House appraised more than $100k less

[Deleted]

I was shocked when I got the appraisal of the new house. More than $100k less than our total cost???

After reviewing the appraisal and the comps, I started wondering how appraisals are done. One of the comps is the house next door that was also built this year. The appraiser does not know the following about the comp house #1:

1. the fence was installed after it was sold --- this cost $10k+
2. the screened porch was installed after it was sold --- this cost ~$10k
3. the interior finishes and other things you can't see from the outside. We are very familiar with the finishes next door since we were nosy during the build. lol. My guess, we spent $100k+ more in finishes.

We're not selling any time soon so the appraisal does not really matter. But it makes me wonder, how an appraiser can possibly give an accurate value? The finishes in our house doesn't seem to matter. Does it?? There are homes in the neighborhood with high-end finishes so there are available comps nearby. But how would an appraiser know if the comps he/she is using has comparable finishes?

Should I worry about getting a low appraisal in the future if we ever sell?

[drloretta]

When we sold our house last year, appraisals and comps included foreclosures. That's what really drove down the appraisal value for us I think.

And appraisals are done differently in different places. For one refinance, I had an appraiser come in the house and ask about improvements. Other appraisals are drive-bys.

But I really don't think a fence or some interior finishes are going to necessarily up the value that significantly

[chessie]

We have had a few in the passed few years. My house is worth about 90k less then what we had orginally purchased it, and we have put around 60k into it and counting...The appraiser told me straight out my fences, barn, additions to driveway made no changes to the appraisal process. He was worried about structural as whole in comparison to other homes in the area to the same sorta lot/sq footage and out buildings didn't matter.

[ssmjlm]

The fence and screen porch probably didn't make much difference. Most appraisers don't care about the finishes inside the house.

When we had a particularly bad appraisal (comps were houses in disrepair) we were told it's based on square footage, beds/baths, and exterior things like brick/siding, and garages.

[Deleted]

If finishes and exterior things does not matter, then I wonder how other homes in our neighborhood with higher end finishes sold at higher prices? If structural matters, shouldn't they consider or add value for doing 2x6 walls? Most our neighbors has 2x4 framing.

[Deleted]

Regarding the fence and screened porch, the appraisal indicated those in the appraisal that's why I assumed they have an effect on the appraisal.

[Deleted]

Our appraisal was done based on the inside/outside of the house. They actually went into the house and upped the amount our house value because it was an older home in an older subdivision that had been remodeled on the inside with a brand new kitchen. They compared it to a similar property down the street that sold for $20k less and said ours was worth $25k more because of the improvements that had been made to the inside of the property.

[Deleted]

When did you buy? Why did you get an appraisal done - for a refi?

[Deleted]

Dec 5, 2012 11:02:29 GMT -5 ssmjlm said:

The fence and screen porch probably didn't make much difference. Most appraisers don't care about the finishes inside the house.

When we had a particularly bad appraisal (comps were houses in disrepair) we were told it's based on square footage, beds/baths, and exterior things like brick/siding, and garages.

This is the info we got too. Since the appraisers don't go in the houses that the use as comps the finishes aren't considered. I porch would add a small amount to the value, but not much because a screened porch is not considered living space in these parts.
A different appraiser might considered the nicer finishes but if the house is in new/good condition that is often all that matters.

[Deleted]

Dec 5, 2012 11:12:15 GMT -5 doglove said:

Our appraisal was done based on the inside/outside of the house. They actually went into the house and upped the amount our house value because it was an older home in an older subdivision that had been remodeled on the inside with a brand new kitchen. They compared it to a similar property down the street that sold for $20k less and said ours was worth $25k more because of the improvements that had been made to the inside of the property.

This sounds fair to me.

[Deleted]

Dec 5, 2012 11:13:25 GMT -5 @notquiteblushing said:

When did you buy? Why did you get an appraisal done - for a refi?

We're building a custom house. The comps are semi-custom (I guess I can call them that although you'll be able to find the same house in different parts of the county). Yes, for a refi; construction loan to a 30-yr fixed.

[ssmjlm]

I honestly only know that some of the comps used were in disrepair b/c they were homes that were for sale, so I could see the MLS pictures.

Not that I agreed with using an on the market home either, but you could clearly see the kitchen cabinet doors falling off in the pictures.

[kadams767]

Maybe I am misunderstanding your post, but I can totally see how you could spend more on a new build house than the appraisal states it is worth. Just as an example, my house appraised at $250,000. However, insurance estimates the rebuild cost to be over $400,000. My house is old and made from better materials than a new house would be, so I definitely think the cost to rebuild using these same materials would be around $400,000, but it doesn't really mean that the market value of my home right now is $400,000.

I think finishes and materials matter on the appraisal, but only to a certain extent. It is definitely possible to overimprove a house, you know? There are always going to be costs incurred on either a rehab or new build that you will not recoup upon sale.

[Deleted]

Dec 5, 2012 11:17:22 GMT -5 kadams767 said:

I think finishes and materials matter on the appraisal, but only to a certain extent. It is definitely possible to overimprove a house, you know? There are always going to be costs incurred on either a rehab or new build that you will not recoup upon sale.

I understand, but other homes in the neighborhood with higher end finishes are selling at a higher price. It will surprise me if they appraised for $100k less and still sold at $100k+.

[Deleted]

If you spent 100K more on finishes, I think it's pretty obvious that your house is over-improved for the market in your area. (I'm not sure if this is the correct terminology but basically-your house is really really nice compared to your neighbors.) It will probably hurt if and when you sell. Have you converted your construction loan into a regular mortgage? I'm curious if the low appraisal has any effect.

[imojoebunny]

We had this problem with an appraisal on our house that was built in 1905 as a duplex. I know it was built as a duplex because I met a woman who grew up there in the 1920's once when she came by. The house is nice and quite large, similar single families sell for $200k more than the duplex, and to convert it to a single family would be less than that. All that aside, it rents for $3000.00 and the appraiser appraised it at $300k because she used comps that were small single family homes with basement apartments that are usually dark and mildew ridden. Some of the comps were on the "otherside of the tracks" in a neighrborhood that is in a horrible school district.

She just didn't know the area at all, and there are not a lot of similar comps in similar condition, since most homes are either very large mansions with an apartment in them or tiny single family houses that are smaller than either one of our duplex units. I wish I could buy a house for $300k and get 3 grand in rent. That would be an awesome dream.

[Deleted]

Dec 5, 2012 11:20:44 GMT -5 d0ri said:

Dec 5, 2012 11:17:22 GMT -5 kadams767 said:

I think finishes and materials matter on the appraisal, but only to a certain extent. It is definitely possible to overimprove a house, you know? There are always going to be costs incurred on either a rehab or new build that you will not recoup upon sale.

I understand, but other homes in the neighborhood with higher end finishes are selling at a higher price. It will surprise me if they appraised for $100k less and still sold at $100k+.

If this is the case, these homes should have been included as comparables also. Were they?

[sratsey]

I spoke extensively with our appraiser when we were building as well as my friend's appraiser when she sold her house. In a nutshell: cost and value are not related.

She had all high end finishes in her home: solid wood doors, onyx backsplash, some sort of exotic mahogany floors...basically she was told you get "X" dollars if you have a backsplash...what it's made out of is irrelevant. Same for the floors. A home is given a certain $ value for say, hardwood as opposed to carpet...but the kind of hardwood doesn't matter. So you can have the lowest grade oak vs. the highest grade mahogany and it won't affect the actual VALUE.
She lost a ton when it came time to sell because they sankabout $150K into home improvements and then sold at a low point in the market.

I was very careful when I was putting upgrades into my home because of this knowledge.
Structural features tend to add more but not necessarily what you paid. Some upgrades add nothing. We paid $16K to curve our staircase and put iron rails on...that does/did nothing to increase our homes value.

Of course, a better finished home will sell for higher, but that still doesn't mean the home would be valued as such when it came to appraisal time, especially for a refi, because banks don't want to end up with a home that is overpriced for the area.

[Deleted]

Dec 5, 2012 11:24:49 GMT -5 @missy1 said:

Have you converted your construction loan into a regular mortgage? I'm curious if the low appraisal has any effect.

Yes. No, the appraisal did not affect the loan since we borrowed way less than the cost.

Dec 5, 2012 11:27:53 GMT -5 @missy1 said:

If this is the case, these homes should have been included as comparables also. Were they?

Nope. My question is, how can an appraiser know which homes have comparable finishes?

[Deleted]

Dec 5, 2012 12:31:47 GMT -5 d0ri said:

Nope. My question is, how can an appraiser know which homes have comparable finishes?

They don't know in many cases and it doesn't really matter. I've had 2 appraisals. Our first when buying was a drive-by appraisal based on square footage, age, comps, etc. The second one involved a walk-through and lots of picture taking but still heavily based on recent comps. I would try asking the appraiser why the other homes that sold for 100K+ with comparable finishes weren't included in the CMA. Do you know for a fact that they sold for higher prices. Did you use a buyer's agent? It kind of sounds like you overpaid for your new construction.

We're thinking of building next year too.

[aspentosh]

We weren't a new build but our appraisal was only based on external plus basics (sq ft, rooms, bathrooms).

[Deleted]

Dec 5, 2012 12:48:08 GMT -5 @missy1 said:

I would try asking the appraiser why the other homes that sold for 100K+ with comparable finishes weren't included in the CMA. Do you know for a fact that they sold for higher prices. Did you use a buyer's agent? It kind of sounds like you overpaid for your new construction.

Right now, we don't see the point of asking the appraiser about the appraised value since we have no plans on selling and it won't make a difference on anything.

Yes, I know how much other homes have sold in the area. There's actually one that sold in May that has similar finishes, almost the same square footage, but a 3-4yrs older than ours that sold for shy of $200k more than our appraised value.

No, we did not use a buyer's agent. It's a custom house where we chose the general contractor with a cost plus fixed contractor fee contract. I don't think we overpaid, since it's a cost plus. Fixed cost would have been more.

[midnightmare81]

From what I have seen they go mostly by sq ft and amount of bedrooms. A friend has a custom built log home (she designed the whole thing and did the blueprints herself). The interior is also ALL custom with drift wood railings for the loft brought in from Montana, the kitchen table is a tree stump with the seats being made from bending the roots up. It also has a finished basement with a full MIL style apartment, 2 more bedrooms a full bath, and the main and basement floor are all handicapped accessible with the wider door ways, ect. The wrap around porch and the living room have a dual inside/outside gas fireplace. There is more, but the point is the whole house is filled with custom extras and is also piped for an additional full kitchen and bath in the attic and the basement. It is built on a beautiful 31 acre lot of hay fields. When they appraised it, there was nothing in the area like it, and still isn't, so they appraised by using a ranch down the road with the same number of bedrooms/bathrooms... They got an appraisal for about $350k. When they has it appraised for resale value, it plus the large 4 stall barn and 60 ft covered roundpen appraised for almost 5 million... So I might be wrong here, but I am pretty sure the appraisal doesn't always align with the sale cost of the house, and doesn't mean you can only sell for that value

[Deleted]

Dec 5, 2012 13:50:42 GMT -5 midnightmare81 said:

They got an appraisal for about $350k. When they has it appraised for resale value, it plus the large 4 stall barn and 60 ft covered roundpen appraised for almost 5 million... So I might be wrong here, but I am pretty sure the appraisal doesn't always align with the sale cost of the house, and doesn't mean you can only sell for that value

Good point. My builder actually told me that the market value should be higher than the appraised value we got.

One more thing, the house is only about 97% complete. It was not picture perfect when the appraiser visited. So many things missing like the frameless glass shower enclosures, glass panels for the cabinets, cabinet trims/crowns, kitchen back splash, exterior architectural details, shrubs, etc. All the floors in the main area were covered to protect from workers who constantly go in and out.

[liveintheville]

Our refi appraisal was based on #beds, #bath, & sq footage. It didn't take into account off street parking, central air, forced air heat, or any finishes at all. We have several realtors who own in our building and have had the same thing happen. They say it doesn't relate to your resale value, per se.

[Deleted]

Dec 5, 2012 14:15:30 GMT -5 liveintheville said:

Our refi appraisal was based on #beds, #bath, & sq footage. It didn't take into account off street parking, central air, forced air heat, or any finishes at all. We have several realtors who own in our building and have had the same thing happen. They say it doesn't relate to your resale value, per se.

Good to know! Makes me feel better. ;D

[Deleted]

Finishes matter to an extent obviously but typically not as much as it costs to put them in, which may be causing the disconnect that you're seeing. We're in the process of renovating an older house now and this is why everyone and their brother keeps telling us to make sure that we're making these changes for whatever intrinsic value they might hold for us but not for resale value (which won't be there one to one).

For instance, we're replacing the windows. Total cost around 30k. Will this increase the value of our house a bit? Yes but definitely not by 30k. It doesn't matter to us though because we plan to be here twenty, thirty years and in that time we'd like to have nice, new windows and not drafty, old ones.

Since you're not planning to move anytime soon, I'd try not to worry so much about the house's monetary value. Do what you want to do to it for your own enjoyment.

[liveintheville]

Dec 5, 2012 14:17:10 GMT -5 d0ri said:

Dec 5, 2012 14:15:30 GMT -5 liveintheville said:

Our refi appraisal was based on #beds, #bath, & sq footage. It didn't take into account off street parking, central air, forced air heat, or any finishes at all. We have several realtors who own in our building and have had the same thing happen. They say it doesn't relate to your resale value, per se.

Good to know! Makes me feel better. ;D

No problem! I was told you can challenge or ask for a new appraisal, but as long as it comes up as more than you're mortgaging it's not worth fighting.

[Deleted]

Dec 5, 2012 14:20:16 GMT -5 liveintheville said:

No problem! I was told you can challenge or ask for a new appraisal, but as long as it comes up as more than you're mortgaging it's not worth fighting.

That's why we didn't bother to talk to the appraiser. We already closed and it didn't affect our loan in any way, so no point of getting a new appraisal.