Go Back   DIY Chatroom Home Improvement Forum > The Break Room > Off Topic

CLICK HERE AND JOIN OUR COMMUNITY TODAY...IT'S FREE!

Reply
 
Thread Tools Search this Thread Display Modes
Old 10-12-2010, 02:03 PM   #1
Member
 
steveel's Avatar
 
Join Date: Sep 2010
Posts: 287
Rewards Points: 250
Default

Just Venting: Appraisal process works against "doing it right"


Sorting through your options and thinking about resale value? Tread carefully.

In my recent experiences, the appraisers never went inside, and did not care at all about sagging floors, new roofs, or improved insulation. For example, I put $5000 into a roof in Michigan last year. Total tear off of three layers and installation of 30 year high end shingles. The difference in appraised values (about two months apart) went up by just $250 after I put the $5000 into it.

So my question is: If houses will only sell for what banks will lend on them, and if banks will only lend based on appraised value, and if appraisers look 95% at sq ft, number of bedrooms and baths, and less than 5% at "extras" and then give a few hundred dollars of value for brand new improvements costing thousands, why would anyone improve their home if they might move in a few years? After all, the house is going to appraise for close to the same amount as the run down identical house down the road.

This seems like a tremendous disservice to communities and families by an appraissal industry that has crafted an easy way to crank out work product, and skim money off of sales, without really doing the sweat of putting real value on real improvements. I think I'd like to see government action to change the process, and reward DIYers and home owners who hire it out, to invest in making buildings better, not just making them barely OK.

Whether its the selfish reason to get reimbursed for improvements, or the social good of making better communities, or the other social good of supporting local builders, seems like it would be good all around.

Wouldn't it?

Comments?

Steve El


Last edited by steveel; 10-13-2010 at 08:50 AM.
steveel is offline   Reply With Quote
Old 10-12-2010, 03:33 PM   #2
Member
 
concretemasonry's Avatar
 
Join Date: Oct 2006
Location: Minneapolis/St. Paul, Minnesota - Latitude 45.057 Longitude -93.074
Posts: 3,793
Rewards Points: 2,074
Default

Just Venting: Appraisal process works against "doing it right"


You have to separate improvements from maintenance, especially when there is "deferred" maintenance. Three old layers is a sign of deferred maintenance of lack care by previous owners.

Dick

concretemasonry is offline   Reply With Quote
Old 10-12-2010, 08:44 PM   #3
Member
 
steveel's Avatar
 
Join Date: Sep 2010
Posts: 287
Rewards Points: 250
Default

Just Venting: Appraisal process works against "doing it right"


That has nothing to do with the issue.

The issue is:

Property A) Value = $100,000, poorly maintained

Property B) Next door. Identical, except all "maintenance" was just done at a cost of $15k.

I think you will agree if that if the property needing $15k in work is worth $100k in its present condition, then property B should appraise at $115k. But that's not the formula the appraisers use. Instead, they look mainly at generalities: Area, bedrooms, baths, et cetera. Some very small adjustments might get made for very recent improvements, be it for maintenence of upgrading. Nowhere near the cost of actually doing those things. But instead, they say wow, property A sold for $100k, so $100k is what that size house is worth in that area, with a few extra bucks thrown in here or there for updates. IMO, they throw the extra bucks in to keep people from seeing the practice for the rip-off that it is..... just enough extra bucks to say "hey, we took those things into consideration". I still say: If the house needing $15k is worth $100k in its present condition, the identical next door house that has had that work is worth $115k. But the appraisal is likely to come out only slightly more, something like $101k. That doesn't smell like a scam to you?
steveel is offline   Reply With Quote
Old 10-12-2010, 08:50 PM   #4
Member
 
Join Date: Jan 2009
Location: South of Boston, MA
Posts: 17,248
Rewards Points: 2,000
Default

Just Venting: Appraisal process works against "doing it right"


Are you talking appraised value for Sale
Or Tax appraised value ?
Big difference

Plus with the real estate market today...banks only want to loan so much
Before I actually had the appraiser ASK me the value I needed the house to appraised for to qualify for the loan
Scuba_Dave is offline   Reply With Quote
Old 10-12-2010, 09:05 PM   #5
Member
 
steveel's Avatar
 
Join Date: Sep 2010
Posts: 287
Rewards Points: 250
Default

Just Venting: Appraisal process works against "doing it right"


appraisal for selling.

Specifically, when you find a buyer, and the buyer applies for a loan, an appraissal is done. Neither buyer nor seller ever talk to the appraiser and their real estate agents are not supposed to either. So your home will be valued by someone who never sees inside, and never talks to you or your agent, but yet the most money you can expect to get at closing is totally dependent on what that person says your place is worth, based on what the "similar" place is worth down the street (even if it is a rat infested hell hole). Its a mass production scam to skim a few hundred bucks off of every sale, IMO.
steveel is offline   Reply With Quote
Old 10-12-2010, 09:41 PM   #6
Wire Chewer
 
Red Squirrel's Avatar
 
Join Date: Jun 2009
Location: Ontario, Canada
Posts: 3,211
Rewards Points: 2,000
Default

Just Venting: Appraisal process works against "doing it right"


I see what you mean. You'd think they'd do a full blown inspection to take quality into account.

Guess if you want to sell for a lot just build a cheap addition to take up 100% of your allowed lot usage and make it just good enough to meet code, put a toilet, sink, and shower in every bedroom, and you're golden.
Red Squirrel is offline   Reply With Quote
Old 10-12-2010, 09:42 PM   #7
Member
 
Join Date: Jan 2010
Location: Alabama
Posts: 352
Rewards Points: 250
Default

Just Venting: Appraisal process works against "doing it right"


Its a mass production scam to skim a few hundred bucks off of every sale

I totally agree Just like borrowing 50K on a home that is worth 300K--If you get a bank loan, the home will have to be appraised
Giles is offline   Reply With Quote
Old 10-12-2010, 10:07 PM   #8
Member
 
Join Date: Jan 2009
Location: South of Boston, MA
Posts: 17,248
Rewards Points: 2,000
Default

Just Venting: Appraisal process works against "doing it right"


I insisted on an appraisal of the inside of the property
I also insisted on the appraisal in my name, not the banks
Otherwise you go to another bank you may not be able to get your old appraisal
And may need to have another appraisal performed

There isn't any bank that I know of that will lend you money to buy a house without collateral
That collateral is the house
So no way they are going to loan the $$ without an appraisal
And if all the homes the same size/same style in your area are selling for $100k...doesn't matter in most cases if you have a new roof etc
Especially in today's real estate market
Scuba_Dave is offline   Reply With Quote
Old 10-12-2010, 10:28 PM   #9
Member
 
steveel's Avatar
 
Join Date: Sep 2010
Posts: 287
Rewards Points: 250
Default

Just Venting: Appraisal process works against "doing it right"


They would have walked thru mine for another $100 too, but when I pressed the closing agent (a guy I trust) I was told walk throughs rarely change the appraised price by more than a few hundred.

Quote:
Originally Posted by Scuba_Dave View Post
if all the homes the same size/same style in your area are selling for $100k...doesn't matter in most cases if you have a new roof etc
That's exactly the point..... the reason they all sell for the same amount regardless of condition is because the appraisers mass-production formula spits out the same number for similar size homes, regardless of condition. In my opinion, those numbers are bogus because they don't take proper note of condition. But the bogus numbers become the basis for the next comparable sales, and so it repeats itself.

Yes that's exactly the problem.
steveel is offline   Reply With Quote
Old 10-13-2010, 05:40 AM   #10
Chicago, IL
 
Michael Thomas's Avatar
 
Join Date: Jan 2008
Location: Chicago, IL
Posts: 1,037
Rewards Points: 500
Default

Just Venting: Appraisal process works against "doing it right"


One thing to keep in mind: buyers often do not take condition fully into account when determining "value", so it's not necessarily unreasonable for appraisers to fail to do the same.
__________________
Home Inspections, Infrared (Thermal Imaging) Leak Identification and Inspection Services, Roof, Attic, Building, Basement and Foundation Moisture Intrusion and Water Leak Inspections, Troubled Building Consultations - Serving Chicago and Suburbs http://paragoninspects.com/
Michael Thomas is offline   Reply With Quote
Old 10-13-2010, 06:51 AM   #11
Member
 
steveel's Avatar
 
Join Date: Sep 2010
Posts: 287
Rewards Points: 250
Default

Just Venting: Appraisal process works against "doing it right"


Quote:
Originally Posted by Michael Thomas View Post
One thing to keep in mind: buyers often do not take condition fully into account when determining "value", so it's not necessarily unreasonable for appraisers to fail to do the same.

So an ignorant buyers puts an unreasonable value on property A.

The professional appraiser then mindlessly applies that unreasonable value to Property B.

In this way, the appraiser gets paid several hundred dollars for doing no meaningful work.

Michael, do you really believe that is "not necessarily unreasonable"?

Last edited by steveel; 10-13-2010 at 06:54 AM.
steveel is offline   Reply With Quote
Old 10-13-2010, 02:11 PM   #12
Member
 
Join Date: Sep 2010
Location: Dayton, OH
Posts: 39
Rewards Points: 25
Default

Just Venting: Appraisal process works against "doing it right"


The real question is "What is something worth?" It (whatever it is, could be a house, could be a car, could be pound of bacon) is worth whatever a buyer and a seller agree on. If you are willing to sell your house for $115,000, and the buyer is willing to buy it for $115,000, then it's worth $115,000. The problem is that for most home purchases the buyer doesn't have $115,000 -- he has to borrow some of it. If a bank won't lend the buyer enough to pay $115,000, then he's not a buyer, and there's no buyer/seller agreement on $115,000. You need to hold out until a buyer comes along who has the $115,000 and is willing to spend it for your house.

The bank is using your house for collateral on a loan, so their take is that they need to be able to sell the house reasonably easily if they need to in order to get their money back should the loan go bad. They don't really care about condition either. They probably figure that most defaulting buyers are going to trash the house anyway. Location is important -- they don't want to have the most expensive house in a neighborhood. Comparable properties are also important -- in case they need to sell to a pro who's going to flip the property. Having a solid roof might be nice, but all the bank cares is if it's good enough to keep the rain out so they can sell the property.

Lastly, you can go to any number of sites which will tell you how much you can expect to recover for any home improvement -- remodel a bath and you'll get X% return when you sell, kitchens are typically worth Y%, replace the windows and get Z% back. I just did a quick look and the WORST three were: swimming pool, new septic system, and new roof. The site said buyers expect the house will have a good roof, so they don't expect to pay extra for one.

In my opinion (which is worth exactly what you're paying for it) you need to do improvements for yourself. If you like what you want to do for your house, then do it, and enjoy it while you live there. That's just kind of how it is.
Pistol Pete is offline   Reply With Quote
The Following User Says Thank You to Pistol Pete For This Useful Post:
jomama45 (10-13-2010)
Old 10-13-2010, 03:04 PM   #13
Member
 
steveel's Avatar
 
Join Date: Sep 2010
Posts: 287
Rewards Points: 250
Default

Just Venting: Appraisal process works against "doing it right"


Quote:
Originally Posted by Pistol Pete View Post
The bank is using your house for collateral on a loan, so their take is that they need to be able to sell the house reasonably easily if they need to in order to get their money back should the loan go bad. They don't really care about condition either.
How do you explain the FHA's relatively new rules about property inspections?


Quote:
Originally Posted by Pistol Pete View Post
If a bank won't lend the buyer enough to pay $115,000, then he's not a buyer, and there's no buyer/seller agreement on $115,000.
Nice try, but in your example there are three parties that try to arrive at that agreement, not two. Assuming the buyer and seller are knowledgeable about property condition, they are motivated to sweat over the details of an honest value based on property condition. The appraiser (who gets paid a fixed amount regardless if the deal closes and no matter how hard they work) is not. After the buyer and seller sweat out the details of the honest price they agree on, one that reflects condition, the appraiser just slaps on the dollar amount of the similar but run down house down the road. Oh sure, they might add a dollar here and there for updates and improvements. Just enough more than nothing to appear to legitimately consider those items, without sweating over the real meaning of them. After all, they get paid regardless if the deal closes and no matter how hard they work.

Ka - bam. Suddenly what would have been an honest buy-sell agreement between willing and knowledgeable parties has been torpedoed by the company that spits out mass produced numbers, so they can skim off a few hundred for each transaction (while doing the minimal amount of work).

This is not an honest transaction, and not an honest way of arriving at "value".

Pete, you conclude with

Quote:
Originally Posted by Pistol Pete View Post
you need to do improvements for yourself. If you like what you want to do for your house, then do it, and enjoy it while you live there. That's just kind of how it is.
That amounts to "don't worry, be happy, and don't bother trying to make your community better, just seek your own pleasure." I certainly agree one can't fight every injustice. But as the saying goes, "All that is needed for evil to thrive is for good folks to do nothing"

Last edited by steveel; 10-13-2010 at 04:15 PM.
steveel is offline   Reply With Quote
Old 10-13-2010, 04:13 PM   #14
Member
 
Join Date: Feb 2010
Location: South Seattle
Posts: 514
Rewards Points: 500
Default

Just Venting: Appraisal process works against "doing it right"


I have heard that low appraisals have been scuttling deals for a quite a few months now. In your situation, it may not be the appraisal process that is the issue but rather the lending institution. When we bought our house the appraiser knew the loan amount we were seeking, came by for a quick look, and appraised the home to precisely the loan amount, and this was pretty recently. In your case, perhaps the appraiser was being extremely cautious and pricing in future declines in the market. That isn't fair obviously, but the way so many banks have been burned it wouldn't surprise me. In terms of improvements to a property, PistolPete has it right - things like decent roofs and working hot water heaters are expected and providing them doesn't actually increase the value of the home, (like say increasing the sq footage would), especially in this economic climate, but they should maintain the value. Any buyer worth his salt would demand concessions from a property in which these things were not provided, so your dilapidated comp would sell for less than the appraised value in a rational market. I don't know if this appraisal is for your principle residence or a flip you are trying to do, but the old adage is as true now as it has ever been: you make your money in real estate when you buy, not when you sell.
Windows is offline   Reply With Quote
Old 10-13-2010, 04:16 PM   #15
Chicago, IL
 
Michael Thomas's Avatar
 
Join Date: Jan 2008
Location: Chicago, IL
Posts: 1,037
Rewards Points: 500
Default

Just Venting: Appraisal process works against "doing it right"


Quote:
Originally Posted by steveel View Post
Michael, do you really believe that is "not necessarily unreasonable"?
As someone who inspects and evaluates the physical condition of properties for a living, I can assure you that the majority of purchasers do not have the knowledge to accurately evaluate cost of future ownership based on property condition.

Many can't even come close - a *very* common experience is to inspect a property that's a real dog due to deferred maintenance, and have a shocked client walk away from the deal when they discover what they are buying.

Typically, their eyes having been opened by the experience, the second house I inspect for such buyers is much better - they are learning to think in terms terms of cost of ownership when deciding what a property is "worth" - though often it takes a third and occasionally even a forth attempt to find a "keeper".

But... I enjoy the process of educating such buyers (I have worked up a presentation for them, called "How To Pick Your Problems", outlining strategies for selecting types of systems and construction that are least prone to problems) and I'm willing to take the time to do so - it's one of the aspects of my services that allows me to charge a price that lets my provide IMO higher quality service to clients. (Of course, that service in turn saves clients more money - virtually all my clients "make money" on my inspections).

However unless they run into to someone with a similar approach, or learn by often expensive experience, most buyers are evaluating properties based on 1) location, 2) sq/footage and number of bedrooms 3) "amenities" such a fireplaces, finished basements, new kitchens, etc. and 4) cosmetics, and just don't understand the difference in "value" represented by (for example) a recently installed high quality tear-off roof.

And since that's how typical buyers "value" residential real estate, IMO it's not "unreasonable" for appraisers to do the same.

__________________
Home Inspections, Infrared (Thermal Imaging) Leak Identification and Inspection Services, Roof, Attic, Building, Basement and Foundation Moisture Intrusion and Water Leak Inspections, Troubled Building Consultations - Serving Chicago and Suburbs http://paragoninspects.com/

Last edited by Michael Thomas; 10-13-2010 at 09:07 PM.
Michael Thomas is offline   Reply With Quote
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off





Top of Page | View New Posts

Copyright © 2003-2014 Escalate Media. All Rights Reserved.