While I've seen some ridiculous appraisals, the rules are pretty straight forward so the results are fairly predictable. After purchasing 15 homes plus multiple refinances, it was time to refinance my new home in Florida. What I didn't expect was a bad appraisal. After my rebuttal (my first) accomplished nothing, I knew it was really due to a bad appraiser.
Why did I feel the appraisal was bad? One story houses aren't that common across the country. But in Florida and other retirement states, one story houses are valued because seniors have difficulty with stairs. In my Florida retirement community, 36% (49 out of 136 houses) of the houses are one-story. That means it should have been easy for the appraiser to find enough one-story houses to compare my one-story house to …
But no, the appraiser used two one-story houses and the third comparison was a 2-story house. That was the mistake made as one-story houses are more expensive to build and that should be reflected in the price of the house … if and where, one-story houses are desirable. That made this a bad appraisal!
There's a process & rules for how an appraisal is done …
Key Appraisal Rules Determine a Good or Bad Appraisal
Most homeowners know little about the appraisal process. You know the appraiser comes to your house and takes lots of photos and measurements. The real work occurs after they leave, as all of the home data they need is easily accessible online.
Fortunately I've taken the courses required to become an appraiser (books shown above). An appraisal is an estimate of a home's value based on similar houses in close proximity to your home, ones that have sold recently. Beginning with the sale price for each “comparable house”, appraisers make dollar adjustments for differences in square footage, bedrooms, bathrooms, outbuildings and pools plus the quality and condition of the finishes.
There are rules for how they pick their comps, which has the greatest affect on your property appraisal. My thanks to JVMLending's article, Comparable Sales Appraisers Can & CAN’T Use.
Of course I was disappointed that my issue requiring one-story comps for a one-story appraisal isn't in this list. In my mind though, it's still a valid requirement which meant I got a bad appraisal.
- Size – 20% square feet smaller/bigger than the subject property unless no other comps are available.
- Distance – within one mile of the subject property. The comp should also not be separated by any major barriers like a freeway, a river or railroad tracks.
- City/Town – same as the subject property, even if a comp in another city is less than a block from the subject property. That's important for schools and other public services.
- Date Closed – ideally should be within 90 days (180 days if needed) of the inspection. Pending sales and listings only show what the current market is doing and cannot be used as comps.
Large lot means more space & privacy from neighbors not on top of you …
- Lot Size – should be viewed from a usable perspective, not just size. For example, a one acre sloped lot may not have more value than a quarter acre flat lot. My building lot is double the size of other homes in the area. I paid a premium for the last lot (1/4 of a pie) with views of the wetlands, room for a 3 car garage and separation from my neighbors.
- View – should be reflected with comps that have a similar view and some with no view. Comps with a view should not be used when the subject property doesn't have a view.
- Adverse Influences – like a busy school, freeway or industrial area should be reflected with a comp that has similar influences, to determine if an adjustment is needed for the adverse influence.
- Bracketing Comps – means at least one comp should be priced higher and one lower than the subject property. There should also be at least one comp larger and smaller to bracket the house being appraised.
One story-houses are very popular in senior communities in Florida & other southern states …
Most of these criteria were satisfied with my appraisal. My objection was primarily due to my house (above) being one-story being compared to a two-story house (below). You can also see that the neighborhoods look quite different with generous front yards across the street from my house versus driveways and very little grass so the curb appeal looked nothing like my community.
It's wrong to compare these tall, skinny 2-story houses to one-story houses above …
What Can You Do If You Get a Bad Appraisal?
After 20 plus mortgages and refinance transactions, this was the first appraisal I disagreed with. My first idea was to survey one-story houses in my area plus two close by with similar houses (this didn't include the 2-story house above). Putting all the data into a spreadsheet, there were
- My community has 49 one-story houses (36%) out of 136 houses.
- A neighboring community with the same floor plan has 20 one-story houses (48%) out of 61 homes.
- A third community about a mile away, has 32 one-story homes (24%) in a community of 168 houses.
With 101 one-story houses you might assume there would be enough comps. There weren't. Only two of these one-story houses closed within 6 months of the date of the inspection. Two more houses closed just one and two weeks beyond the sixth month window … but the appraiser wouldn't accept them in the rebuttal.
Here are your options if you feel you have a bad appraisal and need/want a higher estimate:
- Dispute the appraisal – which requires the appraiser to address your issues.
- Get a second appraisal – but understand it will delay the closing, cost you a second appraisal fee and might come in lower. And the lender will take the lower value so you might be worse off.
- Increase the down payment – to meet the lenders requirements and/or avoid PMI. For my situation, the lower appraisal simply meant I couldn't roll closing costs into the mortgage. That of course was after my rebuttal failed.
- Negotiate a lower purchase price – if you're the buyer and have no other way to handle a low appraisal, try negotiating with the seller to accept a lower price or pay some of the closing costs.
If you think you have a bad appraisal, there's a process for reconsideration …
Appraisal Rebuttal Letter: Don't Compare 1 and 2-Story Houses
Here's the letter I sent to dispute my bad appraisal. My loan originator sent the letter to their in-house appraisal department, with a cover letter indicating the amount he thought the appraisal should be. The communication was forwarded to the appraiser for reconsideration.
Improvements after initial close:
- Wall-to-wall porcelain tile floors, wood plank format … $18,000.
- Cabinets upgraded to wood (not MDF) with senior friendly design (drawers in base cabinets) … $9,000.
- Extra cabinets – home office (11 lf), entry room with window seat (5 lf) and master closet (10 lf) … $4,500.
- Quartz countertops in kitchen and bathrooms … $9,000.
- Plus numerous other upgrades – light fixtures, mirrors, etc.
What the bad appraisal was missing in “comp” analysis:
- Lot size – my lot is 12,175 sq ft, more than twice the size of other lots 5,759 sq ft but given no credit?
- Gross living area (GLA) – the same floor plan has different square feet? Only difference found was my 3-car garage is 2 ft deeper than 2 car garages (44 sq ft less).
- One-story homes also cost more to build – 2-story comp in a community that looks nothing like mine (photos above). Tall, skinny railroad car homes with no land (3311 sf). They also don't have a community clubhouse, pool, tennis courts, etc. This is NOT a valid comp.
So I provided comps that more closely match my house. The data came from searching Zillow. My point here is the raw data (without appraisal adjustments for square footage, 3rd car garage, view and lot size), shows my property isn't being credited with improvements that exceed the model home.
Note: Below is my analysis of the numbers to prove this was a bad appraisal. It's now expanded to reflect my proposed comps and the “for sale” houses identified by the appraiser in his arrogant, lazy response.
A one-story house costs more to build, and typically sells for a higher price …
Appraiser Incompetent, Arrogant or Just Lazy?
My loan officer said it typically takes three to five business days for a response.When the response came back one day later, I knew it wasn't good. That's when I realized the appraiser was arrogant and … lazy!
First I'll share some of the comments made by other appraisers online. My goal was to understand what the industry norms were from the experts, as I'm just a very experiencedhomeowner.
- Ryan Bays, Certified Appraiser – “When appraising a home, we try – as much as possible – to compare apples to apples. If I'm appraising a single-story home, all of my comps would be single-story homes.”
- Ryan Lundquist, Appraiser – “… tends to compare single-story with single-story and two-story with two-story because there is sometimes (not always) a difference in value. Unfortunately there is no universal value adjustment given for a variance in stories because it really depends on the neighborhood as well as supply and demand.”
- AppraisersForum.com discussion on the best comps to use when appraising a one-story house:
- “… if you go further back in time (perhaps a few years, as far back as necessary), are there any sales of 1-story houses?”
- “Typically a 1-story with same GLA and equal quality/condition, etc will have superior demand. The costs are higher … to not adjust, you better have real strong proof that for some odd reason, there is no preference.”
- “… sounds like a location adjustment is more sketchy than a time adjustment. Find the most recent single story sales and use them (explain in report) … or take last 3 years worth of sales, index the prices and do an analysis for the floor count.”
- JVM Lender's story,Appraisal Horror Story – If Appraisers Only Knew the Damage Caused describes another bad appraisal and the 40 to 50 hours it cost to rework all the mortgage paperwork.
So what did the appraiser do/say in response to my issues with a bad appraisal? It will help explain why I feel that he's arrogant!
- Outside 6 month window – was the reason for not using my recommended comps but … they were only outside 2 and 11 days (see chart below), as the inspection occurred on 4/22/20? Instead the appraiser added two comps (one another 2-story house) that are pending/active listings, adjusted based on a market average 98% sale to list price ratio.
- Oversized lot – appraiser said “The subject market does not recognize added value for surplus land. Additionally the surplus land of the subject is limited to the front and side yards of the subject. The value is diminished because this land requires maintenance but does not have the same ability to be improved as the rear yard, such as a pool improvement.”
- There is no added cost for maintaining the side yards because all landscaping included in HOA fees.
- Appraiser doesn't look at property lines. He doesn't know a pool is possible in the backyard but why when the community pool is a 3-minute walk from the house. While Floridians aren't familiar with real side yards, they are valued by people from the northeast and other parts of the US.
But really, the issue is this appraiser didn't want to look farther to find valid one-story comps … lazy? Using all the comps identified for this appraisal, it appears that there is a 5% premium for single story houses which makes sense given higher construction costs. The fact that my house had an appraised value of only $327,000 versus the model home (minus 3rd car garage and view) value of $348,700 is ridiculous!
PS If you're new to the home buying/building process, here are some other articles you might find useful:
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