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katbunk
3630 Posts |
 Posted - 11/06/2009 : 08:50:43 AM
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I have a borrower who in every way qualifies for his loan.
The apppraisal came in 14,000 less than the sales price. Then it got reviewed and cut $10,000 more. The borrower was willing at first to come in with the additional money. But then another $10,000??? He wants to back out now and I don't blame him.
The listing agent and the seller state that because he signed off on the appraisal contingency on the purchase contract, he is forced to follow through with the purchase.
I'm reading the amendatory clause for the disclosures, and is he protected by this for an FHA loan? If so, is there a link I can provide to the seller's agent? Thanks for any advice. |
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nowbroker
2587 Posts |
Posted - 11/06/2009 : 08:58:49 AM
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If the seller signed the FHA amendatory clause, the buyer gets a "out of jail" card and can walk from the transaction.
Now if the buyer signed some appraisal contingency waiver after this FHA form was signed, he may have some liability. |
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katbunk
3630 Posts |
Posted - 11/06/2009 : 09:07:47 AM
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quote:
Originally posted by nowbroker
If the seller signed the FHA amendatory clause, the buyer gets a "out of jail" card and can walk from the transaction.
Now if the buyer signed some appraisal contingency waiver after this FHA form was signed, he may have some liability.
Thanks Todd. The buyer signed off on the appraisal contingency 17 days into the contract. The amendatory clause was signed prior to this. So a buyer can really be forced to pay $24,000 more than the sales price? |
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MisterVA
8643 Posts |
Posted - 11/06/2009 : 09:15:15 AM
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| But if the buyer no longer qualifies for the loan and a denial is issued, then too bad for the seller. As long as you are within the financing date of the contract. Insufficient funds would be a reason. |
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katbunk
3630 Posts |
Posted - 11/06/2009 : 09:17:39 AM
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quote:
Originally posted by MisterVA
But if the buyer no longer qualifies for the loan and a denial is issued, then too bad for the seller. As long as you are within the financing date of the contract. Insufficient funds would be a reason.
That was the line that I was taking. They barely had enough to cover the original appraised value. |
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liverichly
6079 Posts |
Posted - 11/06/2009 : 09:42:13 AM
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quote:
Originally posted by katbunk
quote:
Originally posted by MisterVA
But if the buyer no longer qualifies for the loan and a denial is issued, then too bad for the seller. As long as you are within the financing date of the contract. Insufficient funds would be a reason.
That was the line that I was taking. They barely had enough to cover the original appraised value.
Thank God for those financing contingencies eh? |
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nowbroker
2587 Posts |
Posted - 11/06/2009 : 09:45:20 AM
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quote:
The buyer signed off on the appraisal contingency 17 days into the contract. The amendatory clause was signed prior to this. So a buyer can really be forced to pay $24,000 more than the sales price?
He could loose his earnest money, the seller would have to sue for specific performance in order to force the sale at the higher price, IMO. Of course an attorney issue, I am not one.
As was stated earlier, if he does not have the extra cash for the down payment the loan is declined and the earnest money comes back (as long as the loan contingency is still valid). |
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Captain Mortgage
2559 Posts |
Posted - 11/06/2009 : 09:48:29 AM
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This is a good learning experience for everyone. Don't sign off the appraisal contingency till after the review.
Can you switch to another lender who does not have such conservative apprasial guidelines? I believe that the review does not follow the case number. |
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katbunk
3630 Posts |
Posted - 11/06/2009 : 09:49:55 AM
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| I'm finding out now that the buyer signed off on the financing contingency due to pressure from the agent. What buyer says is that he was told if he doesn't sign off on the financing contingency than the deal was "dead", so he signed, of course unaware we would have such appraisal problems. So my feeling is he's S.O.L. Even if he was "pressured" he still signed off. I'm thinking lack of advice from his agent who should have told the seller's agent to pound sand to protect her client, our borrower? |
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mcmoney
743 Posts |
Posted - 11/06/2009 : 10:11:45 AM
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quote:
Originally posted by katbunk
I'm finding out now that the buyer signed off on the financing contingency due to pressure from the agent. What buyer says is that he was told if he doesn't sign off on the financing contingency than the deal was "dead", so he signed, of course unaware we would have such appraisal problems. So my feeling is he's S.O.L. Even if he was "pressured" he still signed off. I'm thinking lack of advice from his agent who should have told the seller's agent to pound sand to protect her client, our borrower?
You're damn right they should have told the seller to pound sand. Why one earth would you sign off on the financing contingency? The seller cannot terminate the transaction because the buyer won't sign off on the contingency.
That was just plain dumb. As they say, a fool and his money are soon parted.... |
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katbunk
3630 Posts |
Posted - 11/06/2009 : 10:16:20 AM
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| I agree. The buyer's agent is now blaming us. She is the one who allowed the buyer to sign off. So in any case, the listing agent and seller are stating they're going to sue. We'll see if that really happens......but I don't believe we have any liability in this? |
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nowbroker
2587 Posts |
Posted - 11/06/2009 : 10:23:43 AM
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quote:
So in any case, the listing agent and seller are stating they're going to sue. We'll see if that really happens......but I don't believe we have any liability in this?
They always say that,(sue, sue, sue) but rarely do. The buyer may have to walk from the earnest money, but you cannot suck blood out of a turnip. |
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MisterVA
8643 Posts |
Posted - 11/06/2009 : 11:13:08 AM
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| Counterpoint: If you sue, I will report this pressure to the real estate commission. |
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katbunk
3630 Posts |
Posted - 11/06/2009 : 11:16:38 AM
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quote:
Originally posted by MisterVA
Counterpoint: If you sue, I will report this pressure to the real estate commission.
Oh, nice one. |
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MarkIFC
936 Posts |
Posted - 11/06/2009 : 11:41:17 AM
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quote:
Originally posted by nowbroker
If the seller signed the FHA amendatory clause, the buyer gets a "out of jail" card and can walk from the transaction.
Now if the buyer signed some appraisal contingency waiver after this FHA form was signed, he may have some liability.
So some addendum the Realtors make up will supercede a Federal form? I don't think so.
The Real Estate Brokers involved should be notified of the situation. They wouldn't want to end up on the LDP list--- no way, then they could not participate in the sale of ANY homes utilizing FHA financing. |
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MisterVA
8643 Posts |
Posted - 11/06/2009 : 11:53:57 AM
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| I wonder how many other deals this listing agent has been involved with that had inflated sale prices contributing to the upside down factor. I would guess more than one. You know who is looking out for the best interests of the buyer? The appraiser. The lender. And you. |
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katbunk
3630 Posts |
Posted - 11/06/2009 : 11:56:02 AM
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quote:
Originally posted by MisterVA
I wonder how many other deals this listing agent has been involved with that had inflated sale prices contributing to the upside down factor. I would guess more than one. You know who is looking out for the best interests of the buyer? The appraiser. The lender. And you.
One more interesting note. I just found out this house has been listed and sold by the same agent twice before my buyers came into it. Both of the prior escrows canceled due to low appraisals. HA! |
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MisterVA
8643 Posts |
Posted - 11/06/2009 : 11:58:23 AM
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| Might be good to contact the real estate commission anyway. We'll see who leaves the kitchen first. |
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JoeThe Appraiser
173 Posts |
Posted - 11/06/2009 : 12:46:21 PM
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you guys crack me up
if it were a refie youd be hollering damn appraiser sue him, appraiser is an idiot!
but now that its a purchase its a totally different story..
LOL |
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RGK2394
2167 Posts |
Posted - 11/06/2009 : 1:00:03 PM
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quote:
Originally posted by JoeThe Appraiser
you guys crack me up
if it were a refie youd be hollering damn appraiser sue him, appraiser is an idiot!
but now that its a purchase its a totally different story..
LOL
Totally worthless and pointless post Joe. I'm sure everyone appreciates your identification of an opportunity to get in a jab. Way to go, an appraiser that surfs broker forums all day looking for chances to get in a foul comment here and there. I imagine you shortly after making this post rubbing your hands together furiously while cackling loudly for all (no one) in your office to hear. "MUA HA HA HA HA"
Jerk. |
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Captain Mortgage
2559 Posts |
Posted - 11/06/2009 : 1:12:32 PM
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Something is not adding up here. Does the seller want to sell the house? Does the buyer want to buy the house?
Why not find a solution for the loan, and move on. Extend the escrow, pay a per diem, and find a different lender who will accept the first appraisal. The buyer has already agreed to pay extra over the appraised value by $14k. I doubt that the seller will find anyone else willing to agree to those terms.
If the seller will not accept that, and just wants to sue then he didn't want to sell the house in the first place. If that is the case then there are no damages from the escrow not closing.
This is the biggest issue that I've seen with Real Estate transactions. Everyone involved tries to point a finger at who they think is to blame, but noone will actually try to figure out a solution. What is with some of these Realtors. |
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nowbroker
2587 Posts |
Posted - 11/06/2009 : 2:02:58 PM
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quote:
Originally posted by nowbroker
If the seller signed the FHA amendatory clause, the buyer gets a "out of jail" card and can walk from the transaction.
Now if the buyer signed some appraisal contingency waiver after this FHA form was signed, he may have some liability.
--------------------------------------------------------------------------------
So some addendum the Realtors make up will supercede a Federal form? I don't think so.
It certainly would, the FHA amendatory clause clearly states that the "puchaser shall have the privilege and option of proceeding with the consumation of the contract without regard to the amount of the appraised valuation"
Any subsequent addendum dated after the appraisal date removing the appraisal contingency is a clear indicator that the purchaser wants to proceed without regard to the amount of the appraised valuation. |
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MisterVA
8643 Posts |
Posted - 11/06/2009 : 2:43:55 PM
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quote:
Originally posted by RGK2394
quote:
Originally posted by JoeThe Appraiser
you guys crack me up
if it were a refie youd be hollering damn appraiser sue him, appraiser is an idiot!
but now that its a purchase its a totally different story..
LOL
Totally worthless and pointless post Joe. I'm sure everyone appreciates your identification of an opportunity to get in a jab. Way to go, an appraiser that surfs broker forums all day looking for chances to get in a foul comment here and there. I imagine you shortly after making this post rubbing your hands together furiously while cackling loudly for all (no one) in your office to hear. "MUA HA HA HA HA"
Jerk.
Where is Anytown? Who cares if it is a violation of forum rules? Certainly not Joe the Appraiser. |
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Hopland
4126 Posts |
Posted - 11/06/2009 : 3:28:29 PM
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| Joe... I was just going to compliment/thank the brokers for a very appropriate thread. This isn't even an appraisal related thread. |
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Mandyvilla
6395 Posts |
Posted - 11/06/2009 : 4:43:10 PM
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I am functioning on no sleep and getting ready to call it a night, BUT....
I was under the impression no one could mess with the Amendatory Clause that protects the buyer, and that doing so, could be a reason to exclude you from future FHA transactions. The seller may not care about never doing another FHA deal, but the agent sure would....and could lose her license.
If you are talking about removing a financing contingency with a lender letter (and not a loan commitment from the investor), the lender letter should always state "this is not a loan commitment and is subject to meeting all FHA required criteria." The addendum removing any financing contngency should be read the same. (The selling agent should have covered the buyer).
Had the DEU signed off on the Certificate of Reasonable Value (CRV)? If not, an appraisal was never issued. Isn't it the appraisal is not supposed to be released until the DEU has reviewed the appraisal? (We routinely did this in the past, but somehow, got away from the practice of holding off until the underwriter reviewed).
(apologies if I didn't make sense, off to bed with me now). |
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katbunk
3630 Posts |
Posted - 11/09/2009 : 09:21:10 AM
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quote:
Originally posted by JoeThe Appraiser
you guys crack me up
if it were a refie youd be hollering damn appraiser sue him, appraiser is an idiot!
but now that its a purchase its a totally different story..
LOL
Excuse me?
I would have the same reaction if I or the borrower overstated their value. However, in a sales transaction we have a party (seller) who feels they've been screwed because their home has been off the market for a month. I have another party (buyer) who stands to lose not only their deposit, but possible financial losses in a lawsuit.
Take your rant somewhere that it might possibly make sense.
To all others, thank you for your responses. I've provided the seller/agents with a copy of the amendatory clause. We'll see where it goes from here. |
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OneArmSteve
369 Posts |
Posted - 11/10/2009 : 9:51:48 PM
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Guess what? Your the lender, your in charge. This is not 2005, we control the transaction. This is an FHA transaction, the appraisal has likely been logged in FHA Connect. The seller cuts his price or he sits on his house.
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LO1003
446 Posts |
Posted - 11/11/2009 : 07:19:16 AM
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quote:
Originally posted by Captain Mortgage
Something is not adding up here. Does the seller want to sell the house? Does the buyer want to buy the house?
Given that this is the 3rd contract and 3rd appraisal that came in low, you would think the seller would give on price. Work it out and as Captain Mortgage already stated, how often do you find a borrower willing to write a $14k check for difference in appraised value and sales price? Close it. |
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jpar994
1048 Posts |
Posted - 11/11/2009 : 07:29:36 AM
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| Dont cave in to the seller. Who is going to want to buy a house overpriced in a decling area? Not a smart Idea. Even if the Client is willing to come to the table with 14k it still isnt a good deal for them because they are throwing money into a depreciating asset. I would rather lose the escrow than 14k. Just my two cents~ |
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1stintegritymort
1787 Posts |
Posted - 11/11/2009 : 07:56:02 AM
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I agree. It is not worth buying an overpriced house in this market. What a joke. Tell your buyer to get a new agent who actually cares about their clients. If the buyers agent performed their fiduciary responsibility, this situation would be over. If you send a turn down notice, there is nothing the sellers can sue for. The loan is denied. Financing fell through. You can cite the turn down for lack of reserves.
quote:
Originally posted by jpar994
Dont cave in to the seller. Who is going to want to buy a house overpriced in a decling area? Not a smart Idea. Even if the Client is willing to come to the table with 14k it still isnt a good deal for them because they are throwing money into a depreciating asset. I would rather lose the escrow than 14k. Just my two cents~
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LO1003
446 Posts |
Posted - 11/11/2009 : 08:23:06 AM
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| Correct me if I am wrong here, but just because a home does not appraise for a certain amount doesn't mean the home isn't worth it. I bet some appraisers will back me up on that. I know any insurance agent will. |
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Hopland
4126 Posts |
Posted - 11/11/2009 : 08:31:53 AM
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quote:
Originally posted by LO1003
Correct me if I am wrong here, but just because a home does not appraise for a certain amount doesn't mean the home isn't worth it. I bet some appraisers will back me up on that. I know any insurance agent will.
Define "worth it."
A bottle of water is worth all the money a person dying in the desert has.
The same bottle of water might be worth nothing to a person drowning in a river.
Market value is not "true value" "correct value" "value in use" or any other type of value one may think up. Market value has a specific definition. |
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1stintegritymort
1787 Posts |
Posted - 11/11/2009 : 08:33:13 AM
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An insurance agent will tell you the replacement cost to rebuild is not the same as the appraised value. That is because the insurance company doesn't insure the land. So of course the insurance company will say it is less then the loan amount. Also, I think most appraisers here will agree that the appraisal is an opinion of value. But what really matters is the opinion of the UW for the lender. The appraiser gives their opinion of value and it is up to the lender to accept or reject the amount.
quote:
Originally posted by LO1003
Correct me if I am wrong here, but just because a home does not appraise for a certain amount doesn't mean the home isn't worth it. I bet some appraisers will back me up on that. I know any insurance agent will.
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Captain Mortgage
2559 Posts |
Posted - 11/11/2009 : 09:25:39 AM
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quote:
Originally posted by LO1003
Correct me if I am wrong here, but just because a home does not appraise for a certain amount doesn't mean the home isn't worth it. I bet some appraisers will back me up on that. I know any insurance agent will.
After an appraiser got done inspecting one of my listings.
Me: So what do you think it's worth?
Appraiser: I definately think this home is worth at least $500k
Me: Wow that's great, so your appraisal will reflect this?
Appraiser: No, I can only appraise it for $400k. But I really think it's worth no less than $500k
Me: "Banging my head against the wall"
True story, appraisal came in at $402,500 |
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katbunk
3630 Posts |
Posted - 11/11/2009 : 10:13:50 AM
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Isn't the true value of a home worth as much as what someone is willing to pay for it?
Oh, wait.......that's how we got to the trouble we're in now. |
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1stintegritymort
1787 Posts |
Posted - 11/11/2009 : 10:33:25 AM
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quote:
Originally posted by katbunk
Isn't the true value of a home worth as much as what someone is willing to pay for it?
Oh, wait.......that's how we got to the trouble we're in now.
Just because a buyer is willing to pay a certain price for the home, does not necessarily mean it's worth that much. With all the fraud that went on, prices were inflated. You would go off prior sales. When you factor in concessions, down payment assistance, occupancy status, income doc, etc. you know borrowers bought homes they really were not qualified for. The short sales, foreclosures, and REO's are killing the market. People who are not in foreclosure are competing against distress sales. If you have been current on your mortgage and want to sell, you won't be able to unless you drop to a comparable price of the one down the street who strategically defaulted. Sure, maybe the home is worth more when these low listing prices are taken off. We are in a bad real estate market. When the market recovers and those distress sales are taken off, then I can see prices going up since all asking prices will be relatively the same. If you looked at the appraisal, how many comps. did the appraiser use that were distress sales? How many were not distress sales? If there were not enough recent sales, did the appraiser use listing price? Again, how many of those were from distress sales and non distress sales? |
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katbunk
3630 Posts |
Posted - 11/11/2009 : 10:43:05 AM
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quote:
Originally posted by 1stintegritymortgage
quote:
Originally posted by katbunk
Isn't the true value of a home worth as much as what someone is willing to pay for it?
Oh, wait.......that's how we got to the trouble we're in now.
Just because a buyer is willing to pay a certain price for the home, does not necessarily mean it's worth that much. With all the fraud that went on, prices were inflated. You would go off prior sales. When you factor in concessions, down payment assistance, occupancy status, income doc, etc. you know borrowers bought homes they really were not qualified for. The short sales, foreclosures, and REO's are killing the market. People who are not in foreclosure are competing against distress sales. If you have been current on your mortgage and want to sell, you won't be able to unless you drop to a comparable price of the one down the street who strategically defaulted. Sure, maybe the home is worth more when these low listing prices are taken off. We are in a bad real estate market. When the market recovers and those distress sales are taken off, then I can see prices going up since all asking prices will be relatively the same. If you looked at the appraisal, how many comps. did the appraiser use that were distress sales? How many were not distress sales? If there were not enough recent sales, did the appraiser use listing price? Again, how many of those were from distress sales and non distress sales?
It was said tongue in cheek. I agree with you. |
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LO1003
446 Posts |
Posted - 11/11/2009 : 10:56:35 AM
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quote:
Originally posted by Hopland
quote:
Originally posted by LO1003
Correct me if I am wrong here, but just because a home does not appraise for a certain amount doesn't mean the home isn't worth it. I bet some appraisers will back me up on that. I know any insurance agent will.
Define "worth it."
How about the cost to purchase the land and rebuild the home less depreciation? There has to be a better way to put a true value on a home rather than compare it to recent distress sales in the neighborhood. Your method of appraising is flawed and costing the consumer billions. |
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MARKJOLLIFF
486 Posts |
Posted - 11/11/2009 : 2:15:24 PM
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quote:
Originally posted by LO1003
quote:
Originally posted by Hopland
quote:
Originally posted by LO1003
Correct me if I am wrong here, but just because a home does not appraise for a certain amount doesn't mean the home isn't worth it. I bet some appraisers will back me up on that. I know any insurance agent will.
Define "worth it."
How about the cost to purchase the land and rebuild the home less depreciation? There has to be a better way to put a true value on a home rather than compare it to recent distress sales in the neighborhood. Your method of appraising is flawed and costing the consumer billions.
What is the most probable price this home would bring if listed for a reasonable amount of time. Theres your value and the value the bank is looking for. If it's competing against distressed sales then it will bring the distresssed price. No one will pay more for a home just because it is not a foreclosure. Your logic is extremely flawed. No is costing anyone anything. It cracks me up when people think a home will sell for more more than a similar distressed property. Which one would you buy? The one that costs more? There is no "true" value. there is only the price people will pay. |
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Captain Mortgage
2559 Posts |
Posted - 11/11/2009 : 2:28:07 PM
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quote:
Originally posted by MARKJOLLIFF
quote:
Originally posted by LO1003
quote:
Originally posted by Hopland
quote:
Originally posted by LO1003
Correct me if I am wrong here, but just because a home does not appraise for a certain amount doesn't mean the home isn't worth it. I bet some appraisers will back me up on that. I know any insurance agent will.
Define "worth it."
How about the cost to purchase the land and rebuild the home less depreciation? There has to be a better way to put a true value on a home rather than compare it to recent distress sales in the neighborhood. Your method of appraising is flawed and costing the consumer billions.
What is the most probable price this home would bring if listed for a reasonable amount of time. Theres your value and the value the bank is looking for. If it's competing against distressed sales then it will bring the distresssed price. No one will pay more for a home just because it is not a foreclosure. Your logic is extremely flawed. No is costing anyone anything. It cracks me up when people think a home will sell for more more than a similar distressed property. Which one would you buy? The one that costs more? There is no "true" value. there is only the price people will pay.
Noone will pay more for a home because:
It is in better condition?
Doesn't need to be painted?
Doesn't need new carpet?
Has cabinet doors?
Has not been vandalized?
Has no broken windows?
Has working toilets/sinks/showers?
Has no termites or termite damage?
Has a good roof?
I mean you're right, they both have walls, and kitchens. That should be enough to use the house as a comp. |
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MARKJOLLIFF
486 Posts |
Posted - 11/11/2009 : 4:19:41 PM
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quote:
Originally posted by Captain Mortgage
quote:
Originally posted by MARKJOLLIFF
quote:
Originally posted by LO1003
quote:
Originally posted by Hopland
quote:
Originally posted by LO1003
Correct me if I am wrong here, but just because a home does not appraise for a certain amount doesn't mean the home isn't worth it. I bet some appraisers will back me up on that. I know any insurance agent will.
Define "worth it."
How about the cost to purchase the land and rebuild the home less depreciation? There has to be a better way to put a true value on a home rather than compare it to recent distress sales in the neighborhood. Your method of appraising is flawed and costing the consumer billions.
What is the most probable price this home would bring if listed for a reasonable amount of time. Theres your value and the value the bank is looking for. If it's competing against distressed sales then it will bring the distresssed price. No one will pay more for a home just because it is not a foreclosure. Your logic is extremely flawed. No is costing anyone anything. It cracks me up when people think a home will sell for more more than a similar distressed property. Which one would you buy? The one that costs more? There is no "true" value. there is only the price people will pay.
Noone will pay more for a home because:
It is in better condition?
Doesn't need to be painted?
Doesn't need new carpet?
Has cabinet doors?
Has not been vandalized?
Has no broken windows?
Has working toilets/sinks/showers?
Has no termites or termite damage?
Has a good roof?
I mean you're right, they both have walls, and kitchens. That should be enough to use the house as a comp.
Of course both homes have to be in similar shape. I thought that at least was obvious. But if I have to state the obvious for you then i will. If one home looks like a missile hit on the interior and the other is absolutley beautiful then they are not comparable without significant adjustments. |
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caadacjohn
742 Posts |
Posted - 11/11/2009 : 4:28:01 PM
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quote:
Originally posted by katbunk
quote:
Originally posted by MisterVA
I wonder how many other deals this listing agent has been involved with that had inflated sale prices contributing to the upside down factor. I would guess more than one. You know who is looking out for the best interests of the buyer? The appraiser. The lender. And you.
One more interesting note. I just found out this house has been listed and sold by the same agent twice before my buyers came into it. Both of the prior escrows canceled due to low appraisals. HA!
So the agent knew the value of the home but never "disclosed" it? The buyer should be able to use this to his advantage?? |
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LO1003
446 Posts |
Posted - 11/11/2009 : 7:55:43 PM
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quote:
Originally posted by caadacjohn
quote:
Originally posted by katbunk
quote:
Originally posted by MisterVA
I wonder how many other deals this listing agent has been involved with that had inflated sale prices contributing to the upside down factor. I would guess more than one. You know who is looking out for the best interests of the buyer? The appraiser. The lender. And you.
One more interesting note. I just found out this house has been listed and sold by the same agent twice before my buyers came into it. Both of the prior escrows canceled due to low appraisals. HA!
So the agent knew the value of the home but never "disclosed" it? The buyer should be able to use this to his advantage??
I wonder if the seller and listing agent scammed the other 2 buyers out of their earnest money too? Sounds like a couple of ex-subprime LO's who probably used to collect credit and appraisal money on unqualified buyers and then pocketed the money without even trying to get them a loan. |
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Hopland
4126 Posts |
Posted - 11/12/2009 : 06:40:42 AM
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quote:
Isn't the true value of a home worth as much as what someone is willing to pay for it?
Oh, wait.......that's how we got to the trouble we're in now.
I know you said that with tongue in cheek but there is some truth in it because you used the word "worth" and not everyone understands the concept of Market Value.
Obviously the property was "worth it" to that person or they would not have paid the price. But that is only evidence of the price paid by one person who thought it was "worth it" to them. The same property can be "worth" different pricing to different buyers. Market Value requires an opinion of a probable sale price to a typical buyer.
quote:
Me: So what do you think it's worth?
Appraiser: I definately think this home is worth at least $500k
Me: Wow that's great, so your appraisal will reflect this?
Appraiser: No, I can only appraise it for $400k. But I really think it's worth no less than $500k
Me: "Banging my head against the wall"
Appraisers (like other people) sometimes say things they shouldn't be saying. It's easy to get tripped up in a conversation. It's easy to have a first impression and then after doing more study realize their first impression was not supportable or reasonable.
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How about the cost to purchase the land and rebuild the home less depreciation? There has to be a better way to put a true value on a home rather than compare it to recent distress sales in the neighborhood. Your method of appraising is flawed and costing the consumer billions.
Cost and value are two different things. If you spent $5,000 for a lot in Crackville and spent a million dollars constructing a mansion would you expect it to sell for $1,005,000? No. Because people with that kind of money aren't going to live in Crackville.
To get market value indications using the cost approach there is more to it then summing the costs of land acquisition and building the improvements. It requires data extracted from the market for calculating depreciation and this includes external obsolesence.
A properly developed cost approach should result in the same (similar) value indication as a sales approach because external depreciation would be applied due to temporary market conditions
(i.e. compare it to recent distress sales in the neighborhood.)
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LO1003
446 Posts |
Posted - 11/12/2009 : 08:59:12 AM
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quote:
Originally posted by Hopland
Cost and value are two different things. If you spent $5,000 for a lot in Crackville and spent a million dollars constructing a mansion would you expect it to sell for $1,005,000? No. Because people with that kind of money aren't going to live in Crackville.
To get market value indications using the cost approach there is more to it then summing the costs of land acquisition and building the improvements. It requires data extracted from the market for calculating depreciation and this includes external obsolesence.
A properly developed cost approach should result in the same (similar) value indication as a sales approach because external depreciation would be applied due to temporary market conditions
(i.e. compare it to recent distress sales in the neighborhood.)
So you state the reason the Value of Cost Approach (i.e. land value + cost to build home - physical depreciation) that appears on the appraisal won't work as an alternate to the Sales Comparison Approach is because it doesn't deduct the external depreciation of the home being in Crackville. Doesn't the Opinion of Site Value that is listed in the Value of Cost Approach already take into consideration that the home is in Crackville? Either way, you must wonder why when it comes to homeowners insurance coverage, the lender put more emphasis on the VCA as opposed to the SCA? Typical banker having their cake and eating it too. |
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Back9
203 Posts |
Posted - 11/12/2009 : 2:39:08 PM
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| The Seller can't sue the Buyer for specific performance. There is no specificity to money. |
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Hopland
4126 Posts |
Posted - 11/12/2009 : 4:01:11 PM
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quote:
So you state the reason the Value of Cost Approach (i.e. land value + cost to build home - physical depreciation) that appears on the appraisal won't work as an alternate to the Sales Comparison Approach
That's not what I said. I said:
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A properly developed cost approach should result in the same (similar) value indication as a sales approach
You then said:
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because it doesn't deduct the external depreciation of the home being in Crackville.
The problem described in Crackville is not due to externalities (external obsolesence.) The problem is incurable functional obsolesence. Too much house.
The approaches to value are not independent of each other.
Edit: I see where there might have been some confusion or misunderstanding. My comment regarding external obsolesence was directed at the post asking if it would be better to use land plus replacement cost instead of using "distressed sales." The cost approach would have to recognize the fact that there are distressed sales and use this information to apply a depreciation adjustment for this externality.
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LO1003
446 Posts |
Posted - 11/12/2009 : 5:29:42 PM
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quote:
Originally posted by Hopland
The problem described in Crackville is not due to externalities (external obsolesence.) The problem is incurable functional obsolesence. Too much house.
Good, now I am starting to understand the mentality of the banker when it comes to value. "Too much house" and/or "over-built for the area" are terms that I can relate to. So the banker now assumes that a higher priced home which has similar sq. footage and amenities as a distress sale that sold for less is considered "too much house" or "over-built" due to the lower price that the distress sale sold for? In the good old days, we used to consider a mansion with 5600 sq. ft. that was built in a neighborhood with homes that averaged 2800 sq. ft. as being "too much house" or "over-built". My how the definition of "too much house" and "over-built" have changed. Par for the course I guess. You have got to love the banker.
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kellamtom
1163 Posts |
Posted - 11/12/2009 : 8:58:28 PM
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| Sounds like the seller is trying to avoid a short sale if this is the 3rd appraisal. Go around the table to give up some commission, seller brings money to closing, buyer brings brings more to closing or cut a lender fee to make it work. COMPROMISE |
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