How can I refinance my house if there are no similar nearby comps?

October 15, 2010 5:47 AM

I wish to refinance my house, but, apparently, there are no appropriate comparisons in the neighborhood. My house still has a value, though, so what can be done now to figure it out so that the refinancing process can proceed?

Like most properties, my house went down in value over the last few years, but, during that time, I did a $105,000 upgrade wherein I converted the old garage into not just a guesthouse, but a legal second family dwelling (the city of Los Angeles even assigned it a distinct address number). It's now as if I own both halves of a duplex.

That upgrade should bring the value back up, perhaps enough to compensate for the overall drop, but, without enough similar duplex properties in my North Hollywood neighborhood (and, more specifically, similar properties that are recently selling so as to count in the comp), I've been repeatedly stalled at trying to refinance. What can be done?

posted by stst399 to work & money (7 answers total)

There are three ways to appraise property: sales comps, replacement cost and income basis. The purpose of the property (highest and best use) pretty much determines the appraisal method. For residential, it's almost always the sales comps. However, your property addition, with its distinct address and separate dwelling space for another family, makes me think it is more like an investment property (that you would try to rent the space out for additional income). Is this the case? In that situation, I am pretty sure you'd have to get appraisals with the income basis.

Who have you tried to refi with--your current lender?
posted by FergieBelle at 6:45 AM on October 15, 2010

The second family dwelling space is inhabited by a tenant. I currently live in the main house (where I rent out the additional two bedrooms). Within the next year, I hope to buy another home and I would then rent out BOTH the full main house and the full back house.

Even though this is a long-term investment anyway, I don't think I could call it an investment property right now since I do currently live here. The refinancing process has been through a new broker, not through my current lender....
posted by stst399 at 6:52 AM on October 15, 2010

Well, you'd hope that a broker would know what the heck they are talking about when it comes to financing properties of any kind. However, I would recommend finding a new broker. The crux of the issue is probably that is it being used as an investment, and there are very strict rules about financing investment properties now. Everything has gotten tighter due to the mortgage industry problems. Guidelines for lending have changed. Some brokers are more with it than others. Heck, even when I wanted to refi my primary residence, I shopped it around to my current lender plus three brokers, just to make sure I was getting the best deal possible. Do you have any buddies who are RE investors? Ask who they use for financing, and go from there. It's quite possible your broker has no clue how to proceed on an appraisal in your situation just because he only does sales comps which are the most reliable when you're talking residential.
posted by FergieBelle at 8:18 AM on October 15, 2010

I own a duplex with a garage apartment (so three units), which was refinanced earlier this year.

Getting an appraisal wasn't an issue. The appraiser had to look farther outside the immediate neighborhood for sales comps than they normally would, but they were able to come up with a reasonable value and verified that by using the income and replacement cost methods. Since all three methods arrived at essentially the same conclusion (within a few thousand bucks), the lender was happy enough with the value provided by the comps.

They just wanted to see some support for the value derived from the comps since none of them were closer than ~ two miles from here.
posted by wierdo at 8:34 AM on October 15, 2010

Your lender should be hiring an appraiser in your area (which you'll end up paying for). This is what appraisers do. I'm not clear on why this step hasn't happened for you?
posted by Alt F4 at 8:49 AM on October 15, 2010

Through a different lender earlier in the year, I paid $600 to an appraiser ($300 per each of the two properties on the lot) who, when all was said and done, merely shrugged and said he couldn't place a value because there were no good sales comps.
posted by stst399 at 9:18 AM on October 15, 2010

Maybe your area is weird, but my garage apartment has a separate address (all three of the units do, actually), but it's still the same property. It wouldn't be a legal single family residence. One appraisal should cover them all.

Unfortunate that you got a worthless appraiser. If he couldn't come up with a valuation, he shouldn't have gotten any money. Are there really no duplexes or houses with "mother in law" units anywhere near your area? The detached or attached nature of the second dwelling doesn't have much bearing on its sales value.

If you used an FHA loan to buy the house and a 203(k) to do the secondary dwelling, you should qualify for a streamline refi, which won't require an appraisal if you can pay closing costs out of pocket. Your present lender may be able to do the same, even if it's not through FHA.

Your first step should be to find a good mortgage broker who knows reliable appraisers who aren't afraid to do a little work. It sounds like the one you had last didn't feel like actually doing anything, which is why he couldn't come up with a value. A good appraiser will always come up with a value, even if it's one a bank may not accept. There are definitely comps in your city or a nearby city, even if not in your immediate neighborhood.

As I mentioned, my last appraisal had two comps that were 8 and 11 months old and one from about 3 months prior. The first two were over 4 miles distant and the last was about 1.5. None of them can remotely be considered "in the same neighborhood." One of the comps had around 25% of value in adjustments due to location and condition differences.

Alternatively, there are still a lot of folks out there who see their job as making deals happen. That sort of person could be your best friend in this situation, even if it's not helping the bank out.
posted by wierdo at 10:26 AM on October 15, 2010