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aannoonn

@optonline.net
reply to KrK

Re: Appraisals and Finished Basements

said by KrK:

I have plans for the basement but now it seems like any money invested would be just thrown away because it really wouldn't add any value to the home and no matter how nice it would be a potential buyer still wouldn't be able to get traditional financing on it.

I don't understand why this is a problem. People will pay extra for a house with a finished basement. And if the taxes don't go up because of it, it's a win-win-win situation. (Win for you [gets more money], double win for the buyer [gets a basement, pays the same taxes].)


KrK
Heavy Artillery For The Little Guy
Premium
join:2000-01-17
Tulsa, OK

1 recommendation

And when the bank won't finance them because the bogus loan-to-value ratio says they are overpaying for the under-counted sq.footage home? This seems to be the issue. Even if you and a buyer agree it's worth $285,000 won't do you much good if the bank will only loan out $210k max because of the low appraisal.

It's true someone may love it and have a large down-payment to cover the difference, but you're cutting your potential buyer pool substantially if you only can sell to a select few. Uggg.

--
"Fascism should more properly be called corporatism because it is the merger of state and corporate power." -- Benito Mussolini


SwedishRider
Rider on the Storm
Premium
join:2006-01-11
not Sweden
kudos:1
said by KrK:

And when the bank won't finance them because the bogus loan-to-value ratio says they are overpaying for the under-counted sq.footage home? This seems to be the issue. Even if you and a buyer agree it's worth $285,000 won't do you much good if the bank will only loan out $210k max because of the low appraisal.

It's true someone may love it and have a large down-payment to cover the difference, but you're cutting your potential buyer pool substantially if you only can sell to a select few. Uggg.

+1 Your analysis is dead on the money.


aannoonn

@optonline.net
reply to KrK
You're better off dealing with buyers who do not have marginal financial resources to buy your house.

Bottom line is that your house is easier to sell (it's more attractive) with the finished basement, and you'll get more money. You could lower the asking price due to all the money you've saved by paying lower taxes.


SwedishRider
Rider on the Storm
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join:2006-01-11
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kudos:1
said by aannoonn :

You're better off dealing with buyers who do not have marginal financial resources to buy your house.

That limits the pool of buyers to about a handful of people. For better or worse, most people need to finance substantial portions of their home purchases.

And appraisals factor heavily in that financing process...


dennismurphy
Put me on hold? I'll put YOU on hold
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join:2002-11-19
Parsippany, NJ
kudos:3
Reviews:
·Verizon FiOS
reply to aannoonn
said by aannoonn :

You're better off dealing with buyers who do not have marginal financial resources to buy your house.

Not wanting to float a substantial chunk of change and 'marginal resources' are two very different things.

We bought our house last year - it was $520,000. We put $104,000 (20%) down in cash, leaving the financed portion at 416,000.

If the appraisal had come in for less than $520k, we probably would have walked away. Putting down even more cash would've been more of a stretch than I wanted, and I was right at 80% LTV (not to mention the limit for a conventional FM loan). I didn't want to pay PMI nor did I want to put out even more cash.

I wasn't in a 'marginal' position, but had several lines in the sand I didn't want to trip over.

Thankfully, the appraisal went well, we closed on the house, and are living happily ever after... Or something like that.


aannoonn

@optonline.net
reply to SwedishRider
said by SwedishRider:

said by aannoonn :

You're better off dealing with buyers who do not have marginal financial resources to buy your house.

That limits the pool of buyers to about a handful of people.

In that case, the real problem is that you have the most expensive house in the neighborhood.


SwedishRider
Rider on the Storm
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join:2006-01-11
not Sweden
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1 edit
said by aannoonn :

said by SwedishRider:

said by aannoonn :

You're better off dealing with buyers who do not have marginal financial resources to buy your house.

That limits the pool of buyers to about a handful of people.

In that case, the real problem is that you have the most expensive house in the neighborhood.

Hardly. I am on the upper middle end of the neighborhood. The home a few houses up from me has me by about 6 figures... literally.

The real problem is that most people have a hard time getting together a down payment in modern times, never mind paying all cash for a property. Banks are reluctant to keep putting money into homes that people may walk from and they take the hit for. Banks have become property wholesalers at this point... in many ways, they are in direct competition with both traditional sellers and builders. Many builders feel like pariahs when walking into a bank looking for project financing.

To the original point: The fact is that MOST people finance MOST of their home's purchase price MOST of the time. That applies to homes in a wide range of prices from the fixer-uppers to the McMansions. All cash deals are not the norm for the vast majority of purchases. The market is very competitive and financing is one of (if not the) major consideration of both the buyer's offer and to a lesser extent, the seller's asking price.

It is naive not to realize that where you appraise will have a direct impact on the potential pool of buyers and the selling price of the home given that most banks are reluctant to loan out more than 80% of appraised value. Yes, there are programs if more needs to be loaned out, but those are outside the bounds of a conventional 15 or 30 year fixed. Sheer square footage matters most and it seems that finished basements or "lower split levels" matter relatively little in the grand scheme of an appraisal. Why? Because no matter how nice the workmanship... finished basements won't add to livable square footage.

Until the appraisal rules are modified to allow for total square footage to include finished basements when valuing comps, folks who invest generous amounts of cash in their basements should enjoy the use of the space... but expect to get a fraction of that back in a sale (if anything).
Expand your moderator at work


KrK
Heavy Artillery For The Little Guy
Premium
join:2000-01-17
Tulsa, OK
reply to aannoonn

Re: Appraisals and Finished Basements

That's not really the bottom line. The bottom line is what buyers will pay for it, and that comes how or if they can finance it.

Unless they have cash to just pay up, and how often does THAT happen.
--
"Fascism should more properly be called corporatism because it is the merger of state and corporate power." -- Benito Mussolini


SwedishRider
Rider on the Storm
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join:2006-01-11
not Sweden
kudos:1
reply to SwedishRider
As a follow-up, I had a real estate broker walk through the house yesterday afternoon (my neighborhood is still under construction and selling homes, so I caught him passing through).

He shot me a realistic price that was a bit over 10% higher than what the appraiser valued the house at and much closer to what the bank's rep and I had guesstimated the value to be. I asked him about actual buyer financing and how that would work given the low appraisal... and his answer was interesting.

He openly said that appraisals for refinancing and appraisals for home purchases will yield different results. He said that during most refinance appraisals, banks tend to low-ball for a variety of reasons. They are super conservative and are stingy as hell when valuing a property for refinancing.

But when it's a buyer trying to purchase... somehow magical value appears and the pearly gates of credit are much more open.. He said it isn't right... but it's the way it works.

In my particular circumstances, he said the appraiser effectively gave me no credit for the finished in-law apartment, which on the open market, is not realistic. It is in the bank's favor to low-ball as much as possible, but he said the number the appraiser came up with is simply out of line... and he listed the comps of similar homes with no finished basements or asphalt driveways that sold for substantially more than my appraisal... in neighborhoods less desirable. He also confirmed my suspicions that "multigenerational dwellings" are growing in popularity and that if/when the market recovers that in-law apartment with separate entrance and kitchen will command a premium. Time will tell on that I suppose..

Like I said before... I will hold my nose as I write that check to close this refinance deal... thankfully I love the house and have no intention/need to sell it any time soon.


Nuckfuts
Premium
join:2003-10-18
Joliet, IL
said by SwedishRider:

He openly said that appraisals for refinancing and appraisals for home purchases will yield different results. He said that during most refinance appraisals, banks tend to low-ball for a variety of reasons. They are super conservative and are stingy as hell when valuing a property for refinancing.

Amazing how times have changed. Makes me chuckle. When I refinanced my first home less than a 1 1/2 years after buying it (in 2003) the bank was not sure I could get the right appraisal amount. The house at the time still needed a new furnance/A/C and windows and the kitchen needed updating but the housing market was booming so well somehow magically they got it to hit the correct amount. That is how bad the bank wanted my interest. Now in my current home I am deep underwater. Gotta love it.


Jack_in_VA
Premium
join:2007-11-26
North, VA
kudos:1
Reviews:
·Millenicom
said by Nuckfuts:

said by SwedishRider:

He openly said that appraisals for refinancing and appraisals for home purchases will yield different results. He said that during most refinance appraisals, banks tend to low-ball for a variety of reasons. They are super conservative and are stingy as hell when valuing a property for refinancing.

Amazing how times have changed. Makes me chuckle. When I refinanced my first home less than a 1 1/2 years after buying it (in 2003) the bank was not sure I could get the right appraisal amount. The house at the time still needed a new furnance/A/C and windows and the kitchen needed updating but the housing market was booming so well somehow magically they got it to hit the correct amount. That is how bad the bank wanted my interest. Now in my current home I am deep underwater. Gotta love it.

Banks and mortgage companies tightened up on refinances because before the housing collapse peoples wages stagnated, their credit cards maxed out so they started using the equity in their homes as a piggy bank. Aided by appraisers who inflated the value the banks and mortgage companies lent money on overvalued homes. Now we have millions of homes that more is owed on than they are worth.

I have a friend in the Real Estate business who is doing very well since the collapse working for banks and mortgage companies re-appraising the homes especially those that have been refinanced and cash taken out to see if the mortgages they hold are anywhere close to the real value of the home. He now has 5 agents and a pool of professional appraisers working.

Your conversation with the real estate agent lends itself to the question "What did you expect him/her to say"? Real estate agents were a big part of the problem today. Corrupt appraisers also were very active during this "re-finance" boom.


aannoonn

@optonline.net
said by Jack_in_VA:

Banks and mortgage companies tightened up on refinances because before the housing collapse peoples wages stagnated, their credit cards maxed out so they started using the equity in their homes as a piggy bank.

That's nothing new. Banks have been pushing this for years, especially when inflation caused peoples' home values to go up, thereby increasing their equity.

I know of people who repeatedly refinanced their homes, taking out cash due to the increased equity. The result is that after 30 years, when they should have owned their homes outright, they now owe more than the original purchase price of the home. So they got to drive fancy cars or buy a boat, but now, facing retirement, they still owe a fortune.


SwedishRider
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join:2006-01-11
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reply to Jack_in_VA
said by Jack_in_VA:

Your conversation with the real estate agent lends itself to the question "What did you expect him/her to say"? Real estate agents were a big part of the problem today. Corrupt appraisers also were very active during this "re-finance" boom.

All I expected was a realistic value on my home if I were to sell it now. He moves a lot of real estate locally and knows my neighborhood intimately well. If he had come in around the appraisal number, then so be it. But he listed actual comps that he has sold in the last few months that clearly indicate my realistic value much higher than the comps used by the appraiser. I personally trust his experienced opinion much more than a hired gun representing the bank.

Frankly, a house (or anything else for that matter) is worth what someone is willing to pay you for it. Right now, I'm not interested in putting it on the market to test the concept... I'll take his word for it, complete my refinance while rates are embarrassingly low, and hope for better days down the road.


Jack_in_VA
Premium
join:2007-11-26
North, VA
kudos:1
Reviews:
·Millenicom
said by SwedishRider:

Frankly, a house (or anything else for that matter) is worth what someone is willing to pay you for it. Right now, I'm not interested in putting it on the market to test the concept... I'll take his word for it, complete my refinance while rates are embarrassingly low, and hope for better days down the road.

I don't blame you a bit for trying to save money by refinancing. That's the responsible and smart thing to do.

Like I said those who used the equity as a piggy bank refinancing at inflated appraisals and cashing out was crazy. Now most of them are under water and/or foreclosed on. The appraisers are to blame in this fiasco for inflating the values.


alkizmo

join:2007-06-25
Pierrefonds, QC
kudos:1
reply to SwedishRider
said by SwedishRider:

He openly said that appraisals for refinancing and appraisals for home purchases will yield different results. He said that during most refinance appraisals, banks tend to low-ball for a variety of reasons. They are super conservative and are stingy as hell when valuing a property for refinancing.

Just like I told you in our private message conversation.
You don't have to worry much about the re-sale value.

Refinancing value is more strict for multiple reasons, but overall, it does more good than bad to the stability of the mortgage market. While there are people with honest, rightful reasons to refinance to 80% of their FULL resale property value, MOST people applying for refinancing were just living above their means.

As for this weird business of having to re-evaluate a property everytime you renew your term (With the same bank), well, under normal circumstances, the new Loan-To-Value should be lower than the Loan-To-Value at purchase, unless you took a less than 4 year term.


SwedishRider
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1 edit
said by alkizmo:

Refinancing value is more strict for multiple reasons, but overall, it does more good than bad to the stability of the mortgage market. While there are people with honest, rightful reasons to refinance to 80% of their FULL resale property value, MOST people applying for refinancing were just living above their means.

As for this weird business of having to re-evaluate a property everytime you renew your term (With the same bank), well, under normal circumstances, the new Loan-To-Value should be lower than the Loan-To-Value at purchase, unless you took a less than 4 year term.

Unfortunately for me, I'm one of those people who has an honest, rightful reason... I'm not looking to take out a dime against the value of the home, I'm just looking to lock in a lower rate to save tens of thousands in interest over the term of the loan. And I'll have to bring thousands in cash to the closing to save tens of thousands over the life of the loan (as weird as that seems).

Canada seems to handle refinancing very differently. I had a much better LTV ratio when I built my home... but now the value has legitimately dropped as the market tanked- though I disagree as to how much according to the appraiser. I'm under no illusion that my home is worth as much as I have into it- I have lost equity. But there is reasonable valuation, and there is borderline ridiculous. The appraiser's numbers are borderline ridiculous... the real estate agent's are reasonable (though still lower than I'd obviously like them to be).

But like I posted to Jack, bottom line is that I'm close enough to the mark to make the deal using some of my own cash, and the rate I'm locking in will save tens of thousands over the life of the loan. I'm not thrilled with the deal, but I have no plans or need to sell and will simply save quite a bit of money and continue to enjoy my home.


alkizmo

join:2007-06-25
Pierrefonds, QC
kudos:1
said by SwedishRider:

And I'll have to bring thousands in cash to the closing to save tens of thousands over the life of the loan (as weird as that seems).

It didn't COST you anything to save on interest charges.
You were simply forced to pay back part of your debt sooner than you'd want.

Think of it as speeding up the amortization of your mortgage. And on the thousands you reduced from your mortgage balance, well, you don't pay interests on it anymore

But I bet you had other plans for that money, which sucks.

BTW did you compare the old evaluation with the new one? I bet there was an evaluation done for your construction financing based on your plans.


SwedishRider
Rider on the Storm
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join:2006-01-11
not Sweden
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1 edit
said by alkizmo:

But I bet you had other plans for that money, which sucks.

Yep.

BTW did you compare the old evaluation with the new one? I bet there was an evaluation done for your construction financing based on your plans.

Yep. Let's put it this way, the appraisal on my plans in '09 (which assumed no central A/C, no tankless hot water, no wood floors, no upgraded cabinetry, etc. that I ended up including) was $30k higher than the appraisal that just came in... and the original appraisal didn't include the finished in-law apartment, walkways, or a driveway, which were all professionally completed and part of the new appraisal.


alkizmo

join:2007-06-25
Pierrefonds, QC
kudos:1
said by SwedishRider:

Yep. Let's put it this way, the appraisal on my plans in '09 (which assumed no central A/C, tankless hot water, wood floors, upgraded cabinetry, etc. that I ended up including) was $30k higher than the appraisal that just came in... and the original appraisal didn't include the finished in-law apartment, walkways, or a driveway, which were all professionally completed and part of the new appraisal.

So what changed? $/SQFT value?


SwedishRider
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said by alkizmo:

So what changed?

The appraiser.


Jack_in_VA
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join:2007-11-26
North, VA
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Reviews:
·Millenicom
reply to SwedishRider
said by SwedishRider:

Yep. Let's put it this way, the appraisal on my plans in '09 (which assumed no central A/C, tankless hot water, wood floors, upgraded cabinetry, etc. that I ended up including) was $30k higher than the appraisal that just came in... and the original appraisal didn't include the finished in-law apartment, walkways, or a driveway, which were all professionally completed and part of the new appraisal.

You were lucky the zoning allowed you to have a in-law apt. The county I formally lived in and most of the other counties have the same restrictions.

quote:
The zoning ordinance permits one single-family dwelling unit per residential property. The definition of a dwelling unit allows separate areas for living, sleeping, cooking, and bathrooms. This means that if a house has more than one kitchen, it is no longer a single-family dwelling and is therefore not permitted by zoning. If more than one kitchen is proposed, a conditional use permit would be required for the second dwelling unit (even if it is occupied by a family member). No special permit is required for a relative to live in your house, so long as the house has one kitchen.
I know some people that tried to get by with it but nosy neighbors turned them in.


alkizmo

join:2007-06-25
Pierrefonds, QC
kudos:1
I wonder what is the defining point of a kitchen.

I'm betting it's the range/stove.

It's easy to get away with a second kitchen by putting a refrigerator, sink, microwave, etc etc.. and for the range, well, you hide it when inspectors come around


mattmag
Premium,ExMod 2000-03
join:2000-04-09
NW Illinois
kudos:3
reply to SwedishRider
said by SwedishRider:

I'm not looking to take out a dime against the value of the home, I'm just looking to lock in a lower rate to save tens of thousands in interest over the term of the loan.

Which is *exactly* why the bank makes this a difficult goal to reach, no matter how you try to get there. They don't want to be out those tens of thousands in interest.


SwedishRider
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1 edit
reply to Jack_in_VA
said by Jack_in_VA:

You were lucky the zoning allowed you to have a in-law apt. The county I formally lived in and most of the other counties have the same restrictions.

I spoke with both the zoning department and the building inspector before I bought and built to make sure that I could build the in-law with full second kitchen. They had no problem with it.

Quite a few municipalities do not allow 2 kitchens in one single family dwelling. The fact that I have a legal one makes this property unique. The real estate broker I spoke with (and others) has seen an increase in people who are looking for "multigenerational homes" that have 2 separate living quarters each with a kitchen but still are classified as single family dwellings. Some towns allow them (with some restrictions) and some outright forbid them.

Either way, I am fully permitted and grandfathered in. There may come a day where those who have them can keep them, but no more can be built locally... and that could create scarcity and potentially increase value.

As always... time will tell.


aannoonn

@optonline.net
reply to SwedishRider
said by SwedishRider:

And I'll have to bring thousands in cash to the closing to save tens of thousands over the life of the loan (as weird as that seems).

You can finance your closing costs at these historically low interest rates by adding them to your new loan. Take a look at the amortization tables. I bet you make the money back in interest savings within a year.

And I'm glad we can get 30 year fixed rate loans at these rates, unlike that stupid system in Canada.


aannoonn

@optonline.net
reply to alkizmo
I know someone who did an illegal (and unpermitted) duplex conversion in an area zoned for single family residences. One day they had a minor smoke condition and called the fire department. The fire department took care of the minor problem, noticed the illegal conversion and called the building inspector. Now they have to rip out their expensive conversion and pay big fines Idiots.


Sennheizer

join:2012-05-14
reply to KrK
said by KrK:

And when the bank won't finance them because the bogus loan-to-value ratio says they are overpaying for the under-counted sq.footage home? This seems to be the issue. Even if you and a buyer agree it's worth $285,000 won't do you much good if the bank will only loan out $210k max because of the low appraisal.

It's true someone may love it and have a large down-payment to cover the difference, but you're cutting your potential buyer pool substantially if you only can sell to a select few. Uggg.

A bank requires an appraisal for a reason. The same rules apply when you purchase the place as refinance as far as appraisals go. You act like it's some conspiracy but it's been this way for a long long time. They only thing the bubble caused is the appraisals to be reduced in value as they were being inflated before. How they get the numbers is still the same.


herdfan
Premium
join:2003-01-25
Hurricane, WV
reply to SwedishRider
When my appraisal was done for a refinance I happened to be present. I talked to the appraiser about my basement. My house is 3000' on the main floor, but the basement is only under 2/3 of it, so it is about 2000' and there is a crawlspace under the rest of the house that is not basement. It is walkout on 2 sides and based on the slope of the yard, none of it is really below grade.

So I talked to the appraiser about it and she agreed that yes it should be counted as full finished space for the reasons above. Well, I don't see the appraisal until close (I was notified that my appraisal was OK), so I asked the closing attorney for a copy of it. I get to looking at it when I get home and notice her appraisal is only $2K above what it needed to be. Then I discover that instead of counting it as part of the square footage, she added a blanket amount of $60K for finished basement. Well, that ends up being around $30' for the basement. I was hoping for a valid assessment of the value of the house due to the way I acquired it.

The previous owner was in the process of losing it to the bank and it was purchased just before it was foreclosed on for payoff. This was about $100K less than he had paid for it. Well, that owner after living in it for a year and putting quite a bit of money into it got transferred. Except he didn't want the transfer, so he got a different job, but one that wouldn't buy his house. So before he listed it, I offered him what he paid for it. He hemmed and hawed, but took it as they wanted to move on with their lives. So I just wanted a valid assessment of what it is worth, but I didn't get it.