I turn to my favorite source of internet wisdom: Qt3.
I am wondering if house appraisals are a science, or guesswork. For example, the house I am looking at has an offer on it for $150K, which I have matched. Things look good. However, I have reason to believe that the house will be appraised at around $130K.
The other offer has been made by the college that the property borders. The college would like to include a “right of refusal” clause in my deed that lets them get an independent appraisal when I want to sell it, and then first dibs on buying the house at that appraised value.
So I’m worried that, given the $150K offer, my appraisor will say, “Okay, it’s worth $150K, since two different entities have made that offer.” Then, if I sell the house 5 years down the road, what if that appraisor says, “The house is worth $140K,” even if housing in the area has appreciated. Ouch!
My question is this: if I had ten appraisors come to the house this month, what sort of price range might I expect? I’m not looking for a particular range, like “$130K to $150K”, because none of you know what the neighborhood is like, etc. I’m looking for answers like “It could be anywhere within a $20K range,” or “One guy could appraise it at $150K and another at $110K; it’s impossible to predict.”
That’ll tell me how nervous I should be about the college’s desires. :)
I’m confused. Why does the college have any say in this whatsoever? Aren’t they offering a competitive bid for the property? If it’s sold to you, why does the college get to include a “right of refusal” clause in your deed?
The college could up its offer on the house if I don’t allow them the right of refusal. They are happy to have me live in it, but are worried that I might sell it down the road to someone else who might then sell it to a landlord in Albany who will rent it to losers.
yes. an appraisal is simply an opinion. two different appraisers will produce different appraisals.
according to what you are saying, the college’s “independent” appraiser could say “this house is worth two dollars and sixty seven cents”, and you would have to sell it to them at that price.
so, yeah, this is a bad idea.
are you paying cash for this house? because it’s usually the money lender who gets the house appraised (they want to know that the collatoral that their loan is based on is actually worth the $150,000).
if you’re dead set on this house, you could give them a first right of refusal for your purchasing cost. so, if you were to move, you would offer to sell them the house for the $150,000 you paid. if the house is worth $170,000 at that time, then you lose, of course. but if the housing market falls, the college might by it from you anyway at the higher $150,000 price just because they dont want asshats living there.
They claim there’s a science to it, but my impressions over the years are that it’s more of an art and many who do it haven’t progressed past paint-by-numbers. The key to an appraisal is the comparable house sales that are selected. If the appraiser does a lousy job of selecting those, the appraisal will be way off. They try to adjust what the comparable houses sold for by estimating how the differences affect the sale price. AFAIK, there is no real “science” to these fudge factors either.
As an example, about 18 months ago, we were looking to build an addition on to our house. Because we needed a construction loan, we had to get an appraisal. The appraiser picked some horrible comparison houses, one over 10 miles away in another city on a major highway (we were located in a quiet neighborhood with a park behind us). The appraisal came in lower than what we had bought the house for six years earlier (though housing prices in our neighborhood had gone way up). When we didn’t get the loan, we ended up moving. The real estate agent did an “appraisal” (I think she called it a market analysis) to help price the house. Her estimate came back $30k higher than the other one and was within $500 of what we sold the house for.
Appraisals are voodoo science. There’s not much correlation between appraisals and sale values around here (the Washington DC area) – except that sale values are always higher. How much higher is the variable that seems to fluctuate wildly.
I would see if the college is willing to alter its terms such that they will match whatever offers you receive when you buy the house. Appraised values and sale values often vary rather widely, depending on the area you live in.
You could also sign a contract that, when you sell, gives the college right of first refusal (matching any other bidder) and, should the college decide not to match the offer, the same condition conveys with the house (i.e. the next seller needs to offer the college the right of first refusal, etc.). That might cause some concern when you get around to selling, but it shouldn’t bother the next person much more than it does you. I’d talk to a real estate attorney to see if you can do that under state law in NY.
I would NOT allow the college to buy it out at appraised value unless home prices in your area closely match appraised values. My wife and I own a condo that was appraised in April at about $350k, but an identical unit just sold in June for $409k. Granted, the real estate market is still batshit insane around here, but you wouldn’t want to get yourself screwed.
could you perhaps negotiate current sale price + X%/year appreciation as the right of refusal cost? or do an appreciation vs appraisal, whichever is greater?
This is a bad idea. Especially when it involves them being able to dictate the price of the sale. I believe that colleges and universities have shown with many signs and wonders that they are absolutely ruthless about getting what they want and you should simply let them outbid you if that’s what they want to do. They either screw you now or later. Better to have it be on your terms now rather than their terms later.
Thanks to all of you for your replies. I would like to work with the college, since I am a professor, and want to be on friendly terms. I think I will approach them with beecubed’s idea (above). Especially the “whichever is greater” part. I might also go with…
In any case, I won’t go with the college’s initial idea, especially after reading the replies I’ve gotten so far. I knew Qt3-ers wouldn’t let me down. Thank you! And I welcome more ideas; I’m reading the thread carefully.
I’m not paying cash; the bank will get it appraised. I’m just wondering if the fact that there are two $150K offers on the house will make the bank appraisor conclude, “Well, it’s worth $150K, clearly!”
I don’t think the housing market will fall. The town is quite small, the college has been around for 120 years, and housing has appreciated steadily at around 4% a year for a long time.
This house is very sweet. It has a bit of a parking issue; otherwise, you’d think the president of the college would want to be living in it! Nevertheless, I am not feeling like I must have this house. But it’s definitely #1 on my list of houses I want.
Based on comments in this thread, I formulated a proposal that the college is willing to accept: When I want to sell, the college will pay whichever is higher: the appraised value, or my original purchase price plus a set annual appreciation (currently on the table is 2%, but we’re still thinking about this part; at 2%, a $150K house would be worth $182,849 in ten years).
If anyone has suggestions or questions, I’m all ears.
At least in most real estate markets I know. Then again, I know Toronto, Edmonton, Calgary, Vancouver, Austin, and Santa Monica so… not exactly the most diverse sample available.
Yeah, but realistically the appraisal will take care of a greater growth rate than the 2%.
I’d include a clause that stipulated it was the higher of the set appreciation rate or the average of multiple appraisals, though. It’s been a while, but when I was a kid we moved a lot, and the company my dad worked for did relocation by either the actual sale value of the house, or the appraised value. I think the appraised value went as an average of appraisers, one from the company, one from my parents. Needless to say, it’s worth paying another $500 or whatever to get a couple appraisals if the company appraiser is lowballing you to the tune of $30k.
Generally if you’re in the position of finding an appraisor, you can get information from others who’ve gone through the same thing and determine who tends to lowball (almost always for corporate interests) and who tends to favor home buyers (realtors are good here, since having a higher appraised price gives you leverage on upping the house sale price, and hence their commission).
“Realistically”? Look, if his only option is to agree to the 2% rate or the appraisal of a man hired by the group looking to buy his home, I wouldn’t be surprised if the 2% was the best he could get or if the appraiser only valued the home nominally above 2% in an attempt to appear fair.
2% doesn’t even cover inflation.
I’d really consider a lawyer.
Of course, all this assumes there actually is a housing market in Albany, that it’s more like Austin than Rochester or Buffalo.
I have a real estate lawyer, and will run this by her before I sign anything. I’m sure we’ll discuss the 2% rate, whether or not this counts as a lien, and the idea of multiple appraisals (and who will pay for those!).
Well, my point was that if he’s stuck relying on the 2%, he’s either not set up the appraisal thing to not screw him, or the housing market is recessing. If the latter, it doesn’t matter what the fuck the rate of inflation is, because his investment is devaluing. I would tend to think, in that case, having one’s value progress is good enough hedge against the future, no matter what. If you buy housing in a declining market, you lose money. Them’s the breaks. There’s a lot more potential for being screwed on the appraisal side, because that’s what kicks in if the market continues to appreciate.
Sounds like Troy to me! Good luck at RPI if that’s the case. :P
Thanks to all of you for your replies. I would like to work with the college, since I am a professor, and want to be on friendly terms. I think I will approach them with beecubed’s idea (above). Especially the “whichever is greater” part.[/quote]
hooray! after only 300 posts, my first positive contribution to QT3! i’ll see you guys again in 2 years.
