The frantic call came in from the lender last week. "The appraiser valued the property $14,000 less than the contract price."
The house is in a popular subdivision in Salt Lake City known as Sugarhouse. The majority of the houses in Sugarhouse are bungalow-style houses built in the early 20th century. The houses are as diverse as the people who own them. However, there are three distinct types of houses; 1) grandma houses that haven't been updated since the 1950's; 2) do-it-yourself remodels that more than likely have electrical, plumbing, and maybe some foundation issues; and 3) professionally remodeled homes with updated kitchens, bathrooms, and mechanical systems.
This particular house fell into the third category. It has a full-height professionally remodeled basement, which is pretty rare for this area, and an updated kitchen. Further, it had all new plumbing, electrical, and a 95% efficienct furnace. The property inspection report indicated a relatively trouble-free property. Not the shabbiest house on the block. So, you can imagine my surprise when I received the phone call. My buyers forwarded me the appraisal and I could see right away that the appraiser could have used some better comparables. He/she was using properties that fell into categories 1 and 2 and attempted to adjust the value accordingly.
Condition is king in Sugarhouse, and the adjustments seemed arbitrary. This appraiser had no way of knowing that my clients had seen three of the houses included in the report (we have been looking for too long). I have a feeling that my clients were as well informed about the comparable properties as the appraiser was. After all, they had seen them in person and I doubt that the apprasier saw more than what was on the MLS. This isn't to say that my clients know the ins and outs of value adjustments better than the appraiser; what I am saying is that my clients (as well as me) have a pretty good idea of whether a house is worth what they offered for it because of their experience in the area. Further, we were one of three offers on the property, and the lowest one at that. If we were being unreasonable with our offer, what were the other presumably well-informed buyers thinking?
The question I pose is "do buyers have a better idea of value than appraisers?" I know that there will be some appraisers out there that will take issue with this questions. But, isn't a buyer who is actively looking in a specific area who has seen the majority of active and sold listings in that area over the last four months a pretty good judge of value?
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