Appraisal Angst

We've waited our six months since purchase and are now trying to get a cash out refinance to replace the funds used for purchase, consolidate some of our debt, and of course get some of the projects completed that need to be done. All was going along fine, until the appraisal came back.

Now, I know I'm not an appraiser. I'm not a real estate agent, I'm not a lender, I'm not a builder or contractor or inspector. I'm also not an idiot. I have research skills, I have math (and Excel) skills, and I am able to make logical conclusions from evidence presented. I did a lot of research before we bought the house, and a lot of research after, to try to get a handle on what it might actually be worth. The HUD as-is appraisal, which I've been told should be fairly accurate, was $95,000. The county appraisal -- which has been within 10-20% of recent sales prices (generally the sales are higher) -- is $80,400 but the wrong square footage, adjusted would be about $92,000. Our appraisal came back at $56,000.

Of course, this does us no good; by the time we pay closing costs and pay back the purchase price, we're left with maybe $5,000 for renovations. Granted, that would probably cover the floors and maybe new ceiling fans, but not much else. We could just pay back half of the purchase price for now, if it came down to it, but at this point we're inclined to just pass (and Mom is in agreement, which helps immensely).

My biggest concern with the appraisal, other than the obviously disappointing price, is that the appraiser used only foreclosure properties as comps, and those were located in a different city 5-9 miles away. One was a year old. Ours was a foreclosure, of course, but we know full well that's the reason the price was so low, not because it is in poor condition. Meanwhile there were 44 properties sold within Walnut Grove in the last six months. Ten of them are "large GLA" homes (defined -- by me -- as 1,800+ square feet). The lowest-priced sale was $86,500, for a manufactured home. (The highest was $399,000 but it's a much bigger, nicer, newer home on 11 acres in the middle of the national forest. Not remotely comparable.) The two homes that are similar to ours -- ranch, within a few hundred square feet, 1-2 acre lot -- sold for $90,000 and $115,000. The biggest difference is the age, theoretically.

Our original house was built in 1900. I believe the front room and the kitchen were the original building. There may have been a small addition in the '60s, and then a major addition, I believe, the two bedrooms and bathroom as well as the back hallway, entrance, and covered patio, done in the mid-1980s. It's unfortunate that appraisals look only at the 1900 number, because the vast majority of the house is not 114 years old!

That said, there are three homes that are over 50 years old that have sold in the last six months within Walnut Grove. One sold for $54,000 at 1,252 square feet and 1 acre, in a subdivision downtown; one sold for $64,000 at 1,025 square feet and 1.25 acres; and one sold for $122,000 at 2,485 square feet and 1 acre. (There was another one but it's also a manufactured home, and I'm not sure those are reasonable comps. It's also been completely updated in the last 2 years so wouldn't be comparable anyway.) The $122K house has also been updated, and part of it is 2 stories. Still, the appraiser used 2-story houses as comps.

I had forgotten, too, that we had an appraisal done in May when we were considering a HELOC. That came back at $70,000 (and was rated in better condition, even though we hadn't done anything at that point). The appraiser for that one also used only REO properties, but explained more thoroughly why he had done so. I can't look back far enough to know if there were non-distressed sales that might have been more appropriate.

At any rate, we've asked for a reconsideration of value but are told there's only about a 1% chance that anything will change. The mortgage company apparently is not allowed to suggest comps, so we have to do all the work to find appropriate comps *and* we have to stick within the range the appraiser used as far as age, square footage, and distance. In a half-day's searching, I have found two that are exactly within the ranges, one that is 18 square feet off, and then four more that are close but a little outside the ranges (though the deviation from our house is equal to the appraiser's outlier.) I still don't hold out much hope for anything to change, but I wanted to do the research anyway just to see if I could find anything. (Since I did, it stills appears to me that the appraiser only looked for REO sales.) The lender is also seeking information on why he gave it the condition rating he did, since that rating indicates "significant repairs are necessary" and he only noted $2,200 in repairs needed.


In hindsight perhaps we should have gone for a 203(k) loan, which would have given us cash out for the purchase price plus an escrow for the necessary repairs/renovations. However, that would have required the work be completed within six months, and we just weren't on that kind of timeline.

We're also going to try to obtain an independent appraisal, and have S present for the walkthrough to hear comments and ask questions. It will not only give us a better idea of how an appraiser sees the house as compared to others in the area, but should let us know what value will be added by doing some of the necessary work. I suspect what we'll do is put in/replace the flooring, paint, put in the new ceiling fans and other miscellaneous items, and then try again for a refinance. That will probably be another 6-8 months, just based on weather and how often we're able to get down there. It will probably mean taking out a personal loan to pay for the renovations, but those would then be paid off with the cash out from the refi. It will be interesting to see how much higher the appraisal comes back, compared to how much we put into it.


Yet another challenge, and a whole lot of education!