Hi Kolarik,

Good post, I had not heard this. Do you really think values can be at their tipping point based on appraisals in Manhattan or will sellers and brokers demand no financing contingencies?

My first year in real estate about 6 years ago I had two apartments that didn't appraise. One was a 440 s.f condo studio in Greenwich Village. It was an xxx mint "over the top renovation with remote control everything for $495K. My broker said it will never appraise. She called it a "pad" not an apartment. The listing agent wasn't concerned. The appraisal came in at $399K. I think the appraiser was Mitchell, Maxwell and Jackson, the mortgage broker wasn't Manhattan mortgage but another big mortgage company. They had a 2nd appraiser but the results were the same. 

My buyer still wanted the apartment so he offered $450K (50K cash) half way between the appraised value and the sale price. The seller said no. The lsting agent said it was my responsibility to get financing for my buyer. He got out of the contract and I found my buyer something else. The seller put it back on the market with another agent. It sold for even more I think to either a cash buyer or another buyer who's appraiser thought it was worth it since appraisals are subjective. The apartment has since sold 3 times, last time close to $700K.

The other one was my exclusive a charming romantic 500 s.f.  Jr 1 BR in a Chelsea brownstone on 23rd St with brick wall and fireplace facing the Fitzroy gardens. That one I had multiple bids. It sold for $429K and appraised at $399K, I knew I might have an appraisal problem so we asked the buyer to put 25% down if necessary. At 25% down he was able to get the mortgage. There was another bidder at $450K.

Ever since then I have never had another appraisal problem because I am paranoid about appraisals. In fact I have had them appraise for more than the sale price. I recently had one that appraised $140,000 more than the sale price. I always do my homework. I meet the appraiser with comps on a spread sheet if there were multiple bids I bring the other written offers. 

Isn't it really about the market and what buyers are willing to pay not what an appraiser thinks. IMHO If the appraisers are not from Manhattan it usually is a problem. I think the appraiser for the Chelsea apartment was jealous because I remember he kept saying "My 3 bedroom house in Long Island is only worth $275K why would anyone live here and pay this much for a 500 s.f apartment"? I don't think that is his decision to make. Many appraisers do not know the nuances of one block to another. I find it is usually small apartments that show really well that have the problems because appraisers go by square feet.

There are so many variables that affect prices. Even the same unit or line in the same building can be worth more. Renovations are subjective and most appraisers have no idea what condition a comparable closed sale was in. All they have is a raw number. One time I had to have the President of a coop board call and put in writing to an appraiser that there was a fire in the apartment he was using as a comp which sold way below market value and shouldn't effect the sale prices of other apartments in the building.

It will be interesting to see what happens. I've heard mortgage brokers say they can always turn around a bad appraisal but that has never been my experience.

Hi Mitchell, thanks for your response.    The unique studio apartments are often the ones most difficult to get necessary value on, and as you have pointed out there are many unique reasons why true market value just can't be established by an appraiser, thus putting the kabash on financing.   I do think that Manhattan prices are about to take a drip.  I'm not alone, there are others out there that share my opinion if you read the financial/real estate related blogs.  All that needs to happen is for the stock market to take a turn for the worse and that has just not happened yet, but it will.  Most people don't remember the dog days of NY real estate. Forget about the blip after 2001, think about the late 80s.  When NYC crashes it crashes hard and stays down for a while.  This appraisal snooping that Cuomo is doing could be the straw that...  Hana

I remember I bought my apartment in 1989 in a brand new building. The developer went bankrupt and in 1993 they were selling apartments like mine in the building for $90,000 less than I paid. It took years for prices to go back up. I thought last year was our correction. I wouldn't mind if prices come down more.