Might be pulling the trigger on a home purchase soon, need a little advice.

[RYU]

A DTI of 34% is a bit high in today's market but it's not too high I reckon. Since the Mortgage Backed Security disaster lenders have preferred a lower DTI. In my experience having a bigger down payment is advantageous since it puts the lender at lesser risk. Lesser risk = lesser loan expenses for you. This often translates to lower rates, no PMI, etc. If you buy correctly the equity you put into your house (i.e. down payment) comes back with profit (i.e. return on your investment).

I've been "in" Real Estate for a long time. All the cliche phrases are true.
* Location, Location, Location
* You make the money when you buy (as it relates to a flip)

You should look into this home as a starter home but be smart about it. Sacrifice now for things that may not be best for you but will make the property much much easier to sell (at a profit) in 2-3yrs. With this in mind your criteria tends to change. You may be open to 5yr fixed adjustable loans that you may not have thought about. A 3.5% 30yr fixed is nice but it's not what sophisticated buyers tend to do if they expect to "trade up" later on. With that said, I've had much success with owner carry financing. This is here the seller drafts his own note. If you find a buyer who prefers to get a monthly cashflow then both of you benefit by eliminating the middle man (the bank). Every deal is different. You need to find each seller's motivation. Post the details here. We'll help you.

I don't know why people are mentioning California. It's totally off-topic.

Something to keep in mind. Real Estate is incredibly localized. Find an area(s) you like. Ask your realtor to send you weekly listings as well as sold info. Asking prices really mean nothing until you know what they sold for. You don't know if in your area houses are bidding above asking price or if they are barely selling at asking or sold at significant discounts. How long a property has been listed for is also a big indicator. Though, realtors/brokers/sellers are the old trick of delisting a house for a month or more and relisting it. New buyers think it's new on the market when it really isn't.

I also use brokers all the time but they have to be local to the property or at least in-tune with the area. They are worth their money if they are good. Often times good, respected, and established brokers will come across listings prior to being listed. I like these deals too if the seller has realistic price expectations. With that said, buying a house can certainly be done w/o a broker. If you have the time go for it. If you make a mistake though.. it tends to be a BIG mistake.

Mild fixers are a PITA but they make the most money or better yet.. allows you to create the most value. Get familiar with per square costs for easy repairs like new floors, or paint, or roofing. People say... get the best inspector possible... I say.. find the inspector that finds the most issues. This gives you great leverage in the negotiation.

Sorry if this is all TMI. Not sure what's your appetite for Real Estate. There's one thing I tell my friends who are not in Real Estate. Take time to study your local market (as mentioned above). 1yr of studying does wonders. Unfortunately there will be those at "got away" and no one can predict the future in terms of rates or what not. In the grand scheme of things...1yr is a short time and things shouldn't fluctuate too much. I also say 1yr because i've noticed home sales tend to heat up in the summer. Families don't like to move their kids during school season...not to mention no one likes to move in a blizzard for the non-California residents

 

[naaman]

Not even close to TMI, Ryu. I appreciate the input greatly. Come Monday, my wife and I will be discussing weather to apply for a loan. I don't particularly care about a 2-digit application fee (she does), even if they don't offer me as much as I want to shop for: I'm somewhat curious to know where exactly I stand from a lender's perspective. And if I can get into a recently built, no-issues house for a mortgage that will save me money over renting, then I'm all for it. My wife (and I) like to be careful and plan diligently, but as I said earlier, I feel that the clock is ticking, and we already missed out on the best opportunities in recent history. On the other hand, if they say I only qualify for $80k or something rediculous like that, then I'd consider it more advantageous to wait and position myself better.

As for the DTI, are you saying that with mortgage included, 34% is high? Before the mortgage (that is, right now), I'm sitting on a 13% DTI. In about 6 weeks, I will have that down to 11%. And remember: that number does not include my mandatory overtime, performance bonuses, VA benefits, etc. My "base" salary is about $20k less than what I actually make after OT, and my VA benefits (though temporary) net me another $20-30K (untaxable).

 

[Yinzer]

I wasn't sure whether you are a first time buyer but regardless - I've learned a lot and keep learning after 4 houses. Hoping this might help, and maybe I'll learn something new in this thread, here are a couple of things I wish I knew about early and learned on my own after 4 purchases over the past 15 years:

I'd suggest verifying where your property tax will most likely land after any purchase - when verifying what you can afford and predicting your likely monthly budget after purchase, don't be tricked into looking at the current annual tax bill listed on MLS sheets for a house that maybe hadn't sold or been reassessed in 25-30 years. It may have really low taxes mostly because it's flown under the radar and not been reassessed in so long. This is especially if your area is due for a property tax assessment overhaul soon. A new reassessment in an area that's appreciated decently well, coupled with a house that last sold for 50% or less of what it's currently listed for could turn the current $1,000 annual taxes reported on the MLS sheet into 3-4x or more should you get reassessed soon, and especially if they're basing assessed values largely off the new sale prices. When I was looking to buy my second place in Pittsburgh after just returning home from Detroit in 2000, Pittsburgh was in the midst of their first major property tax reassessment in decades and it shocked me how RE agents would always point out to the low low taxes of some beautiful places that hadn't sold in 25 years, and not one gave me heads up that my taxes could quadruple in a few years. The house I did buy had its taxes double just 4 years after purchase. Assessed value went from $85k to $200k, and I was happy with that because I paid more than $200k for it; a similar house a block away got reassessed at $300k+. So watch the tax scenario.

Secondly IMHO I wouldn't pass on a home inspection and would most definitely instead pick an inspector only based off a strong referral from someone you know and trust, and not necessarily your RE agent even though they may have very honest and good intentions. Would be especially best to pick one familiar with the area you're buying. That $300-600 could be worth thousands more; a good one may find hidden issues you'll not want to be surprised by later, for one thing. Secondly they may uncover things that could be honest bargaining points and more than pay for the cost of the inspection. If Swift got by w/o one, and it's possible - I'd say he got lucky

3rd make sure you get a seller's disclosure immediately and read it line by line; might find gems of info worth looking strongly into yourself and during the inspection. Sellers are supposed to disclose any and all problems or related repairs/improvements they're aware of.

4th especially if your first purchase I'd vote for definitely using an agent. I bought my 2nd house w/o an agent and then sold it years later on my own; it can be done with experience for sure! But honestly that was a special case for me - there I knew EXACTLY the block I wanted to live on, and when I saw a place come up on the market, I went directly to the selling agent at an open house and worked out a deal that benefited me vs the nearest bidder likely only because they took the 3-3.5% commission out of play since I didn't have an agent. On the flip side, there is no way possible I would have found my purchases #2 & #4 w/o an agent - both were pocket listings (off the MLS and generally known by few people) - in those cases the agents were super well versed in the area I wanted and since they knew what I wanted, they called me immediately when they came up. Zero chance I would have gotten either w/o an agent and totally worth my using them. So an agent well-versed in an area you want could open up opportunities you'd not know about. Good ones are way more than just chauffeurs in BMW's. Also picking one with their home office just blocks from - or within walking distance from - your desired neighborhood is gold.

5th, and I just learned this when refinancing #3 and when buying #4 - realize that just because you find a house that you think is a good value and you're approved for a certain amount by the bank that will cover that purchase amount - there's the final hurdle that the house needs to appraise at a value that will support your loan. For my 1st and 2nd and 3rd houses, which were way before the housing crash, each miraculously appraised at my exact offer price or within a few hundred dollars, even though I got a screaming deal from a desperate seller on my first condo (complete first timer's luck) that was $20k less than any comparable neighboring unit. Before the crash, at least in Michigan and PA, it was almost a formality for the house to appraise at a value @the offer price so that the bank would be willing to lend you enough to support your offer, as long as the offer/purchase price was within a reasonable value (i.e. you couldn't buy a $100k house for $500k for so you could have access to money at a low rate). After the crash, it's clear that banks and appraisers are much more wary. There's every chance that a house could appraise too low to support your loan. Maybe RYU and/or HTU can chime in and agree or disagree or expand upon that. I went to refinance my 3rd property (which I bought before the crash) after the crash. Its gross rental income (and NOI - net operating income after expenses and before mortgage) had gone up some 25% since I purchased it and I put on a new roof to improve its value, yet it appraised at 10% lower than what I purchased it for, only because there were zero comps similar to it within 5 miles (3 unit multi-property) and because appraisers were flying a bit "scared" after the crash and playing things very cautiously. I bought a place for a 4th time in Feb 2013 and they're still very cautious. So, maybe before you pay for an inspection and before you pay the bank for the appraisal, you could maybe ask your agent or do your own research for properties that sold recently nearby and make sure they're in similar condition to yours (are good "comps") and sold for near your price. I'm not sure, but maybe your bank (ask your lending officer/contact) could give you a list of recent properties they financed like yours, in the neighborhood, at similar prices, etc., and could give you confidence that you're well in the ballpark and won't risk spending $400-600 for an appraisal that will come in too low to support your loan. I believe banks/officers aren't supposed to tell you they think you'll appraise fine or do anything close to guaranteeing it. Because appraisals seemed to "automatically" come in at exactly my buy price before 2006, I never picked up on that "risk" until my refi of #3 above, and like I mentioned, even the purchase of #4 had a few tense weeks of waiting for the appraisal to come in.

Anyway. I hope this is even relevant to your situation! Pardon me if not. But not to sound too self-interested, I always learn something new in these conversations, and these are definitely things I sure wish I new early, so I'm glad to share, hoping it's relevant here. Then again sometimes ignorance can be bliss and not knowing too much can be an advantage, ha ha! Sounds like Swift got a good deal and saved some money and his house turned out solid, and I did super well on my first purchase completely not realizing how many risks I took - I way lowballed in a condo village with usually super high demand but it was the first time in forever that there were more units for sale than shoppers. And luckily the seller had already moved into her new bigger condo and was desperate to get out of the one I bought. She even paid to have the entire interior painted neutral to try to get an offer. I think I was the first person to see it after painting (score!!). I would never have lowballed if I did research on the demand for that condo village. Like so many things in life, timing is everything... Also even though I talked with some neighbors to gage the village, I didn't ask any questions about the condo association board & fees and whether any special assessments or increases in the monthly association fee were coming up. Turns out I got lucky in that it was a GREAT board. Then my 2nd condo had a DISASTROUSLY bad board where most neighbors disliked the way things were run, and I mistakenly didn't ask around that time, thinking I could just "tell" by looking at the nice condition of the grounds & exterior....and there was a $3000 special assessment that came up months after I bought and which had been in discussion for months....ugh never flying blind again.

And safe to say you could likely do a search in Prime for similar new buyer discussions and get some gems of info in similar threads. Unlike a general internet search for advice, Prime members are willing to give some back & forth info catered to your situation. Good luck and thanks for your service!!

 

[docjohn]

.....In this new era of bank rules never underestimate how low an appraisal could go screwing up your chances of getting a mortgage on your terms.

 

[Yinzer]

^^^^^^ what dj said. I lost $600 on the appraisal cost for the refinance attempt on #3 that I mentioned above. To add - I then attempted a refi again a year later and spent $500 for another appraisal, this time working with my existing mortgage's bank, thinking that might "help" somehow, and the 2nd appraisal came in $5,000 LOWER than the first one! An option was to pay $$$ out of pocket to get the new loan value to 80% of the appraised value, and we eventually instead just restructured my existing loan which was already 4-5 years into things - so instead of getting a brand new 20 year fixed mortgage to get out of my 15 year balloon loan, I got a restructured 10 year mortgage at a lower rate but still with the balloon due in 10 years - which cost another $300 restructuring fee on top of the $500 appraisal fee.

Until I ran this refi maze, I just assumed that appraisals and refi's were automatic no-brainers. Not any more since the crash and the new era of bank rules and conservative behavior all around. Which has its benefits too...

If confusing to some, a balloon loan is something like: You make payments as if it's a 20 or 30 year loan but after 15 years or so, you owe all of the balance of the loan then & there, or you refinance it at current interest rates.

 

[naaman]

.....In this new era of bank rules never underestimate how low an appraisal could go screwing up your chances of getting a mortgage on your terms.

Wait... if the appraisal is "too low" does that mean that the bank simply won't pay for the house at the asking price? I don't get it. If it appraises low, doesn't that increase the buyer's leverage in the bargaining process with the seller?

 

[docjohn]

the problem is that the agreed to price you have with the seller may have no relationship to the appraisers value that the bank hires.Now on the bright side if the home is "just like all the others" around it your chances are greater that the appraisal and actual price will match...its when you get into more unique/ larger/over improved homes that have fewer comps....you run a greater risk that the appraisal will be lower than you need...then you have to get into a higher rate loan with the possibility of needing a second mortgage..

 

[naaman]

I see. I assumed that I would have the appraisal before I made the offer. Does it usually work the other way around, then?

 

[PghMiller]

I see. I assumed that I would have the appraisal before I made the offer. Does it usually work the other way around, then?

If you sign an agreement with a seller for $100,000 (example)... then the appraisal comes in at $95,000........ the lender WILL NOT give you the loan (because they are trying to protect you... the seller is trying to get more than it's worth). At that point, yes, now you have a great position to renegotiate with the seller and get the house for $95,000 instead of $100,000..... or else the seller has to walk away and try to find another buyer, but once the NEXT buyer gets an appraisal, the seller would most likely find himself in the SAME position with the next appraisal!! (so he might-as-well sell it to YOU for the $95k).

I own a mortgage company and see this happen every month. Honestly 1 out of every 10 purchases I see, the appraisal comes in too low, and the seller takes the hit and sells it for less than he wanted to.
I usually "help" the buyer talk some sense into the seller (and their agent) to get them to agree to just sell it now for the "FAIR market value" rather than waste their time trying to get it for a price that's NOT legit. (Realtors are NOT appraisers... Realtors are only guessing/estimating what the "fair market value" is for their client. It's the APPRAISER'S job/education/licensing/experience that dictates what the house is really worth)

But the Realtors could look over the appraisal to see if the appraiser did a quality job... and if they notice some issues, they could "dispute" the appraisal.... but I RARELY see appraisers "admitting" to the realtors that they did a bad job..... most of the time these "disputes" just turn into a pissing-match and the appraiser ultimately stands by his original appraisal. (it's the appraiser's final judgment call anyways)

 

[naaman]

Okay, I see.

Is there a formal sequence of events with regard to buying the house, or can/should I get an appraisal before making an offer? Seems like I would first settle on the house I want, and then once I know that I want to buy it, pay for the appraisal (does it come out of my pocket/add to my loan?). Seems better than paying for an appraisal on a house I might be outbid for...

 

[PghMiller]

You couldn't even get an appraisal on a house that you didn't have a signed contract for!
So yes... Pick a house... Negotiate and come to an agreement... Then get an appraisal (almost always paid for out of your pocket at that time).
Also your DTI is perfectly fine, nothing to worry about there.
I would stay away from the VA loan, unless you absolutely need the full 100% financing.

 

[dquarasr2]

Great advice here from knowledgeable posters.

My little tidbit: I don't know if it is still true, but I always heard it's better to buy the smaller house in the nicer neighborhood rather than the largest house in the "average" or "iffy" neighborhood. This has always worked for me. Best of luck.

 

[docjohn]

afaik the only appraisal that matters to the bank is the one they schedule.They "randomly" choose from a list so as to be impartial .In the old days the game was rigged....those relationships still exist..but all the players now have to act as if the past never existed.

 

[CL65 Captain]

I usually "help" the buyer talk some sense into the seller (and their agent) to get them to agree to just sell it now for the "FAIR market value" rather than waste their time trying to get it for a price that's NOT legit. (Realtors are NOT appraisers... Realtors are only guessing/estimating what the "fair market value" is for their client. It's the APPRAISER'S job/education/licensing/experience that dictates what the house is really worth)

False. FMV is what a buyer and seller agree when neither party is selling under durress. The appraisal is the appraiser's opinion on value and only that. It takes two parties to come together to achieve FMV.

 

[Yinzer]

Wait... if the appraisal is "too low" does that mean that the bank simply won't pay for the house at the asking price?

You want to buy an NSX and finance some or all of it. The bank “appraises” it via their methods independently of what you or the seller thinks is the FMV, and they’ll likely loan you only a certain % of their appraised value. (Or all if it's penfed, lol). You could increase your downpayment to reduce the loan amount. And then later, a typical insurance company will insure your car for a certain value based off their own appraisal method, which may not jive with your opinion of FMV or even with your loaner’s appraisal/appraised or what NADA/edmunds/Hagerty says...

I don't get it. If it appraises low, doesn't that increase the buyer's leverage in the bargaining process with the seller?

You can tell the NSX seller that his low-mile 1992 GPW coupe in snap ring range should sell for $34-35k absolute max since comparable 1992-1993 black or red coupes with even less miles and fully updated maintenance sold for $32k recently and since Haggerty/NADA/edmunds “appraises” the value of his 20 year old GPW at $25-30k, but the seller will most definitely have his own opinion that it's worth $35-50k even w/o service records and hold out for the right seller (or sit on it forever even 2 years after last speaking with him), if not also get irrationally p'd off with you for trying to convince him differently of what FMV is, and then cut off all contact with you, again irrationally, lol. Not that I experienced that 2-3x or anything before finding my NSX w/totally rational seller.... So, IMHO of course a ‘low’ house appraisal *could* help a buyer try to convince a seller to come down a bit but IMHO I think that would only or mostly work for a highly motivated seller who’s getting desperate or even impatient, and you're not talking about a vast difference in asking price vs. appraised value, like $75k appraised value for a $150k house...

FMV is what a buyer and seller agree when neither party is selling under durress. The appraisal is the appraiser's opinion on value and only that. It takes two parties to come together to achieve FMV.

agree 100%. Appraised value means different things to different groups...I'd go so far as to say that the appraisal mostly of importance to the bank, then secondarily is of value to the buyer (to further confuse, there are times that you as a buyer/owner want a high appraised value and then later a low appraised value...want it high enough to secure the loan but sometimes want a low appraisal such as when appealing a high property tax assessment), and last I'd say the appraisal is of little use/importance to a seller...maybe except when the seller pays for an appraisal to try to get a realistic FMV, but I don't think that happens too often maybe except for high-value properties IMHO...

To help naaman understand more where the appraised value really comes into play for him as buyer: a main thing the appraisal does for banks is help them measure their risk/security in case you the buyer default on your loan. If you can’t make your payments, how much can they sell it for and then cover your loan balance? Also is why the requirement for 20% down (increasing to 30% lately in many cases, after the housing crash) – that gives them added cushion in case they have to sell your property and pay themselves back for the loan you still owe. Also gives them added confidence to know you have some skin in the game; you’re less likely to back out of paying your loan payments.

To the sellers; appraised value doesn’t matter as much to most sellers. IMHO they have a perceived value of what they want to sell for. See the NSX example above

Maybe Bryan/PGHmiller could chime in, but; also if the appraised value comes in lower than the offer price, it’s possible that the bank could still do the loan if you pay a higher downpayment, so that the loan is decreased down to the bank's requirement of LTV loan to value...frequently 80%...often 70% nowadays too....I could have gone thru with my refi if I had paid down the loan by a few $10k’s but I didn't want to go that route.

Like docjohn says, also keep in mind that often (or maybe always), bank B won’t accept the appraisal done by bank A…could be frustrating when shopping around after a failed loan attempt with bank A and you have to start at square one and pay for an additional appraisal…

I agree that PGHmiller is 100% correct in saying that disputing an appraiser’s report usually becomes a futile pissing match and rarely results in a change…been there done that 2x. And if you do pursue a dispute, do make sure your agent actually reads the appraisal and doesn’t request something to be re-addressed that already was addressed in the report! Boy does that seem to disrupt the beehive & anger appraisers, lol. Happened to me once and will happen only that one time. All seriousness aside, it seems to me that appraisers more often than not have huge chips on their shoulders…joj mene...

Something to realize too about how appraisers approach their task and use different "senses of value" than what a seller or buyer would use: I mentioned earlier my having two failed refi attempts despite vastly increased value in my property since the 2006 purchase IMO (rents increased 25%, I added a new roof, and the Pittsburgh market had *not* seen a falloff in property values like many areas of the country). Appraisers seem to value recent nearby comps the most. The problem for me was the appraisers had not one comparable 3 unit within a few miles of me that sold within the last year or two. That was the only reason. Also for the two appraisers in my case they virtually ignored han the other 2 available measures of appraised value, both of which were included in the appraisal reports: replacement cost approach & income approach. In my case, the income approach could have shown a 20-25% increase in value to my particular property. (I assume that income appraoch is used only for income-producing properties). So if you can find comps for nearby houses that sold recently, that would help you gain confidence. If your bank won't provide a list out of courtesy for you of recent nearby similar homes they financed, then usually the local newspaper lists real estate transactions daily or weekly. A few hours at the library or online can be of big value to you if you have doubts and need to gain some confidence before plunging ahead with an appraisal. Also your local city or county taxing authority may have an online system where you can look up & down your street & neighborhood for recent sale prices by typing in a street name or address. Example:

http://www2.county.allegheny.pa.us/RealEstate/Default.aspx

So all I’m trying to say is: A) assuming this is true nation-wide, just realize that what you or the seller thinks defines value doesn’t matter to an appraiser, who likely places the majority of his measuring work into looking at recently-sold similar nearby comps. B) like CL65 captain says – as seller, appraised value means nothing to me if I wanted to sell. I personally have no doubt I could sell my property for 20%+ more than I paid for mine since it needs no work and the income has increased 25%, appraisal be damned. One could say: but any buyer I'd seek might be similarly hindered by possibly receiving a low appraised value too. You're right and I'd have to consider that, if not also/instead hold out for someone who is a cash buyer or who could put down much more than 20% etc.

One more comment on the obvious “appraised value mans different things to different people” mindset: in my case the appraised value came in lower than my 2006 buy price which was a real negative for my refi attempts. The local property taxing bodies happen to do their own appraisals when picking new property values for taxing, and often they use actual purchase prices or nearby comp purchase prices. I don't think they actively seek out recent appraisals; would be too time-consuming. So if a property near me sells in 2014 for 25% more than I paid in 2006, it’s possible my reassessed value could be based on the nearby recent sales price. Or if you buy a property for $150k for which your local property tax agency has an assessed value of $40k from when it last sold in 1985, it’s possible your next year’s tax bill could be based on your $150k purchase price, meaning your property taxes could quadruple from the number shown on the MLS… BUT here's where a low appraised value could help me: it’s entirely possible for me to take my appraisal report to the taxing agency and appeal for a lower assessed taxable value based on my low appraisal. Or if your appraised value was $130k and your new assessed taxable value was placed at $150k, it’s possible for you to use that to appeal for a lower taxable value.

Just some rambling opinions & facts on the differences between FMV & appraised value and how they are used and valued differently by different people/entities. As a buyer you want a high appraised value to ensure your loan but you want a low FMV so you can buy it as cheap as possible, and you want a low appraised value so you can possibly pay less property taxes down the road…oh the yin and the yang of it all.

Yes I enjoy real estate & housing talk…always wanted to be an architect and I swear I would try real estate selling if I ever decide I don’t like engineering…

- - - Updated - - -

Also FWIW, I’d suggest to not shop for loans based off just lowest rate, lowest overall closing costs, convenience (i.e., contacting them via internet only), or blindly based off one recommendation. And I’d also suggest sticking “close to home” for loan providers if possible.
<o
Don’t think I’ll ever again go with a loan from somewhere not local or where I can’t visit the office or which might work with appraisal companies based far away from where the area where my target house is or even out of state. For my first refi attempt (which at the time I wasn’t as familiar with the ins and outs that I spouted about elsewhere in this thread) I worked thru my friend’s wife who was/is a RE agent & who suggested using a local mortgage broker she’d worked with often. As I had no idea to even watch for this at the time, they ordered my appraisal from a company based in Florida who likely shopped around for an appraisal company licensed to perform appraisals within my county/city but who really was not very familiar with my city and with key comparable neighborhoods nearby. His comps were kind of random and he missed a few relevant/similar comps near me that would have helped my appraisal significantly…and he grossly undervalued the value of having 4 offstreet parking places near the heart of downtown PGH…and he belligerently didn’t consider any appraisal adjustment requests…gives me a headache just thinking about it. Maybe again Bryan can chime in – the buyer can’t influence who the bank uses for appraisals I think, but the buyer can ask the bank if they get their appraisals from a local appraiser, etc. The bank I used for my past 2 loans was HQ’d in my very area (a local bank and not a nationwide bank) and used an appraiser just 1 city away.

I know this is probably info overload. But maybe some of these might help.<o</o</o

 

[PghMiller]

False. FMV is what a buyer and seller agree when neither party is selling under durress. The appraisal is the appraiser's opinion on value and only that. It takes two parties to come together to achieve FMV.

I'm not going to argue on here with you guys... here's my final 2 cents and I'm exiting this thread...
It is definitely NOT the buyer and seller who DECIDE what the Fair Market Value is...
Just because one moron says "I'm going to sell my house for ONE MILLION DOLLARS"... then some other moron says "OK i'll buy your house for that much"... DOESN'T mean that's the Fair Market Value. It has to actually CLOSE in order for it to be recorded and go down in history as the FMV. And like I said, if the appraisal doesn't come in, that loan will never close... unless the buyer wants to pay cash in-full. (to answer Yinzer's question above... even if the buyer is willing to make-up the difference in cash, the Lender still will NOT consummate that loan if the sales price exceeds the Fair Market Value, as documented by the appraisal..... they see that as some sort of fraud that may be occurring, so they will not participate in that loan unless the sales price is equal to or less than the FMV)

So ultimately, it kind of IS the appraiser who decides the FMV. But I know what you're trying to say, but like I explained, just because 2 morons agree to a price doesn't mean that is the legitimate FMV. Who are they, and what credentials do they have, to make that kind of experienced decision??? (true, any 10 appraisers would come up with 10 different "values" for the home... so this is a controversial subject of course... what's weird is that a FMV isn't "confirmed" until it actually closes... which the appraiser gets the final say in regards to value)

Sorry Yinzer, I didn't read your entire novel above LOL but I did see my name in that one paragraph so I acknowledged that one question of yours!

 

[Yinzer]

Argue? Who's trying to argue here? :smile:

If "FMV" is a mortgage industry term with a narrow & specific definition then you have a point, but I think you're overlooking how it's almost the norm around these parts for morons to freely pay $35-50k for low-mile pristine NSX's w/updated maintenance from non-duressed moron sellers, regardless of any "bluebooks," lenders, or insurers sticking to appraised values of $25-35k... Buyers/sellers define the market value as long as they can work within whatever restrictions exist...the appraiser...the bank...the bank account...the wife...

Hypothetically speaking, it's compelling to think that it could sometimes be the appraiser who artificially puts a seller under duress by sticking to an appraised value based off the past, especially if there's more than one buyer willing to pay more than the appraiser's Expert opinion, lol.

Thx for answering my question! I didn't think paying down to meet LTV would be allowed for a new purchase as it can be allowed for a refi. No worries on not reading my novel, lol. Hope this was short enough, if you're still here. :smile:

 

[docjohn]

at least on the commercial side we have levels of quality of rentable space such as class A down to warehouse each has a local fmv for rent...of course the landlord is always at odds with tenant....in some cases each party gets an appraisal and you take the average.....its all about how much space is available.

 

[CL65 Captain]

I was just involved with a commercial RE transaction where the bank's appraisal came in at almost half of the contract price. This was a small town of 4,000 and the appraiser was brought in from Chicago. No one could believe the appraisal when we saw it. The building was built out for the medical/healthcare profession and the buyer was in the same profession. The cost of buildout was completely ignored in the appraisal and everyone involved understood the cost to replace/build new was far greater than the contract price. It was a good fair deal for both the buyer and seller. The bank loaned 80% of the appraisal and promptly offered a 2nd for the remainder. The transaction was completed for the original contract price.

Once again FMV is determined by a completed transaction at an agreed price between two parties regardless of the appraiser's professional opinion.

ps I went ballistic when the bank's "closer" sent an email to the title co and cc all parties (including the buyer) that the final sale price was contingent on the appraisal. It was not. Only the amount financed by the bank was contingent on the appraisal. It was not in her scope to comment on the sale price. She got ripped a new one for that.

 

[PghMiller]

Commercial lending is "the wild wild west" of lending. Commercial lenders can lend their own money with basically no rules to follow... They do not have fannie mae/freddie mac dictating what they do with their money. we were taking residential above. 2 different worlds.

- - - Updated - - -

Also you can't compare the private-party nsx transaction to the strict world of the residential mortgage industry. Fannie mae doesn't allow a transaction to be consummated if the appraised value is less than the sales price, so lenders can't close the loan even if the buyer agreed to pay the difference.

Whenever an appraisal is actually bad, and i have legitimate data to dispute the horrible appraisal, i have gotten them corrected... But that is only when there is actual good data that the appraiser ignored, so i have a fighting chance

 

[Yinzer]

Thx. Learning a few new things in this thread, good stuff.

Beaten horse aside, The NSX analogy was just from not agreeing that appraisers decide FMV for residential properties but I no longer think you intended to come across as black and white like I interpreted. There's the appraiser deciding the FMV of a specific property for lending purposes (whether he's accurate or not, unfortunately) and then there are the buyers/sellers who decide the FMV's in general... Appraisers who seem to hang the majority of their decisions on past comps certainly would not be the cause of driving residential property prices higher...

anti thread-jack: Naaman, so if you're at all concerned about any appraisal coming in too low to support a loan, you could do a little homework to gain some confidence before paying for the appraisal. Play the mind of the appraiser and find similar recent comps.

 

[PghMiller]

Appraisers who seem to hang the majority of their decisions on past comps certainly would not be the cause of driving residential property prices higher...

Ya the only way to determine how much a 4bed/2bath/2story/2,000sqft house is worth, is to analyze what OTHER 4bed/2bath/2story/2,000sqft homes are selling for in the immediate area.... so the only way to determine value is to look at "past" comps, as you put it. But an appraiser is supposed to use comps that sold within 6 months, which isn't really "old"... that's actually a very good/accurate indicator of what the subject home is presently "worth". (plus the appraisers always list a few "for sale" homes on the appraisal report too... but those get an automatic deduction from them, being that they haven't sold yet and will most likely sell for less than the original list price..... so the "for sale" comps don't hold as much weight, but are still listed just to further support the appraiser's findings)

Naaman, in order to be allowed to do an appraisal on a home, you would have to already negotiate with the seller and agree on a price and sign the contract.... because the appraiser has to go into the home, and sellers don't just let people through their house unless they are in-contract with a buyer....... so you can't just get an actual appraisal on a home you're simply interested in (it's your realtor's job to educate you on estimate value).
But don't worry, because that is what the contingencies in the contract protect you from.... IF the appraisal comes in lower than what you guys agree on, you are legally allowed to walk away with your hand money returned.

 

[naaman]

Okay, sweet.

What about offers? If a house has been on the market for a long time, it seems like low-balling would be "fair and reasonable." On the other hand, if someone offers higher than me, am I guaranteed to find out that I've been outbid? Who keeps track of that? Only the seller? The realtor?

 

[buckeyensx]

The seller and the listing agent, if they have one, do not have to tell you anything about other offers. On all offers I have made in the past, there is a specified time and date that the offer expires (usually 48-72hrs upon making the offer). They can accept your offer, counter your offer, or ignore your offer. Your offer is more than just price. It is also subject to terms/conditions. The buyer may accept a lower price if the terms are better from one buyer than another. If I agree to buy your property for 1$ less than the next guy, but I have no financing contingency, no inspection contingency, and will close in 7 days, a seller would have to be a moron to accept an offer that was 1$ higher but subject to a bunch of contingencies that may result in no sale.<object type="cosymantecnisbfw" cotype="cs" id="SILOBFWOBJECTID" style="width: 0px; height: 0px; display: block;"></object>

 

[naaman]

So... some of the houses I'm looking at are short sales and/or forclosures. What do I need to know? Is the process the same on my end, or are there special considerations for the lender/buyer?