The effects of slow sales in the last two quarters of 2008 and the first quarter of 2009 are beginning to be felt more and more on recent sales. Despite all of the recent changes by Fannie Mae, Freddie Mac, and PMI Companies, the biggest obstacle that I am having with getting loans approved recently is appraisals.
Because of the slow sales in the last two quarters of 2008 and the first quarter of 2009, Appraisers are having a difficult time in finding Comp's to support recent sales. I wrote a blog at the end of last month "Slow Sales Causing Appraisal Problems", in which I shared this problem on a property that I was doing a refinance loan on. But this issue is becoming an even bigger problem with recent properties under contract, especially if the property happens to be unusual in any way.
A good example of this is a loan that I am working on right now. This property is listed on city records as a two-family house, but it is no longer a legal two-family house, because the two units do not have their own separate entrance and exit, and they also have shared utilities. This is because the present owners made it into a single family house with an In-Law Apartment, which best fit their needs.
The person presently purchasing the property wants to just use it as a single family, so not being able to use it as a two-family house or even as a single family with an In-Law Apartment is not an issue for them. But it is an issue with the town, and with Comp's to support these uses. OH I am leaving out one one other little thing, this house also has a barn/really, really big over-sized detached garage.
The agreed upon selling price is $360,000, but if it is made to conform to town records, as a two family house, it will only Comp for about $280,000, because there are no two-family houses have recently sold in the area, and the closes Comp's are several miles away, and even those Comp's are several months old.
If they go through the process of changing it to it's present use, a single family with an In-Law Apartment, it will Comp higher, but again there are no recent sales of single family houses with In-Law Apartments in the area, and to even find the most recent Comp it is again several miles away, and several months old.
What they are having to do is turn it into what the present buyer will be using it as, a single family house. This means basically tearing out the kitchen in the second unit so that it can not be used as a two-family or single family with In-Law Apartment. This is what both parties have now agreed to, and the building department will re-classify the house as a single family upon completion of the work. But this is not the end of the appraisal problems.
Remember the little point I made about the barn/really really big over-sized garage? Well that is a little bit of a problem as well, because there is no other barn/really really big over-sized garage any where in the area, and this is one of the main features why the buyers want to buy the house. The wife is an artist, and this would make a fantastic studio for her, but without anything else like it in the area, there is nothing to Comp it to. Normally this would not be as big of a problem if we did not have the other issues to deal with. But with the difficulty in finding Comp's for just even the general use of the house, this further compounds the problem.
I don't know how all this will all turnout, but we should have some answers this coming week, when the Appraiser gets back to us with Comp's based on what the end use will be, and most likely not giving any value to the barn/really really big over-sized garage soon to be art studio. But this whole transaction would have been so much simpler, if two-family or single family houses with In-Law Apartments had recently sold in the area.
Hopefully the increased sales this Spring will start to have a positive impact on the sales to follow, and finding Comp's will become a little easier. But right now everyone is having to work a whole lot harder to keep transactions together.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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