Hey Zoltar, how will our house will apprase?
February 25, 2013 10:03 AM   Subscribe

How likely are these particular conditions of our home to affect an appraisal? Additionally, is there a significant benefit to addressing these condition concerns prior to appraisal for the purposes of a refi? Very long winded details inside…

We own our home in Nassau county, New York and are looking to refinance or modify our mortgage. We have only owned the home for 2 years so have little equity in the home though we do not believe we are underwater.

We live in an area that’s slightly tough to get comps for. Our neighborhood is split between a few different school districts, so that our home is in an award winning district, while a block away, homes are in one of the worst districts in the county. This significantly impacts home prices.

We bought our 1930’s era home for $300k in 2010. The home appraised at $325k at that time, while it was in slightly poor condition. We would need our home to appraise for $290k in order to qualify for a decent refi without PMI. Zillow (who I don’t trust) estimates our home is worth $10k less than that. Our local tax assessment noted our “Fair Market Value” in 2009 at $370k, in 2010 at $305 k, and from 2011 through 2013 at $277k. I have no idea whatsoever how our county makes these assessments (they have certainly not been inside our home since we bought it in 2010), nor how they affect appraisals.

We have done some updates including:
• Refinishing or installing hardwood floors in every room but the kitchen & bath
• Updating & enlarging one bedroom so that there’s one clear “master” bedroom (it’s got a walk in closet, though it doesn’t have a bathroom!)
• Updating the boiler & furnace (but NOT the pipes)
• Converting from oil to gas
• Installing appliances where there were none (dishwasher, washer/dryer, etc) & updating old kitchen appliances
• Landscaping front & back the yard, installing privacy fence, repairing grading issue in the yard which mostly fixed the issue of water getting into the basement..
• Installing driveway (there is no garage)
• Replacing 1930’s era steep staircase. This issue is tough – the original stairs were not to code, but were grandfathered in. They were absolutely unworkable, so we replaced them with a lovely custom staircase which allowed us to create an upstairs hallway with a gorgeous banister. However, due to the extreme space limitations, the treads are about ¼” short of current code. We made the decision to do this without permits. We have a particular worry that an appraiser will notice this!

What we have NOT updated/ Condition concerns:
• The crappy aluminum siding (it got worse in the recent hurricanes)
• The only full bathroom got some paint and updated small fixtures but is essentially still a crappy 1970’s bathroom
• The kitchen got new appliances and fresh stick-tile flooring but still has crappy 1980’s cabinets and counters.
• The basement remains crappy and unfinished, but DRY! (It can never be legally finished due to height restrictions)
• In the unfinished basement, there is a half bath. When we took out the old oil tanks, we had to remove the walls of that bathroom. They have not been replaced – does this mean this bathroom is not considered a half bath any longer? We would be willing to spend a few bucks on sheetrock to rough in some walls if it will significantly improve the appraisal.
• Our chimney has a crack in it. We are not likely to repair it before our refi.

There are only 3 comps sold in the past 4 months in our area & school district:
• A home with a 1 car garage, central air and completely new Kit & Bath, plus 3700 sq ft more yard sold for $389k.
• A home with a 2.5 car garage, one more full bath than we have, a finished basement and 1,000 more sq feet of yard sold for $352k.
• A home with one less bedroom, a 1 car garage and a recently done Kitchen & bath sold for $375k.

TL;DR: What issues with our house might affect the appraisal enough to attempt addressing them before refinancing? For example, poor siding conditions, crack in chimney, and other seemingly unfinished aspects of the house. There are limited comps in our area to compare to, but I feel we may want to move quickly since a few good comps have sold recently. What level of renovation is required to have our creepy basement toilet area considered a half bath on the appraisal, or will it not be considered because it is an unfinished basement?

And if you have an instinct for these things, do any of the very long winded details I’ve provided make you think “Hell yeah, your home will appraise for $290!” Pretty please?
posted by waterisfinite to Home & Garden (15 answers total) 1 user marked this as a favorite
I am in another state, but one thing to consider is that any unpermitted work done to your house will likely need to be disclosed when you list your home for sale. Potential buyers will run into issues trying to get insurance because unpermitted work can't be covered by a homeowner's policy.
posted by little mouth at 10:12 AM on February 25, 2013 [1 favorite]

I just went through something similar, in a similar situation with my house. Having gone through a couple of appraisals, I can say this: it is solely up to the discretion of the appraiser. So anything you can do to influence the appraiser works to your benefit. In my situation, I was home when the appraiser came over, so I took him on a tour of the home, pointing out all of my favorite features, noting the improvements we had made, and generally did the best sales job I could possibly muster. The result was the house appraised for exactly the same amount as when we bought it in 2011. If you have the opportunity to talk with the appraiser during the inspection, I'd suggest doing everything you can to the house and your presentation of it to create the best possible impression.
posted by slogger at 10:16 AM on February 25, 2013

I doubt any of those changes will significantly affect your appraisal. In my experience (I am not an appraiser or any kind of real estate professional but I've bought and sold and refinanced some houses), the most important things are the number of bathrooms and bedrooms and the size of the house and the lot. HOWEVER, your house should appear generally well taken care of, because that may impact the bank's assessment of its future value. So I'd "stage" it in the cheapest way I could - fix peeling paint, declutter as much as possible, turn on lights, things like that so it looks like you take care of your property and it's not going to turn into a dump. But I don't think that you will get your $ back for things like fixing a chimney crack or replacing the siding unless you were already planning to do so.
posted by walla at 10:31 AM on February 25, 2013

Also FWIW our creepy basement toilet area was considered a half bath for appraisal purposes. YMMV.
posted by walla at 10:32 AM on February 25, 2013

I agree with walla's comment that "the most important things are the number of bathrooms and bedrooms and the size of the house and the lot."

When I shopped for a refi in Sept, I wasn't doing a "cash-out", just trying to lower the rate. Surprisingly, many banks told me that I didn't have enough equity, and that my house was likely to appraise for less than its full market value on my property tax statement.

However, I discovered that a lot depends on how the bank performs the appraisal. When I went to my own bank that currently held the original mortgage, they were happy to refi. A month later when the bank called with the prospective closing date, I asked, "what about the appraisal?" Turns out they only did an exterior view, drive-by appraisal. And my exterior wasn't looking great - I was halfway through a porch-extension project, and the exterior paint was peeling.

The bank never told me the final appraisal number, but I did qualify. As a bonus, the closing costs were cheaper than any other competing bank.
posted by Ardea alba at 11:05 AM on February 25, 2013

You'll be surprised at how many expensive things don't translate into more value in your appraisal.

While the things you describe will make a prospective buyer more likely to buy your home, for the purpose of a re-fi, they don't count for much. :-(

Expanding the one bedroom may do that, if you added useable square feet. If you took it by expanding into another room, it may not.

Zillow is not that great for houses like yours and mine, where the neighborhood is established and each house has a huge opportunity to vary between owners. (We fully updated our 1962 home, our neighbors still have original linoleum in their kitchen.) As for the tax appraisal, that has NOTHING to do with the value of your house for the purpose of a mortgage. In fact, you want that as low as possible.

An appraisal is pretty cheap, about $300. It may make some sense for you to hire your own appraiser and to pick her brain. Have her go through the house and ask her, "Will it matter if we do this? What about that?"
posted by Ruthless Bunny at 11:16 AM on February 25, 2013

The appraiser is not an inspector. He or she won't go through your house with a fine-tooth comb like your inspector (hopefully) did when you bought the house.

But there is nothing wrong with pointing out the things you did to improve the house. In my experience with a recent refi appraisal, the appraiser was really cool and seemed to be looking for reasons to support the value we needed. Big stuff like a privacy fence and hardwood flooring, if those distinguish your house from others, will help you. I doubt stuff like the age of appliances will factor in at all.
posted by payoto at 11:44 AM on February 25, 2013

We have had 4 appraisals in the last few years on our house, wildly different dollar amounts and approaches. The last one flew through here, was gone in under 10 mins and spurned conversation and contact. Clearly just verifying square footage and rooms etc. Another appraiser lingered, chatted and was interested in the neighborhood and our future plans for the house and gave us a high appraisal. You never know. We kicked in money to meet the low appraisal of our last refi, it was easier than going to the bother of starting again and paying for a new appraisal, and now our mortgage payments are significantly lower in addition to the lower interest rate.
posted by nanook at 11:58 AM on February 25, 2013

I doubt that any of that will matter. Real estate appraisal for mortgage purposes is incredibly primitive, its an average of some "comparables" times square footage. They may come to verify the square feet of living space and make sure the place is actually inhabited.

Remember that whoever is doing your refi is 99% going to sell it to someone else within a year. And the bank that buys it is going to sell it to Fannie Mae. So they have a strong incentive to see that you qualify. They can't be quite as brutal and fraudulent about it as they used to be, so they've cracked down on things like self-declared income, but other than that, its pretty much whatever they can get away with. And the "independent" appraisers tend to know what their customers - the banks - want to hear.

If you google around there's a couple of places online that describe in more detail how an appraisal is done.
posted by RandlePatrickMcMurphy at 12:30 PM on February 25, 2013

I literally just got back from meeting our appraiser for our refinance and we're in a very similar situation - we bought two years ago and are trying to get rid of PMI and take advantage of lower rates. We made up a list of improvements that we made to the house, which we gave to the appraiser and he was happy to have. His primary concerns, however, were that the measurements for the rooms and the lot were accurate, the place was in overall good condition, the condition of the yard, and the view, beyond just the location and neighborhood.

It took all of 20 minutes for his visit and it would have been faster if we weren't talking his ear off. He was interested in stuff that we've done but overall, he was much more concerned with the stuff I mentioned and the recent comps.
posted by otherwordlyglow at 1:10 PM on February 25, 2013 [1 favorite]

My mom is considering a refi on the house I rent from her and she's only concerned with making the outside pretty. Apparently every refi she's done in the past (four) just had drive-by appraisals. I've got a lot of yardwork and landscaping in my future.
posted by elsietheeel at 1:35 PM on February 25, 2013 [1 favorite]

I really doubt there's anything you can do to affect the appraisal. Just be friendly, show off the property and see what happens. You might point out the recent sales that you think support your house valuation but the appraiser may or may not think that they are equivalent comps or the right comps. If the number doesn't come in right, go through the appraisal carefully and contest anything that doesn't seem right -- make your case.

When we had our house appraised the actual report showed a few pictures from a different house entirely and noted the "peeling paint" and poor condition of the eaves. I don't know what was going on there but it's like they just started working on the report on an existing template and didn't finish as that was not at all our house. I actually walked around the exterior of my house going, "I have no peeling paint! My eaves are sound!" before I realized that the photos were of a different property. I called them up and pointed out the discrepancy. I got a new report corrected with the right info but, sadly, the valuation didn't change.

In my limited experience, it's all about the comps first and foremost, it's all about number of bedrooms, bathrooms and square footage.
posted by amanda at 2:17 PM on February 25, 2013

Thank you all so much for this fabulous input.

I guess I should be focused on this point on that creeptastic basement toilet. If anyone has particular knowledge of what will "count" as an actual half bath, I'd be appreciative of your input. It's got a working toilet and working sink, but literally no enclosure. But it does come with a superbly creepy vibe!
posted by waterisfinite at 3:19 PM on February 25, 2013

Data point: We're refi-ing, and just got our appraisal. Values are going back up. We had replaced literally everything in (and on) the house since we bought five years ago, and we got $45K for that in the appraisal. And that from a woman who declined specifics.

I can't find my house on Zillow, but the mortgager did, and I think we appraised a little higher than that.
posted by troywestfield at 6:24 AM on February 26, 2013 [1 favorite]

Since we just got our appraisal back, I can report that extra (probably full) bathrooms counted for an additional $15,000 in value when he adjusted all the comps. It might be different in your area and I don't know about a half bath but it definitely would help for you finish the 2nd bath.
posted by otherwordlyglow at 10:37 AM on February 27, 2013 [1 favorite]

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