Question about Comps...

What data does the bank use to determine the appraisal?

I have a unique situation. The house we are in contract for is in an area where houses don't really sell. They are passed down or gifted. In one way, I hope it appraises, in another way, I am hoping it doesn't because I do believe we are over paying. But, houses in this area are hard to come by.

Advice?

Question about Comps...

If the house appraises for less than you are asking to borrow from the bank you will not get your mortgage so do not hope it does not appraise for what you need to borrow. The bank appraisal does not impact what a seller can ask for a property. That being said the appraiser will look at the size of the home and the condition. They will look at capital improvements such as upgrading the electric, the heating, etc. as well as looking at the condition of the kitchen and bathroom(s). If there are no recent sales they will look at the last sales in the area. For my home appraisal the bank used properties as close to the specification of my house as possible although none of the sales were very recent and the radius from my house was a bit more than usual. It was noted in the appraisers report that my neighbor is stabile and there were no ideal properties for comparison so the best options were used.

Re: Question about Comps...

Do you have a real estate agent, or is there a listing agent for the house?

I am asking because if you are working with an agent, he/she should be able to advise you if there is likely to be a problem with the appraisal. I know that I always try to attend the appraisals for any houses I sell (whether I am listing it or working with the buyer) to meet the appraiser, answer questions, and provide comps that I would like the appraiser to use.

The appraiser will look for sales in the same geographic area (same town, same school district, and ideally, same neighborhood... usually within .5 miles to 1 mile radius) and will look for recent sales (ideally within the last 90 days, but will often go back 6 months if necessary). Style of house is not all that important, but the appraiser will compare the "comps" to the subject house and make adjustments for things like square footage of house, number of rooms (beds, baths), size of property, upgrades/improvements (finished basement, central air) to come up with a value on the subject house. There is some subjectivity involved in interpreting the data.

If a house doesn't appraise, the bank will still give you a mortgage, but they will put a cap on what they will lend you (given the loan to value ratio), so you won't get the full amount you need. Then, the options are:

1) Ask the seller to lower the price to the appraised value;

2) You, as the buyer, come up with more cash so you can still buy it for the agreed upon price, even without the full loan amount;

3) Renegotiate - Buyer comes up with some more cash, seller comes down a bit in price... basically, you meet in the middle;

4) Challenge the appraisal (very hard to do);

5) Walk away from the house.

Usually, when a house doesn't appraise (which is pretty rare), number 3 is the popular solution. At that point, buyer and seller are both invested in the deal and usually try to make it work.

Just curious what area you are in (if it's on LI) that has no turnover... but I know you maybe don't want to share that info.

Good luck!

Re: Question about Comps...

We are not in Long Island. It is a neighborhood in the Bronx. We are working with a friend who is an agent (but does mostly apartments) so I was looking for some reassuring advice from experienced people.

I am not sure that the seller will lower the price. He is Irish, old and stubborn. So, we will see. Comping this hood is hard. There is only one house that sold for slightly less then the house we are looking at. And that house was much bigger (house and lot size).

So, I guess we wait and see what happens! I will keep you posted! LOL...It is a difficult process with the waiting.

Question about Comps...

The appraisers have encountered this before so try not to worry.
I have a great mortgage broker in Larchmont if you need someone to discuss mortgage info with- he is experienced in working in the Bronx and lower Westchester. Where in the Bronx are you looking? When DH and I were house hunting we considered a couple of neighborhoods- we rented on City Island for several years-- another very tough real estate market!

Re: Question about Comps...

When we refinanced, the appraiser had to pull comps from more than 6 months prior because nothing in our area had sold recently.