Kitchen Remodel Derailed by Bad Appraisal

I lived in a house that my landlord completely remodeled. She bought it for around 450K, and renovated it, new kitchen and added bathroom, new floors. She had an appraiser come out to the house and he appraised the house for a little over 500K. I moved out and she then sold the house for 550K. She got this asking because the area was so hot, walking distance to 3 high rated schools, and her house was a limited floor plan in the development with pool access.

The appraisal can differ from market value. They are looking at the house not the over value of the area, amenities, and what might be value added for people.

While you wait to find out how much you can borrow, try to figure out what is costing you the most for the remodel and figure out where you can reasonably economize.
Choices between top of the line vs middle of the line could save you a lot.

Have a plan in place in case your SIL's estimate was too generous and your budget is going to be less than you thought it would be.
While borrowing less would be disappointing - paying back the lesser amount will be a lot less painful.

Additional:

http://www.interest.com/mortgage/news/4-smart-moves-to-ch...

My hubby works for a company that does remodels. and he is 100% capable of doing it by himself. The price difference between him doing it himself and paying his company doing it are huge! Like we could redo our kitchen for about 10 g while his company would probably charge us 35-40g for the same remodel. So if you are capable of doing any of the work yourself I suggest you get your hands dirty and save money that way. I also suggest calling for several quotes.

WHY have you not gone out and found out what you need in way of money for the update? It seems like you are putting the cart before the horse.

Find out what you need FIRST - then apply for the loan.

As to appraisals? I've lived in the same house for 22 years. We have refinanced twice - as interest rates dropped (we are now at 3.25%) great for payments - sucks on taxes!! :) When we refinanced the last time (2012) we took money out for miscellaneous things. Our home is unique and they had to go outside the typical 5 mile radius for the value. The first time - they low-balled us and then we complained and it was redone as we showed them the houses they missed - and we were good.

Half-baths are dependent upon location (as in your demographics) and where the half bath is in the home. Other than that - I can't help you.

i used to be in the mortgage industry, so ordered appraisals all the time. i (and the homeowners) were frequently disappointed in appraisals that came in lower than hoped.

missing a half bath IS kind of a big deal. that might be enough of a lever to get it re-appraised. not liking the comps is more nebulous. you might feel they weren't good, but you're going to have a hard time proving that your opinion supercedes that of a professional.

in your situation, where you're doing this because money is tight, i'd tread cautiously. you MAY be able to get a second appraisal that is more in your favor, but are you prepared to pay for it? it's not in the bank's interest to absorb the cost. if you push it, better be super confident that the first appraisal was way off.

khairete
S.

We have found that appraisals are typically less than what realtors assess.

What they say the market goes for is not the same as what house is 'worth'.

Just went through this with a house we sold for a relative.

What people will spend to get into a neighborhood (what realors depend on) is not the same as what bank is concerned about - if they have to sell the house in a hurry. They usually go buy what it last was purchased for and what additions/money was put into it - kind of thing.

That's my understanding of it. So it's usually less - especially if houses have been in demand in your area and prices are a little over-inflated.

ETA:

Who ordered the appraisal?
Our house appraisal is way lower than what a realtor would value our house at - this is really typical. I find this confusing, and just read it to my husband.
What other homes sell for fluctuates all the time.
Banks want to know what they can unload your home for in case you can't make your payments. So of course whatever houses are assessed at will be very conservative.

Can you provide more details?

If you go on any realty sites, you'll note that houses on cul-de-sacs, etc. are generally priced higher than ones that aren't, etc. Half baths are not worth that much more. There are so many factors that go into these assessments. Floor plans, layouts, etc.

If it were me, I'd ask the banker how much of a difference this means for you once these errors are cleared up. If you want a second opinion, get one. What else can you do?

Good luck :)

No advice on your appraisal question, but just underwent a major home renovation that we financed with a home improvement loan. My advice is to make a priority list that you and your husband agree upon completely. Write it down. Project by project, naming each appliance surface, wall treatment and the costs involved. Once you have it written down, say goodbye to the bottom 3 or 4 things on your list. Although they would make your project complete, you will have unavoidable expenses along the way that will eat into your budget and you may as well wrap your head around the fact that this isn't a home improvement tv show. You should also consider that some mortgage companies will want to include an escrow amount in your loan payment to cover insurance and taxes. We balked at that initially because we have been responsible with those payments independently for years. However, it was required and now we both are so relieved that we aren't worried about having to save up for the end of year property taxes and when considering the new loan payment, you can subtract out what you were saving for taxes and paying in insurance. I hope I am not sounding too elementary, we had not gone through this previously so it was a new consideration for us.

Our happy ending to this story is that today we hosted our family for Mother's Day lunch. We were so proud to show off our newly remodeled home and loved all the compliments. Yes, we still have projects to complete and we have spent ALL the loan money. But, the great strides we have made have filled us with pride and motivation to keep it going. Good Luck!!

After working in the mortgage business for many years, I have learned that appraisers are almost always more conservative with their numbers than realtors. It doesn’t mean you can’t dispute it but it really depends on the area. They are comparing square footage, recent sales, and it is in the best interest of the lender for the appraiser to keep that number as conservative as possible. Is it possible for your SIL to help you search for more comps that might strengthen your case?

At first reading, I read to understand you had not gone out and got estimates, so I understand the confusion.

As to appraisals, when we moved from California to Georgia, the market was all over the place. We had 5 bedroom and 3.5 baths which was a litttle bigger than others. The first appraisal came in low. The next one we asked for with a new company and got $75K more than the other one because he didn't count our square footage properly and used houses that had sold under foreclosure/auction. Which typically sell for much less.

You can ask a new company to do it and work with them on all the details. Show them the last appraisal and what was wrong about it,

We were very fortunate to buy low and sell for a profit. Many were not as lucky.

Appraisals are based on the market...most definitely. Some years back we wanted to take out a loan and the homes around here were underwater and the appraisal was so low we didn't take out anything despite years of paying on our home. Since then the market has upped home prices but in a way it was our good fortune that we didn't take out a loan. We were able to redo bit by bit with the cash we saved. As far as a half bath goes, any extra bathroom area ups the value a bit because most of the time buyers usually want more than one anyway. What the current percent is I don't know. And for other people looking for market analysis-it is based on similar (sold) homes in the area and there is usually a fee for this so beware. We spent $300 at the time which was perhaps four years ago and it doesn't get returned either.

We recently got a HELOC and we didn't have to do an appraisal. No clue how they figured it out, but we went through our credit union. It was more than enough $ for a kitchen remodel. Maybe you need to save more money and wait a bit?

We sold a house recently and the appraisal was notably lower than the purchase price agreed to. So it seems typical. And it was in a hot market and appraiser already knew contract price. So not sure what you can do but do you really want to take a loan for a kitchen remodel if the loan to value is an issue at all? Risky in my opinion. A remodel is optional so should only be done out of extra savings or maybe if there is such a ton of equity in the house that the appraisal doesn’t even matter. Sorry as not what you asked but this seems to be how people get in trouble later.

A CMA (comparative market analysis) is vastly different than an actual appraisal - as you found out. CMA's are usually high - I don't know that appraisals are really "low" but they are supposed to protect the bank's interest in the property and not let the homeowner overextend themselves to the extent they owe more than the value of the home.

Since the appraiser was likely hired by your bank, I doubt they are going to let you do it again and still borrow from them. You could try a different bank altogether, which would likely get you a different appraiser, but you would be out the money that you paid the first bank to start the loan process (I am assuming you have already paid them the fees to start like appraisal or credit report fees and if not, you'd be on the hook if you walk now?).

As a person whose sole job it is to work with people who have made one financial mistake after another, might I suggest that you consider working with a smaller budget and doing the work in pieces, paying off some before borrowing more? I'd hate to see you in my office . . .

Good luck!

Not sure why you would need an appraisal. Try saving up. Some foot work you do yourself.. if homes in your area sell for 300 you look at homes that sold within let’s say 1-2 miles with similar sq footage and bedrooms/bathrooms and see what sold the fastest. That’s how you get an idea what “goes” in your area. Also if a home sells for 300k ( you need to know the price per sq foot in your area). As you understand that home will never need 100k kitchen.

If you have 700k home it’s probably standard to have nothing below granite and stainless steel appliances with a better name brand.

If you live in your forever home you do the kitchen for yourself.. so why would appraisal be an issue?! if you are not do not overspend! Because the next person might hate it and completely demolish it.
You never get 100% return on what you invested and kitchen is the most $$ to renovate.

So my suggestion is look for bargains on tiles floor /backsplash etc.. maybe appliances from last year ( when they all match it looks better). Do not go crazy with colors.. maximize space and increase light if possible..details add up ( molding,nice faucets, pot filler, hidden garbage/spice rack etc, self closing drawers) but makes it look that much more$$$$$$.. with that said you will only get top dollar if you are in a good location with top schools with the rest of the house to match.

My point is try not overspend. You will never get 100%! Do research 1st. And see if you can save up and not need the bank .. if you call appraisal after you will most likely win more.

What ever your appraisal came in at is probably what it should cost. Maybe change floors, counter tops and paint the kitchen ( if can change the cabinet doors) maybe in few months change appliance. Do it in steps.