Bad appraisal?

March 8, 2009 6:34 PM

Getting a refi. Appraiser valued our house lower than we feel it should be. Our position is strong, but will this be a problem later?

We are refinancing our home to get a lower rate. The appraiser valued our home at significantly lower than we believe the house is worth. It should not affect our chances of getting the refi, because we have plenty of equity and good credit.

But, I'm wondering if this will be a problem later - in a number of years if we decide to sell. Houses not as nice, and not as big as ours are consistently selling for more than the valuation this guy put on ours. Since this is a refi, we have not staged the house, or prepared it as we would if we were selling, so - yes, we need new carpet, and a few fixes here and there, but still it's a pretty nice place.

So, two, three, ten years from now when we decide to sell... is this an issue?

posted by ecorrocio to home & garden (10 comments total)

The appraisal has nothing to do with an eventual sale. Houses change value over time according to the market.

What the appraisal might help you do is lower your real estate taxes.
posted by musofire at 6:55 PM on March 8

You are aware that the bottom has fallen out of the housing market? It has nothing to do with your house if that makes you feel better.
posted by BobbyDigital at 7:03 PM on March 8

Musofire: Thanks, yes, that's what I figured, but didn't know if there might be something detrimental there. If it serves to lower our taxes... hooray!

BobbyDigital: Yes, I did see something on the news about the housing market ... and basing our comparisons on very recent sales.
posted by ecorrocio at 7:06 PM on March 8

IANARAP; however, the appraiser valued your house according to an analysis of what a house of comprable build and amenities sells for in your area. They did not put any emotion into the appraisal, just the vital stats of your home. While you may see comprable houses on the market for higher prices, what matters to statistics packages is what sells, meaning home owners around you, who are trying to sell their houses based on older appraisals may find that they have over-valued their own home as well. Depending on where you live, what was once a feature (lets say a grand room) might not be as desired a trait for home buyers when calculating in the cost of heating and air conditioning the same space... that does affect you. (this is like a car buyer realizing a H2 might not be a great commuting vehicle if gas prices can realistically reach $4.00) We're in new economic times.

We'll go further... there are more homeowners capable of buying smaller houses, this means that the price for a smaller house will be significantly more competitive - in relative dollars, a stretch house devalues faster. While I do find it odd that you say that the not as nice houses are selling for more than the valuaiton you recieved, I do refer back to the reality that some parts that you considered an amenity when you purchased your house may no longer be considered an amenity...

If the market remained flat and in two, three years from now if you were looking to sell your house - assuming there were no additional forclosures or median income changes, in your area (essentially, if you were selling today), yes - this would hurt. In reality, if you think an economic recovery will be complete in 2-3 years and you are selling your house, I think you will be disappointed if you compare to what houses sold for 3-4 years ago. If you sold your house in 2-3 years, comparative to 1983 though, your house has probably appreciated very well. Its a question of how you are filtering your view. In a 10 year view, as long as you maintain your home, and your neighborhood improves - your house will most likely be worth 25-50% more.

In the short term, a lower appraisal may save you major money in lower real estate taxes, allow you to write off a portion of your taxes as a net loss, and otherwise serve you as a tax reduction.
posted by Nanukthedog at 7:17 PM on March 8

Nanukthedog: thanks for the thorough answer.

I understand how actual home prices fluctuate. Not really my concern here.
I just was not sure how a refi appraisal fits into the picture, and if it was ever referred to at a later date as some sort of benchmark for sale valuation and/or offers.
posted by ecorrocio at 7:25 PM on March 8

In terms of your question, no, this won't matter 5 or 10 years down the road. At that time, when you go to sell your home, the lender involved will do an appraisal for the current market. They will most likely never look at the past appraisal, unless it happened to be done by the same company. And even at that, only if it happened even more recently, say 2 or 3 years.

As an aside, it doesn't matter in the slightest what you think your house is worth, the current issues not withstanding. As a real estate broker I regularly see people overvalue their homes - not to say yours isn't what you think it is, but in the reality of real estate, it just flat out doesn't matter. If someone is willing to pay the price you're asking, then that is what it is worth. In this crazy time, even in an area where values haven't dropped as much as the national average, I see homes that are only 1 - 4 years old that are being sold considerably cheaper than you could even think of building the same home for today. So regardless of what the home should be worth, people aren't (or can't get the loan) to pay that. For the lender part of the equation, the standards have gone from just silly in the past 5 years to remarkably tough - one banker told me they are only looking at comparable properties sold in the last 6 months, not even the last year. And many of the homes that actually have sold in that time were sold under distress (foreclosure, just needing to get out, etc).

Congratulations on having enough equity in your home to be able to refi. That isn't an option for many, many people out there today.
posted by shinynewnick at 7:31 PM on March 8

Okay, wait here. Having the bank appraise your house for lending purposes will not affect your property taxes. Your local municipality has their own appraisers, and only appraisals conducted by them have any effect on your tax bill. These are usually done every five-odd years, though obviously YMMV depending on your jurisdiction. I'd be surprised if this were done more frequently than every other year or less frequently than once a decade, but it could realistically fall anywhere in there. But the appraisals conducted by realtors and lending institutions is completely unrelated.

It's a nice thought, but that's just not how it works.

The appraisal your bank makes also has no effect whatsoever on any future sale of the property. No one will ask, and I don't know that the bank would tell them if someone did. All the bank is doing here is deciding how much money to lend you, and they won't tell that to anyone else either. Certainly future buyers will have no knowledge of your financial situation when they buy.

In short, don't worry about it unless the bank isn't willing to lend you as much money as you'd like. That's the only possible downside.
posted by valkyryn at 8:34 PM on March 8

Valkyryn is correct. Bank appraisals are not related to tax appraisals, and you have nothing to worry about from this appraisal if you're thinking a couple years down the road. A bank appraisal has only immediate utility as a determination of the collateral value of your property for a mortgage as determined by comparable sales within the last couple of months in your area. Bank appraisals typically return a lower property value because they are only focused on retrieving money. The appraisal is a snapshot of the current foreclosure value and is usually considered out of date in 3-4 months. In this shifting economy it probably has an even shorter shelf life. Use it then forget about it.
posted by birdwatcher at 3:57 AM on March 9

Thanks all! Great answers.
posted by ecorrocio at 7:50 AM on March 9

In my area, the appraisal is not public, so it has no effect on sale prices. Appraisers may not detail the appraisal to include new flooring or insulation, things you might point out to potential buyers. It's not precise. It is a good indicator, however, as appraisers spend a lot of time in houses, and they know the actual sale prices, not asking prices.
posted by theora55 at 8:07 AM on March 9