There has been a trend for low appraisals. Banks are pushing for low appraisals, and often won't accept a second appraisal or if they do they take an average of the two. In NY banks are no longer allowed to hire appraisers. They have third party management companies hire appraisers. They come off a rotating state roster so they are not always familiar with the area, neighborhood or buildings. Not that many ever were!
One of my first buyers was an attorney from Atlanta that wanted a Manhattan pied-a-terre. Size was not an issue since the apartment was only going to be used on weekends and for business trips. But he wanted a "FABULOUS" apartment.
We found the perfect space. A condo studio in the West Village. I remember coming back to my office after the seller accepted my buyer's full ask offer of $495,000. I added it to the office blackboard.
I showed the floor plan to my broker and the first words out of her mouth were: "It will never appraise!"
So I began describing the space to her:
An amazing "mini-loft" completely renovated, Zen retreat including faux fireplace, brand new top of the line gourmet kitchen, Japanese spa like bathroom, built -ins with remote control everything, blinds air-conditioner, lights and entertainment.
So then she said:
"Oh!, It's not an apartment - It's a Pad!"
I called the listing agent prior to the appraisal asking if she had comps and how she came up with the price?
She blew me off and said:
"I priced it based on the market".
The appraisal came in $100,000 lower than the contract price. My buyer was protected with a 90% financing contingency. The buyer still wanted the apartment and offered to pay $450,000 ($50,000 above appraisal splitting the difference between appraisal and list price)
The listing agent started screaming at me.
"It's your responsibility to get a mortgage for your buyer. I don't have to justify my price."
I pointed out to her that the buyer can walk because there was a 90% financing contingency in the contract. The buyer did walk but I found him an even better apartment, a 1 bedroom duplex in Chelsea for only $339,000. The agent lost the listing and it went back on the market for the same price with a different broker. It stayed on the market with the new agent for more than a year. It ultimately sold to a cash buyer.
Was it worth waiting a year for $50,000? I don't know we moved on!
I learned about low appraisals my first year in the business. I learned from that first experience. Losing that first deal helped me make sure my first exclusive listing still sold and closed even with a low appraisal.
My first exclusive listing that same year was a "charming" "romantic" small one bedroom apartment (circa 1860) a fitzroy brownstone complete with brick wall and wood burning fireplace overlooking beautiful gardens with birds chirping right in the middle of West Chelsea.
I wanted to price it at $399,000 but the seller wanted $429,000. It showed beautifully and I received multiple bids and was negotiating with several bidders. I was concerned about a low appraisal and discussed it with the seller. We decided that we would require the buyer to put down 25%. I was honest and up front about a possible appraisal issue with potential buyers and their agents.
Sure enough when the appraiser showed up the first words out of his mouth were: "I have a 3 bedroom home in Long Island that is not worth $429,000". I told him about the multiple offers even showed him an offer we had for $450,000. and explained how "HOT" Chelsea was becoming.
It didn't matter the appraisal came in at $399,000. The buyer put down 25% got the loan and the property closed.
I discuss the trend of low appraisals with both my buyers and sellers, so they don't panic when an appraisal comes in low. I prepare buyers to put more down to secure financing and I recommend to sellers not to allow financing/appraisal contingencies or require a larger down payment.
To this day, whether I am the listing agent or the buyer's agent I always meet the appraiser and provide them with information and data. While many real estate professionals think meeting an appraiser is the listing agents responsibility, I never assume a listing agent knows what they are doing. After all, the buyer is paying the appraiser, the buyer's lender ordered the appraisal, the buyer needs a mortgage, I want to help my buyer through the transaction and securing financing is part of managing the transaction.
I prepare a packet and have better information than most appraisers. They only have data, I know the properties, the buildings, the difference in lines, floors, history, which line may have higher ceilings, better views etc. Most appraisers only view the subject property, the comparables they use are often never seen, they only have listing data. They can't really make adjustments when they don't see views etc. The appraiser usually thanks me for doing my homework and being prepared.
Recently I've had a couple of low appraisals but it did not affect the deal or the loan to value. I just had a property that appraised above the sale price. I provided the appraiser with comps on a spread sheet including a current contract. I was very impressed with her report. It was very detailed she even included in her report the architectural significance of the building designed by master architect Emory Roth.
So while there may be a trend for low appraisals there is also a trend for "cashing-in" rather than "cashing-out." Lower monthly costs, paying off a mortgage sooner than later, equity rather than debt.
Appraisals are subjective. One persons opinion on any given day. Like everything else there are good apraisers and bad appraisers. Good opinions and bad opinions. Real estate is local!
©Mitchell Hall 2006-2019
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