I am currently freaking out because after spending the last three years renovating my house, I’ve discovered that although I’ve got an egress window in the basement bedroom that I built, lenders do not count bedrooms below grade! Why is this? I live in a nice neighborhood, and have watched as homes that are lower quality than mine, sell in the high $220,000’S, but my house, because of the bedroom I added to make up for the one on the second floor that I turned into a large mastersuite bathroom, only appraises as a two bedroom! ( That “bedroom” was a walkthrough to the bigger bedroom up there—it didn’t make sense to leave it that way). What difference does it make what floor it’s on? I bought the house three years ago and it was a complete mess for 140,000. (We’re talking gang signs in the basement, dog/cat
in large areas of the hardwood, and floor registers used as ashtrays!)After adding two completely decked out bathrooms (the mastersuite bathroom has a purist tub with&
#160; slate tiled surround, HD Flat screen above tub, tiled shower with 3/8″frameless shower door, his/her granite topped vanities with vessel sinks/faucets out the wall), crown moulding in all rooms, all new cabinets (beaded glass wall cabinets), stainless steel backsplash/granite countertops, stainless appliances, etc. the list goes on and on. So, last week I have a home appraiser give me his appraisal: $150,000! Ten thousand dollars in equity! (I have more than that in the new furnace/AC!) The A$$ also used my next door neighbors house as a comp, and gave it a value of 160,000 and he hasn’t done anything to it! It’s 1960 inside! wHAT GIVES?! I know lenders are doing the opposite, but three houses in my neighborhood that are 3/2 baths have sold in the 220,000! They’re not as nice, but they have above ground bedrooms, but no updates. I feel like I’m going crazy….
SO after all that, here’s the question: My kitchen was enlargened by the last owner because they took down a wall that divided the kitchen from a former bedroom. I have a pennisula there with granite countertops and pendent lights. SHould I remove that, make the kitchen smaller, and rebuild that bedroom so that it will be a three bedroom house? (It’s as easy as adding a 2 x 4 wall and closet and adding a door.) The problem with this is that it completely messes up the first floor plan and makes my kitchen tiny. That room is a sitting room that leads to a three tier deck. Turning that back into a bedroom seems like a waste, but my realtor said it would appraise for $225,000 then! All because I’d add a small bedroom back? I wonder if I could lure people into looking at the house, and then say if they really want, I can add the bedroom back. (I’m a remodeling contractor.)
Has anyone else had to deal with this frustration?
Replies
In real estate you deal with a few different factors when it comes to value and resale. As a remodeling contractor I am surprised you didn't know them before you over improved your own property but we often fall into that in our zeal to make our nest the best.
One factor is what will the banks loan money on. Basement bedrooms are not considered reliable in most parts of the country (since your profile is not filled out I don't know what area you are from) due to mold, fire risk, etc. In the banks view it is a high risk area to loan money on so they choose not to.
Another factor is certainly marketability. You seem to have that well covered. With all your improvments you will certainly be able to get people to look at the house and consider it. But all is null and void as far as a sale goes if the buyer can't borrow the asking price or close to it since few people will pay more than the bank/appraisel system say it is worth. I doubt you can get many who will look at it and then agree to the change in floor plan simply so you can make more money. Besides most folks really can't envision what it will look like when finished anyway and they won't want to risk it.
Yet another factor is your percieved value. You seem (by the way I read your post) to have fallen into the trap many do. If I update my bathroom it will be more valuable. This is simply not true. It will ad a bit of value but it simply makes it more marketable. A fancy bathroom in the world of business (banks, appraisers etc.) is just another bathroom. A buyer is usually ready to pick the house with the better bathroom of course but not pay a bunch extra for it. Adding a bathroom is a different issue of course.
One of my favorite examples when I remodeled was that putting on a new roof does not add value, it simply makes it more marketable. No one buys a house thinking it won't have a good roof. It is supposed to have one. Putting a new one on is just required maintenance.
And of course there is the perception of value. While you may value granite counter tops if you neighborhood is not one with houses of that level it is difficult to reap financial rewards for those improvements. People will simply pay for what they can afford and have looked at as comparisons in the area. Tough time to sell anyway so it is to bad to be in that position. Hope it works out and maybe you can find that one in a thousand buyer with more front cash or that is willing to consider the floor plan changes. But it would be a tough sell. DanT
Dan T -- you are right on target - considering the "going-in condition" it may have been a tear down in a lot of neighborhoods. Putting the $'s and love into Cooper's house brings it up to where is should have been -- a well cared for house that needs updating - so, now it has been updated and the $'s spent updating do not give back dollar for dollar -- the old cost vs value tug of war.
Cooper needs another appraiser - however, these are usually part of the loan process that the new buyer goes through - not sure why an appraisal was needed.
Thanks for the reply and advice. I erroneously thought that a bedroom could be counted if it had an egress window (which is a dirty messy installation that I wish I'd never done had I known it would be worthless.)
I have added two full baths, but according to the lender, the basement bath doesn't count (even though it's twice as big as the original bath in the house even though it's a European style tiled "cavern" with glass tile listello and large rainshower shower head)
Since I'm in the industry, I should know better. I think the only option is to get rid of the sitting area that's divided by the granite peninsula/pendant lights, and reinstall the closet/wall and have another first floor bedroom. According to my realtor, that will allow the house to be compared to other three bedrooms in the area which are around 230,000. I spent 140,000 buying it, and have sunk at least 40,000 into it besides my own labor. I'd gotten used to fixing up the houses, living in them two years, selling them, and having a nice tax free payday. Unfortunately, I think I've screwed myself on this one.
Thanks for taking the time to give me your thoughts----
BTW, I live in Cincinnati...
i think you need a new appraisal.
i'm not sure where your at,but if your where re has took a big plunge this all may be reality,but if not i really don't agree with the appraisal either.
one thing about appraisals is this guy says your worth 160, if you and i come to a agreement on a sale price of 225k and submit that to the bank for a loan, i will bet the appraisal will come in at close to sale price.
around here basement bedrooms with proper egress are considered the same as any other bedroom. also the number of bedrooms should have some effect on price,but other things come into play also,other wise a 6 bedroom would be worth 300k,even though the size of each bedroom is 7x8
if your selling,i'd price it in the same area as the rest of the comps and see what happens.
the older i get ,
the more people tick me off
My mortgage broker is helping to appeal the appraisal. I've listed all the improvements, and provided lots of receipts, plus I have before and after photos. It really is a beautiful house----of course, the number one mistake in real estate is don't fall in love with the bricks/morter. I am guilty of over improving, but I thought we'd be staying here for decades, I didn't care as long as I could get all the improvement money rolled into a new loan. (I used the teaser rate on one of my credit cards to fix the house up; it was a year at 0% which reset to 7.9% in January. $30,000 later---they attempted to jack my rate to 14% in February, and I believe that's the new fixed rate if I were to ever charge anything else on it. So it's not like I'm getting killed at some usuary rate on my card, but I'd still rather have it locked in at lower rate spread out over thirty years instead of having to come up with 600 every month for that one bill. It's like another mortgage payment!)
Thanks for taking the time to write...
Any way you can stay in it for a year or two?
I feel for you. We all get carried away when living in a house we're remodeling to sell. The trick of course, is to keep the materials $$ low and in line with the comp homes nearby. Upgrading by several levels on materials seldom pays back in kind.
Just because one bank's appraiser doesn't count the basement bedroom is no reason to abandon that finished design, not if it fits well and has appeal. That appraisal does limit your buyer base somewhat but so what? In this market, every seller is limited by what the lenders say.
Another thing: Take everything the RE broker says with several grains of salt. In my experience, every seller's agent is constantly manipulating his client, to make his own job easier and time on the market short. After what I've seen, I'll never pay a RE commission as a seller again.
Check out: http://www.howtosellyourhomein5days.com/
>> Take everything the RE broker says with several grains of salt. In my experience, every seller's agent is constantly manipulating his client, to make his own job easier and time on the market short. <<
Amen to that.
>> Take everything the RE broker says with several grains of salt. In my experience, every seller's agent is constantly manipulating his client, to make his own job easier and time on the market short. <<
Amen to that.
Seller's agents have their own agenda. 1. Get control of the property and the asking price. Of course they can't be obvious about this so they soft pedal certain "observations" and suggestions, pretending to be only interested in their client's wishes.
Example: Many seller's agents will only show the seller comps that represent the lowest recent selling prices. They intentionally withhold comps (recent sales of comparable homes in the area) which sold at higher per/sq.ft. prices. Why? Because they know they can move the house quickly at the lower price.
Worst example I've seen: Two of my older neighbors, widows with no experience in real estate, were each taken to the cleaners, a couple years apart, by another older woman, a RE agent who lived in the neighborhood.
The agent coerced a below market asking price from the seller, got the listing agreement signed, then called a buyer she had waiting for such a deal.
So she stole both ends of the commission, a full six percent, without ever putting either house on the market.
As I was acquainted with these sellers, both of them friends of the family, I had previously offered to share my knowledge of RE agents with them whenever they decided to sell, warning them that they should be careful and not believe everything they were told. I even gave them sales brochures from recent comps, with prices and other pertinent data.
But the older female RE agent was very slick, slimy is a more accurate description. She put on a great "sisterly" act and won the confidence of these two inexperienced, naive women. Too bad because both houses sold for well below the market value, to speculators who dressed them up with paint and resold them almost overnight, another commission for the listing agent.
Edited 8/7/2009 10:47 am by Hudson Valley Carpenter
First, don't jump to conclusions based on one bank and one appraiser.
>> The A$$ also used my next door neighbors house as a comp, and gave it a value of 160,000 and he hasn't done anything to it! It's 1960 inside! <<
Did that house sell recently? What was the price? An appraiser should not be "giving a value" to any house other than your own. He should be using the price of recent sales in the direct area of similar homes and then deriving a price for your house from those sales figures. 'Recent' is defined as either 6 months or a year, and 'direct area' usually means 1/2 to 1 mile radius. Ideally they want to find a house in the same neighborhood of similar size. This gets difficult though with custom built homes in rural areas. Don't confuse custom built with 'customized' though.
I think you need to some how check with another appraiser - or a few others since your question is pretty cut and dry. Maybe go talk to a few other lenders and simply tell them that you are not going to apply for a loan until you can ask their appraiser a Q.
Also, you might want to pose your question to some real estate agents in your town/city/etc. Regardless of the way I feel about RE agents, I think they are often better at making accurate appraisals than appraisers who work for banks. Without going into detail I think that often bank appraisers are sent out with the instructions of "go see if this house is worth at least x $" So right away they have a tainted agenda. The bank could care less if you get the loan and you are paying for the appraisal so it's on YOUR dime.
A number of years ago DW owned a town house for 10 years. She wanted to refi but the bank wouldn't do it (same bank as the loan was with) as it wasn't our primary residence and they wouldn't consider the rental income as income, nor would they consider my income as I wasn't part owner. She had been making the payments flawlessly for the past 8 years. DW has a squeeky clean credit record. She still paid for the appraisals which was a wasted $300 or whatever... Seems like the bank would have told here about the other issues before ordering the appraisal??? She was POed!!! Later, when she actually sold the unit, the bank got screwed up and refunded her escrow money 2 times. :-) It was in the 4 $ digits. This was a very large bank (actually mortgage company) and her stuff got lost in their maze of paper work. Do you think she informed them of their mistake? So, in life, you don't always loose... :-)
I think these supposed third party appraisers and the banks are in "cahoots". Banks are super-conservative right now about making loans because they have gotten burned several times lately. For example the company I work for has been doing business with a small bank for years. Late last year the president of the bank actually came out to look at a house I was building. I was shocked. He got mud on his shiny shoes :-) and I made him take them off before comming in the house - so he got his sox dirty too :-). The house was even a pre-sale (not a spec) and we had a significant deposit (not earnest money, but a non-refundable deposit).
This kind of thing is really hurting us people in new construction because the bank doesn't want to lend us $$$. I'm trying to get started on my current project of 5 little town houses. We built 10 which were finished around 12/08. Sales were slow at first but now we have sold 5 in the last 3 months. Still the bank is unsure if they want to lend money for us to build 5 more units. Thanks to the bank's jacking around we are now under a new building code (as of 7/1/09) which will raise the price of the homes, I'm not sure if I can finish them before the current first time home buyer stimulus money expires, and all the while I'm wondering if I'm gonna get laid off because I don't have much to do. Enter gray hairs...
BTW - re your credit card - one friend of mine gets a new credit card (and new teaser rate) every year or so and then just changes the balance over to the new card.
Matt
The appraisal game has changed in the last 6 months. Now the builder and the bank can have no direct contact with the appraiser. Due to your scenario of the banks/builders "suggesting" appraisal numbers. Now there are appraisal management companies in between. So bank call AMC (my made up word) and orders appraisal. They send out appraiser. No contact.
I have heard more than one builder and banker complain about the limits.
appraislas don't look at floor plans, just numbers of key rooms and ft². Purist tub, framless shower door, beaded glass, stainless, etc... that's just fluff to an apprasier but has value to a buyer.
IIRC from a recent discussion with an Appraiser. The lending giants of Fannie Mae etc (or was it someone else?) set the rules that they must follow, even moreso since the housing mess of the last few years. Their rules, as irritating as it is, don't consider any room that is even partially below ground. So if you have 4brs and 3 bath and 1ba and 1 br are below grade it appraises as a 3/2 and not a 4/3 that it really is. This even applied to a split entry I was selling that the lower level was only below the ground by 4' on 3 sides and the garage at ground level on the 4th.
You can however set the price anywhere you want but many buyers are going to be excluded since the additional cost you add above the appraised price will have to come out of the buyers pocket and not their mortgage. The added space 'below' ground is a good selling point though, so you have to figure out how to draw them in.
How much to do you think it's worth? And have you talked with the appraiser to find their reasonings?