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alkizmo

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

Re: Appraisals and Finished Basements

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

So what changed?

The appraiser.


Jack_in_VA
Premium
join:2007-11-26
North, VA
kudos:1
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
Rider on the Storm
Premium
join:2006-01-11
not Sweden
kudos:1

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.


Jack_in_VA
Premium
join:2007-11-26
North, VA
kudos:1
You probably got an assessment on what "it was worth" not the inflated balloon assessments prior to the implosion of the housing bubble. We're closer to the "real world" now. The appraisers are doing their jobs now.


Sennheizer

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

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.

I've had 3 appraisals done in the last 3 years. I'm always home for them so I can talk to the appraiser. They will tell you anything you want to hear but in reality they will just follow the rules, laws, and guidelines they have too for the appraisal. Sure they'll say the basement should be counted in the GLA just so you don't make a scene and argue about it. In reality you got a FAIR assessment of your property though. You wanted them to do something unfair and count below-grade as above-grade. You wouldn't have gotten a FAIR assemblymen had that happened. We bought a house that was worth $425,000 for $314,000. The appraisal has been $330,000 on all 3 appraisals since we bought it. The last appraiser told us point blank they appraise stuff much lower in the first 5 years of purchase so the property should be worth more but their hands are tied. They said after 5 years of ownership given the same market conditions the place should be worth $350,000-360,000.

cjski
The Wheel Weaves As The Wheel Will
Premium
join:2001-01-04
Sun City, CA
reply to SwedishRider
Whole lot of misinformation in this thread...

Below grade level area is never counted in gross living area(GLA). Below grade level area is any part of a floor level that is below grade. Theoretically, if 1 wall is 1' below grade level, then that whole level is below grade level.

This is not to say that this area does not have value. In fact, in some locales this area may contribute value equal to the contribution of the above grade levels or GLA. But this is rare due to common inferior characteristics such as lack of natural lighting, layout, and egress.

The process of determining what the contributory value of a below grade level improvement, or basement is, is done through a process called "paired sales analysis"

Stating it simply, paired sales analysis looks at 2 separate properties that are similar in all aspects except for 1 or more significant characteristics, i.e. 3 vs. 4 bedrooms, basement vs. no basement...
The difference in selling price is the contributory value of the added amenity.

(example)
House 1 - 3/br 3/ba ranch style, 1850 sf, built in 1978, average condition, no evidence of significant deferred maintenance. Sold 3 months ago for $173K.

House 2 - 3/br 3/ba ranch style, 1778 sf, built in 1975, average condition, no evidence of significant deferred maintenance, 800 sf finished basement. Sold 2.5 months ago for $185K.

The difference in sales price of $12K is the contributory value of the basement.

Now utilizing paired sales analysis is never as simple as the above example, as it is rare to find 2 houses that are similar in all aspects except for 1 significant difference, that also sold in roughly the same time frame, but that's where the appraiser's experience comes into play.

Significant differences in features and amenities are always extracted from the market reaction to those features.

In some situations the appraiser may not find market demand for what would appear to be an improvement. Maybe you have an indoor pool or a basement bowling alley or even just an improved basement...
If the appraiser cannot find a sale with a similar amenity, that can be an indication of lack of demand in that particular market for that amenity, therefore, little value is assigned for that amenity. This is what is known as a "super adequacy". An improvement that offers little to no contributory value to the functional utility or appeal of the property due to lack market demand.

...informing

cjski
(10 yr Licensed Appraiser)


SwedishRider
Rider on the Storm
Premium
join:2006-01-11
not Sweden
kudos:1
cjski, then answer me this:

A coworker I spoke with just went for a refinance at Bank A... appraisal came in about $10K below what he needed to close the refi deal.

He then went to Bank B... house appraised again a few weeks later with NO improvements whatsoever... appraisal came in $20K OVER what he needed to close with Bank B. Needless to say, he took his business to bank B.

Um.... something seems very wrong when 2 banks can hire 2 appraisals within weeks of one another and be $30K apart.

Can you explain this phenomenon?


Jack_in_VA
Premium
join:2007-11-26
North, VA
kudos:1
Bank B wanted the business more so as usual the appraiser complied with what was needed. That's one big reason we are in the mess we are and why so many homes are upside down.


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

Bank B wanted the business more so as usual the appraiser complied with what was needed. That's one big reason we are in the mess we are and why so many homes are upside down.

I think we have a winner!

cjski
The Wheel Weaves As The Wheel Will
Premium
join:2001-01-04
Sun City, CA
reply to SwedishRider
Appraising, especially in todays market, is more of an art than a science.

We would all like to think that 10 different appraisers would arrive at the same value of a particular home, independently.

That's just not the case.

There are many subjective factors that go into the data gathering and market analysis of market conditions in any particular area. Not least being...appraiser competency in that area. Maybe appraiser B knows that market area much better than appraiser A. He/she may know that those homes with a south facing view amenity command a 10% selling bonus based on market reaction...

Or...

Maybe in the 3 week interim between appraisals, there were 2 or 3 very comparable sales that closed for $30K over appraiser A's opinion of value of the subject property. At the time of the original appraisal these would have only been 'pending' sales.

(very simplified example)
Appraiser A appraises your coworkers house. He/she finds 3-5 recently closed sales in the subject's neighborhood, that are very similar to the subject in all aspects. These recent sales range in value from $470K-$482K. He/she also includes 2 pendings in the report that are listed for $510K and $515K. These happen to be actual model-matches (same floor plan) to the subject. Except in very rare circumstances, the opinion of value of the subject must be bracketed by the range of values of the 'closed sales'. The inclusion of active & pending listings is just used for 'support' of the appraiser's opinion of value. Appraiser A opines a value of $478K for the subject property

3 weeks later...

Those pending sales that were listed at $510K and $515K have closed for $505K and $510K. Maybe they didn't appraise that high either, but the buyers were so enamored of these homes that they brought more cash to the table in order to arrange financing...or maybe payed cash outright (not uncommon in my area of Southern Ca). Guess what? The closings of these 2 sales just bumped values up in that neighborhood for comparable sales by $30K

Or...

Appraiser B is incompetent, overvalued your coworkers house by $30K, and now your coworker has $10K negative equity in their house.

...explaining
cjski


Jack_in_VA
Premium
join:2007-11-26
North, VA
kudos:1
Reviews:
·Millenicom
I'll stick with Bank B wanted the business so the Appraiser made the numbers match.

I have a friend in the business and has been for way longer than you and he knows exactly how that works. He spends his time now working for banks examining properties to see if the paper they hold is worth anything near the real value of the home. Most aren't as they were overvalued by appraisers to gain re-financing approvals. Thus the home is upside down and not eligible any relief.

Appraisals should not be subjective to the point of having that much variation and if they do then something is wrong with the appraiser(s).


SwedishRider
Rider on the Storm
Premium
join:2006-01-11
not Sweden
kudos:1
reply to cjski
My coworker locked in a ridiculously low sub 4% refinance rate based on Bank B's appraisal, and he's saving a boatload of cash. Bank A's numbers made the deal out of reach.

You sound like a competent appraiser cjski, but I have to agree with Jack's thesis. A spread that wide is just too big, too quick, and too suspicious to explain without considering the obvious... it's what bank b needed done to close the deal.

Yes, yes, I know legally they can't do that blah blah blah....

But when it walks like a duck and quacks like a duck....

And in my situation an appraiser from another part of the state that knows nothing about my neighborhood appraised my home at $20k+ less than a competent real estate broker who works my neighborhood exclusively and knows my market intimately well. Guess what... the appraiser's numbers are a few shades less than needed to close this deal without me taking cash to the table of the same bank that currently holds my mortgage. Sure sounds pretty close to my friend's situation.

The broker gave me some practical advice based on his experiences with the appraisal process...

Taken altogether... I don't have a lot of faith in appraisals.


aannoonn

@optonline.net
said by SwedishRider:

My coworker locked in a ridiculously low sub 4% refinance rate

That's not ridiculous. My bank's rates are:

10 year: 2.875%
15 year: 3.125%
20 year: 3.500%
30 year: 3.750%


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

said by SwedishRider:

My coworker locked in a ridiculously low sub 4% refinance rate

That's not ridiculous. My bank's rates are:

10 year: 2.875%
15 year: 3.125%
20 year: 3.500%
30 year: 3.750%

I was being a bit hyperbolic...

Yes, those rates are typical of what is out there at the moment, but in the history of modern home ownership, they are ridiculously low. I have talked to folks a bit older than me who remember the late 70s and early 80s when rates were 16-19%... now that was ridiculous on the other end of the spectrum.


Nuckfuts
Premium
join:2003-10-18
Joliet, IL
Ridiculous but on very same loans. I think my parents paid $25,000 for the 4 bedroom house they bought in '72 that I grew up in. Payment was less than $300/month!!!
Expand your moderator at work


Sennheizer

join:2012-05-14
reply to Jack_in_VA

Re: Appraisals and Finished Basements

said by Jack_in_VA:

I'll stick with Bank B wanted the business so the Appraiser made the numbers match.

I have a friend in the business and has been for way longer than you and he knows exactly how that works. He spends his time now working for banks examining properties to see if the paper they hold is worth anything near the real value of the home. Most aren't as they were overvalued by appraisers to gain re-financing approvals. Thus the home is upside down and not eligible any relief.

Appraisals should not be subjective to the point of having that much variation and if they do then something is wrong with the appraiser(s).

The law is all bank appraisals have to be done by an INDEPENDENT 3rd party now. Normally they call up a company that will RANDOMLY assign a local appraiser to do the job from their pool of available appraisers. A bank can coach the home owner in how to help the appraiser but the bank has zero influence on the appraiser. A trick they tough me is pick a number you think your place is worth and while the appraiser is there toss out that number a few times in passing just to get it into their head. It doesn't always work but it's worth a shot. I wish appraisals were subject to banks influence these days. I'll drop $1,000 right now if I can get an appraiser who would give me 10% more then the last appraiser so I can drop PMI. I wish it was pre-bubble appraisals but those days are long gone!
Expand your moderator at work


alkizmo

join:2007-06-25
Pierrefonds, QC
kudos:1
reply to Sennheizer

Re: Appraisals and Finished Basements

said by Sennheizer:

A trick they tough me is pick a number you think your place is worth and while the appraiser is there toss out that number a few times in passing just to get it into their head. It doesn't always work but it's worth a shot. I wish appraisals were subject to banks influence these days. I'll drop $1,000 right now if I can get an appraiser who would give me 10% more then the last appraiser so I can drop PMI. I wish it was pre-bubble appraisals but those days are long gone!

Appraisers just compile data for a checklist, take some pictures and then go back to their office to crunch the numbers.

The pictures are just there for the report to justify certain decisions in the evaluation.

Then the data and photos are re-evaluated by a verificator who wasn't there to see if there is anything missing or judgements that aren't justified.

Banks/underwriters have to decide whether to approve or refuse a mortgage request based on the borrower's revenue, credit history, solvability, etc. The property value is just a CAP on the maximum financing allowed.

The bank/underwriter can't also be involved in the valuation of the property as their right of opinion is about the borrower and not the property.

Think of it the other way around, an evaluator cannot influence the decision of the bank/underwriter about their judgement of the borrower. The evaluator has little to know experience has to how to assess a borrower's risk, nor do they have all the financial information. They may have heard about how it works, but that's it.

Same for the bank/underwriter, they may know how an evaluator works, but they probably never saw the house and their opinion is worth even less than the one of a realtor