an incorrect result, because living area size was already normalized at the Gross Living Area adjustment line.&nbsp; If the latter adjustment had been correctly done, the proper normalization to ASP per square foot would be to divide the ASP of each comparable by the actual square footage OF THE SUBJECT PROPERTY.&nbsp; That is because each of the comparables had already been adjusted to the square footage of the subject property.</p><p>This takes me back to the issue of the rationale of using $25 per square foot to "adjust" (normalize) the comparables to the square footage of the subject property.&nbsp; I appreciate and believe your comment, Martin, that "it is normal and accepted practice."&nbsp; However, an assertion that something has always been done a certain way is never a substitute for a rationale or explanation.</p><p>The leftmost column below&nbsp;are the appraiser-generated ASPs for the comparables, based upon adjusting for floorspace at $25 per square foot (the random number from Hell).&nbsp; The right-hand column&nbsp;contain&nbsp;ASP results using all of the same adjustments as for the left-hand column with the exception that the floorspace adjustment for each of the comparables is based upon&nbsp;the&nbsp;price per square foot calculated from the actual selling price of the comp:<br/><br/>A($25): $296,625 &nbsp;&nbsp; A($101): $323,495<br/>B($25): $267,775 &nbsp;&nbsp; B($94): $336,226<br/>C($25): $286,900 &nbsp;&nbsp; C($84): $249,241<br/>D($25): $311,774 &nbsp;&nbsp; D($113): $326,372<br/>E($25): $322,725 &nbsp;&nbsp; E($99): $327,830<br/><br/>The subject property was appraised at $286,000.<br/><br/>The average price of the five ASPs using $25 per foot for living space size adjustments is $297,160.&nbsp; The average price of the five ASPs using the actual selling price to calculate the price per square&nbsp;foot to&nbsp;use for adjustments for size is&nbsp;$312,633.<br/><br/>As you can see, the issue of what dollar amount to use when adjusting for differences in living area for each of the comparables is no nitpik.&nbsp; Rather, it results in a substantial undervaluation of the property (an average of $15,473 in the case above, or about five percent.<br/><br/>So, perhaps an appraiser will see and respond to this thread with justification for what appears on the surface to be a terrible flaw in the appraisal model.<br/><br/>If anyone is interested, the properties are:<br/><br/>Subject: 6815 Brave Way; San Antonio, TX&nbsp; 78256.<br/>A: 6719 Grove Creek; San Antonio, TX 78256<br/>B: 19314 Havasu Hills; San Antonio, TX 78256<br/>C: 6602 Augsberg; San Antonio, TX 78256<br/>D: 19922 Wittenburg; San Antonio, TX 78256<br/>E: 6607 Grove Creek; San Antonio, TX 78256<br/><br/>A Bing aerial view of the rooflines is telling.<br/><br/>Any and all comments welcome!</p> Mon, 21 Jun 2010 07:49:00 GMT http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ 2010-06-21T07:49:00Z 1. The bank does not gain ... http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ 1. The bank does not gain or loose based on the appraised value. &nbsp;The appraisal impacts the allowable loan amount and could impact the Loan Level price adjustments, but the bank does not gain as a result of Loan Level Price adjustments (LLPA's). &nbsp;LLPA's will increase the cost of funds and in turn increase your costs, the bank doesn't make more.<br/><br/>2. Do you have other properties with a mile of the home being appraised that would be better to compare the home too? Sun, 20 Jun 2010 20:28:00 GMT http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ 2010-06-20T20:28:00Z Unless the comps that were ... http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ Unless the comps that were used or the information in the basic appraisal were wrong, you are stuck with what that bank appraiser said. Your price per square is averaged in many cases and a range is put in the appraisal. Then the appraiser decides based on condition and features where your hose falls in that range. Some AMC's do cater to banks by consistently bringing in conservative appraisals, but most do a somewhat slack job and frankly don't care about the value of the appraisal high or low. Brokers are bound by the new HVCC rules too so you are likely to run into similar problems there as well.<br/><br/>Your analysis in your 3 posts assumes that the appraisal is wrong. If you can specifically challenge the comps, the basic house info or the appraisal technique used, you may be able to have the appraisal revisited. Otherwise, the bank holds the cards and if you want another appraisal you'll have to use another bank or wait for this appraisal to age out after about 90 days. It stinks, but it is the new appraisal reality. Sun, 20 Jun 2010 14:05:00 GMT http://www.zillow.com/advice-thread/Appraisal-in-Error-Part-3/354513/ 2010-06-20T14:05:00Z