My long time GF and I are trying to buy 16 acres and a 2500SF house built in 1997. The house is in great condition and has passed a very detailed home inspection and WDO with flying colors. The issue is that the area has gone from “old rural” to “trendy, horsey-set rural” within the past two years (and growing by leaps and bounds! There is a new $3 million plus “Equestrian Center” less than 3 miles away now!) and there are pretty much no comps for appraisers to get that reflect what the property is really worth…about $500K.
People are building (building…not yet selling!) $500K+ homes and land is $16K-20K and up an acre and up, mostly with a 10 acre minimum, but about all that can be found on recent MLS “solds” is raw land and / or $100K-150K homes with 1 acre or so, built many years ago. There is a brand new, gated subdivision just down the road…less than 1 mile…that requires a 10 acre minimum at $16,500 for the least desirable tracts, with a 3000SF minimum at-ground-level requirement and only brick or stucco allowed, but while the land has sold, there have been no new homes built yet.
We are sweating an upcoming buyers (we have agreed to pay for all such appraisals, WDO inspections and the like due to the desire to get this done as quickly as possible commisurate with common sense, blah, blah) appraisal due to the fact that the first appraiser we contacted called back and refused to do the appraisal because she was not able to find enough info to justify the price. The inspector who will do the actual appraisal is very familar with the area, and lives within 5 miles. I have not spoken with him yet. My feeling is that this property is actually undervalued by about $75K-100K, but that is no help if an appraiser cannot “bring it in” at or above appraisal value…obviously.
My question is this…are there “formulas” that are used…and acceptable…for such situations so that, for instance, you might take the average price of X acres of pasture land…fenced and cross fenced…and add the current average construction price of a decent, but not outrageous, home of the same size?..or are we just SOL on this one? IF there are…and I have a large problem believing that many other locations do not have the same issues to deal with…what are the accepted parameters of such “formulas”? If not, are we just out of luck? Or?????
Any experience, advice or suggestions would be GREATLY appreciated!
Thanks one and all!
Mike
Replies
High School drop outs as appraisers ony do comp's. try to find a real appraiser who knows how to use several methods then evaluate each, cost to replace with new minus depreciation, age etc income producing potential, usually for commercial or rentals, etc
Thanks! That is my feeling as well. I think she is just too lazy or maybe too busy on easier stuff, to deal with this one. I cannot help but feel there is an answer that will allow a reasonable figure that can be backed up with authoritative facts and numbers if necessary.
I appreciate the answer.
Mike
Ikor,
Appraisers typical use 3 Approaches to value property
(1) Sales Comparison: Typically the most reliable approach. Comparable Sales are analyzed. Any differences between the Comparable Sale and Subject property are adjusted for.
(2) Cost Approach: Especially useful on new homes where there is no depreciation. Appraiser should analyze recent nearby land sales and derive a site value for the property. Appraiser then estimates the cost to build the house new and subtracts depreciation. Construction costs are estimated using cost manuals. In a market that is rapidly changing the cost manuals often are inaccurate. Lenders are reluctance to accept a value opinion based strictly on the cost approach as many appraisers just pull numbers of of their a$$ to make it work.
(3) Income Approach: Typically used in strong rental markets and/or in multiple unit rental properties. Most of the time it's not completed for single family homes in markets where they are primarily owner occupied.
The lack of resales of comparable homes can make it a tough appraisal. The appraiser should make an attempt to find comparable listings that support his value opinion. The appraiser should also interview local builders to get a better idea what the actual construction costs in your market are. If the appraiser can back up the numbers he's using in the Cost Approach the lender may be more comfortable with it.
Email me your property specifics directly. I have access to many MLS systems around the country and I may be able to help you out.
Mike
[email protected]
Mike K
Amateur Home Remodeler in Aurora, Illinois
Thanks, Mike!
I will get you the specs tomorrow via email. I have no doubt this property is worth the asking price, but the trick is , of course, making the finance people believe that as well!
I am hoping the appraiser will make the extra effort to do what he needs to do in order to reflect a realistic, up to date, value. (Homes have appreciated around 25-30% in the state since the first of the year alone! (No, I do not think it will last, but I do think it will hold its value with zero problems)
Mike
We are sweating an upcoming buyers (we have agreed to pay for all such appraisals, WDO inspections and the like due to the desire to get this done as quickly as possible commisurate with common sense, blah, blah) appraisal due to the fact that the first appraiser we contacted called back and refused to do the appraisal because she was not able to find enough info to justify the price.
Sounds like you have swallowed this deal , hook, line , & sinker. You might consider getting that hook out of your jaw. Sounds like you are trying to force somthing thats not there and you have already invested some time and money.
I was turned down by a banker once in my life. I ignored him and got owner financing. I lost 45 thousand and a lot of labor sacrificed. The worst whipping Ive ever had . Ive never brought a deal to the table since my banker didnt like.
Tim Mooney
No turndowns yet from anyone who has a say in the money, and we can bring a very large chunk of the price into the deal as a down payment, but you are correct about getting "hooked" on a specific item...no matter if it is real estate or something like a vehicle. As soon as you decide you just have to have "this" truck as opposed to a truck similar to this one, they've gotcha!
I can live without this place, although I do like it, and given the market here I think it is a decent investment as well. It is my GF who has the hook set I am afraid. I will play along for only so long, but I do know that this situation is not uncommon in various locales around the country, and I am pretty sure that the issue at hand is more a reflection of the first prospective appraiser's lack of willingness to get off of her a** and do some work than the fact that the property may be over valued...but I could be wrong. If I hear the bankers say it is over valued, then I figure it is time to start listening.
Thanks, though for the reminder that it IS easy to get hooked on something you think you really like right now and then have to pay later for ignoring warning signs.
Just one thought to add -If you can "can bring a very large chunk of the price into the deal as a down payment", have you looked into owner financing? That might get you in there. Then you could re-finance with a bank after you've paid it down for a few years.Around here, owner financed contracts are often at much lower interest rates than banks.
If you can't win, make the guy ahead of you break the record