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I'm offering a price to which I find to be reasonable, fair and appropriate for the current housing market in the area, along with similar prices of the same style/size of house, land size, and location. My question was essentially how the appraisal thing works (or whatever screwy things come along with it). I feel like I have a better idea of what's going on after just an entire day of reading up on the subject. Not to mention, too low of an appraisal anyways is going to not allow me to purchase the house depending on if/how much it is, since I have no clue how motivated the seller is and I am pretty much bound to whatever the appraisal is in terms of my VA loan amount.
Nice and hot piss fucked around with this message at 01:55 on Jan 4, 2021 |
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Jan 4, 2021 01:45
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In a vacuum appraisers are unrelated third parties, they will pick the best ~3 comps, make adjustments, you get the fair value. But in practice they see the purchase price, and have direct and indirect pressure to appraise at the purchase price or higher. If they come in low it is much more likely the appraisal will be disputed, they will need to do more work for free. There is a certain amount of leeway in what the best comps are, or how exactly to make and value adjustments. And really most buyers are going through the same process an appraiser does when deciding how much to offer, and aren't that far off. So the vast majority of appraisals come in at the appraised price or higher.
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Jan 4, 2021 03:32
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lampey posted:In a vacuum appraisers are unrelated third parties, they will pick the best ~3 comps, make adjustments, you get the fair value. But in practice they see the purchase price, and have direct and indirect pressure to appraise at the purchase price or higher. If they come in low it is much more likely the appraisal will be disputed, they will need to do more work for free. There is a certain amount of leeway in what the best comps are, or how exactly to make and value adjustments. And really most buyers are going through the same process an appraiser does when deciding how much to offer, and aren't that far off. So the vast majority of appraisals come in at the appraised price or higher. Gotcha, makes sense. Unfortunately/fortunately the deal fell through. They countered for well above what I was asking and I wasn't happy with the price so I declined.
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Jan 4, 2021 03:36
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The thing to know is that appraisals are not for you. They are protection for the bank (or VA in your case.) Roughly speaking they are anti-fraud tools to ensure that the house from a collateral perspective is roughly what the bank expects it to be. If you've got serious doubts just make sure not to waive the appraisal contingency in your offer.
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Jan 4, 2021 04:56
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We've decided to buy at the end of our current lease (1.5 years left) so I want to make sure that I'm going into this with realistic expectations from the money side of things. Renting has been great as we started our careers and focused on paying down debt and building a strong foundation for retirement but we are now looking to buy for lifestyle and stability reasons. We live just outside a HCOL city and currently pay $3,150 in rent for a small rowhome. For owning a home, I would like the all-in monthly cost to be below $4,000/month. I expect that we will have 20% of 750k saved in 1.5 years but am fine extending our lease for another year if needed. We want to skip the starter home phase - I would rather continue renting our current place than buy a rowhome or condo. When we buy we want it to be a small SFH that we will live in until our kid leaves for college (15+ years). I was playing with a mortgage calculator and got the below numbers and then added monthly maintenance costs as 1% of the home price. Home Price - 750,000 Down Payment - 150,000 P&I - 2,530 Property Taxes - 687/month (@ ~1.10%) Homeowners Insurance - 233/month (is this accurate?) Maintenance Savings - $625/month Monthly Cost Total - $4,075 What other costs am I missing? We have a 3-4 month Emergency Fund saved up. What I don't really understand is the real estate agent commission cost. If we have 20% saved up exactly for a down payment, will the real estate agent cut into that and therefore push us below 20% (thereby triggering the requirement for PMI)? Does it ever make sense to put more than 20% down? Edit: Does it ever make sense to put less than 20% down (are there ways around PMI?). grenada fucked around with this message at 16:28 on Jan 4, 2021 |
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Jan 4, 2021 16:23
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lampey posted:In a vacuum appraisers are unrelated third parties, they will pick the best ~3 comps, make adjustments, you get the fair value. But in practice they see the purchase price, and have direct and indirect pressure to appraise at the purchase price or higher. If they come in low it is much more likely the appraisal will be disputed, they will need to do more work for free. There is a certain amount of leeway in what the best comps are, or how exactly to make and value adjustments. And really most buyers are going through the same process an appraiser does when deciding how much to offer, and aren't that far off. So the vast majority of appraisals come in at the appraised price or higher.
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Jan 4, 2021 18:13
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Dik Hz posted:or bad at their jobs. Ya. There's this feeling that since it's a large transaction people are competent and take appropriate care. In reality there's probably similar quality work done by a typical highschool algebra class
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Jan 4, 2021 19:49
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As an appraiser, my favorite part of this thread is reading how people think it works, and imagining what sort of shady dealings go on behind closed doors But, the borrower's sole exposure to the process is "did the Correct Number show up or did the appraiser make more work for me" so I can't really blame 'em
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Jan 4, 2021 19:59
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El Mero Mero posted:The thing to know is that appraisals are not for you. They are protection for the bank (or VA in your case.) Roughly speaking they are anti-fraud tools to ensure that the house from a collateral perspective is roughly what the bank expects it to be. I don't think you can even waive a VA appraisal if you wanted to.
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Jan 4, 2021 19:59
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GoGoGadgetChris posted:As an appraiser, my favorite part of this thread is reading how people think it works, and imagining what sort of shady dealings go on behind closed doors well, would you like to come up to the front of the class and explain it?
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Jan 4, 2021 20:19
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Pffff if I had social skills I'd have gone into brokerage
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Jan 4, 2021 20:19
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I know my appraisal was about as scientific as something with so many subjective variables could be. It found a half-dozen reasonably comparable houses nearby, and then applied various adjustment factors for square footage, room count, additional/missing features (e.g. a fireplace is worth $5000), and the general quality of the home. The appraiser obviously spent some time taking interior pictures and measurements and looking up parcel info and other public records. Obviously, I wouldn't expect an appraisal to be anywhere more accurate than +/-10%, but it certainly seems to serve the purpose of preventing a bank from lending half a million for a shack in the woods sold by your brother in an attempt to scam the mortgage company. Granted, this was a few years ago in a M/H COL area, so I can certainly see how areas with extreme scarcity and ballooning prices might not be well-represented by something as static as a comparable house snapshot.
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Jan 4, 2021 20:37
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GoGoGadgetChris posted:As an appraiser, my favorite part of this thread is reading how people think it works, and imagining what sort of shady dealings go on behind closed doors
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Jan 4, 2021 20:41
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laxbro posted:We've decided to buy Expect loan origination fees to run you about $20,000 maybe even $25,000, you will be expected to have that ready in cash. On top of your 20%. Some lenders will roll that into the loan though If you're buying in the east bay (sounds like it) expect what you can buy today for $750,000 to cost you $800,000 in 18 months, possibly even $825,000. At 2% increase per year (lol) at the end of 2 years it would be $780,000. We are paying less than that for insurance but we're walls in insurance condo so not really comparable. Earthquake and Fire insurance (and hurricane, flood) are extra (probably). Fire insurance is about to go through the roof for northern california, probably no idea what that's going to look like in 5 years but cities keep burning down You can definitely get no PMI at 15% just don't go through a big bank
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Jan 4, 2021 20:43
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Hadlock posted:Expect loan origination fees to run you about $20,000 maybe even $25,000, you will be expected to have that ready in cash. On top of your 20%. Some lenders will roll that into the loan though Awesome this is super helpful. We are a few miles outside DC. Ugh, prior to COVID prices here were pretty stagnant but prices skyrocketed as supply dropped and people in DC bolted for the inner burbs. I am really hoping that prices drop within two years back to pre-pandemic prices. SFH bungalows that were going for 760k in January 2020 are now going for well into the high 800s. If we're priced out of SFHs in two years then I'll continue to rent our current rowhome while maximizing savings. That's great to know about potentially no PMI at 15% down payment. Thanks!
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Jan 4, 2021 21:06
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Hadlock posted:You can definitely get no PMI at 15% just don't go through a big bank We just closed a 15% down jumbo with Citi with no PMI.
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Jan 4, 2021 21:10
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Hmm, just spoke to a lender last night and they did mention that I would need PMI with less than 20% down, but as soon as you crossed the 20% threshold you won't need it so at most I would only need PMI for a year or so. How do you get no PMI at 15%? Just ask?
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Jan 4, 2021 21:15
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GoGoGadgetChris posted:Pffff if I had social skills I'd have gone into brokerage Lol this is one of the most gutless things I've seen on SA
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Jan 4, 2021 21:30
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Throatwarbler posted:Hmm, just spoke to a lender last night and they did mention that I would need PMI with less than 20% down, but as soon as you crossed the 20% threshold you won't need it so at most I would only need PMI for a year or so. How do you get no PMI at 15%? Just ask? It's highly variable Our two lenders we looked at did not require PMI Rule of thumb is 20% but a lot of people will give you 15%. It probably helps if you have gold plated credit
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Jan 4, 2021 21:40
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Here I was thinking that with all these boomers getting got, there would be a influx of supply that might suppress prices. Nope, apparently everyone has money printer and poo poo is just flying off the shelves, so I'll need to step up my game.
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Jan 4, 2021 22:00
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redbrouw posted:Lol this is one of the most gutless things I've seen on SA I didn't think he was asking in earnest for an explanation of the real estate appraisal process! Very well. An appraisal is an objective opinion of market value for a piece of property without any bias or influence from the buyer, seller, or lender. The appraiser can consider sales of comparable properties as well as unique income/expense aspects of the subject property. The appraisal is ordered by the lender, and is performed by the appraiser FOR the lender. In no way is the borrower a client of the appraiser, a user of the appraisal, or any person of relevance. I think banks have gotten into the habit of letting the borrower see a copy of it since they reimburse the bank for the appraisal fee, but they will rightfully tell you to go kick rocks if you have an issue with the report since you didn't pay for it and aren't the intended user. If the client receives an appraisal they may request that the appraiser correct minor errors or omissions, or to consider data that was not available to them at the time, but they cannot (and do not) ask the appraiser to change their conclusion to a certain value. This is a Crime. The client may, if they reject the quality of the appraisal report (and explicitly not the CONCLUSION), order a second appraisal. They cannot order another appraisal in hopes of a different value conclusion because this too is a Crime. Appraisers are not and cannot be hired to provide a determined value (example, "please hit the sale price") and they do not serve any party in any way. "But why does the appraisal always seem to come in at the sale price?" That's pretty obvious! Consider this wordy definition of market value (which is what an appraisal determines): "The most probable price that the specified property interest should sell for in a competitive market after a reasonable exposure time, as of a specified date, in cash or in terms of equivalent to cash, under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, for self interest, and assuming that neither is under duress" I can think of no better indicator of market value than a property that was listed for sale, received offers, and had a final price negotiated between buyer and seller. "If it's so obvious, then why even get an appraisal for a property that was openly marketed!" The appraiser is responsible for actually digging in to whether the pending sale meets the criteria for an at market, arm's length transaction. Buyer and seller may have determined their prices based on bad or misleading data (distressed sales used as comparables), or maybe the buyer was convinced that home values were about to skyrocket and they offered 10% more than any other offer. Things are quite often not as simple as they seem and any appraiser worth their salt can spot an iffy sale from a mile away. "What's the point of all this then? Some racket between the broker and appraiser, or the bank and the appraiser?" Absolutely not. Appraisers cannot accept any compensation based on assignment results. While certain clients and appraisers can have a good working relationship and work together often, it WILL be discovered, quite quickly, if their dealings are not on the level. Appraisals are frequently reviewed by outside parties and those who conspire with lenders or realtors quickly find themselves out of the industry and in very hot water. The VA actually does not allow manual selection of appraisers and they are assigned randomly to ensure independence. Ultimately the appraisal report is used to protect the lender and ensure that their loans are appropriately sized and that they are protected in the event of the borrower's default. Appraisal regulation (and indeed the industry as a whole) has typically been strengthened and empowered in the aftermath of financial catastrophes that have literally been caused by unscrupulous lending practices. See the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (in the aftermath of the US Savings and Loan Crisis) for a good picture of why this isn't just checking another box and letting one more leech wet their whistle on the home buying process.
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Jan 4, 2021 22:07
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"the bank hires me and the more houses get sold, the more money the bank has to hire me, but there's no outside pressure and appraisals are 100% independent (even though the appraisal almost always manages to coincidentally come within 10% of the asking price)!"
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Jan 4, 2021 22:17
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Literally every part of that is wrong though lol
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Jan 4, 2021 22:23
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GoGoGadgetChris posted:"The most probable price that the specified property interest should sell for in a competitive market after a reasonable exposure time, as of a specified date, in cash or in terms of equivalent to cash, under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, for self interest, and assuming that neither is under duress" Thank you for the explanation, nice to know more about what goes on. However lol at the bolded part, especially "knowledgeably"
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Jan 4, 2021 22:32
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GoGoGadgetChris posted:An appraisal is an objective opinion of market value for a piece of property. I'd also like to take a moment and contemplate if you know what the word "objective" means, seeing as how you used it as an adjective modifying "opinion". Dik Hz fucked around with this message at 22:43 on Jan 4, 2021 |
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Jan 4, 2021 22:36
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This must be how Fauci feels when wine moms tell him the vaxx causes autism
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Jan 4, 2021 22:39
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The incentives are not correct for folks doing appraisals. While there will always be trustworthy appraisers, there is quite a bit of incentive to be either as lazy as possible or to pick and choose carefully. Also something being a crime doesn't stop it from happening, esp in the real estate industry.
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Jan 4, 2021 22:42
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GoGoGadgetChris posted:This must be how Fauci feels when wine moms tell him the vaxx causes autism
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Jan 4, 2021 22:46
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Objectivity is a nice goal, but we're all human. Also even if they do a perfect job of looking at all the cards on the table, deuce seven occasionally hits a full house.
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Jan 4, 2021 22:48
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GoGoGadgetChris posted:This must be how Fauci feels when wine moms tell him the vaxx causes autism The part you're missing (despite explicitly saying it) is that appraisals are for banks. They are your customer. If they don't like your appraisals, they will find someone else. The appraiser's function is to give the bank a number that justifies the loan they are about to give out. If you appraise low, they don't lend as much and miss out on revenue. If you appraise high, they lend too much and take on too much risk. (edit: in theory this should result in an accurate number, but in practice the number will end up low enough to lower the bank's risk, but high enough where the borrower will come up with extra cash or the seller will offer a concession). If none of this mattered, then I would be able to hire my own licensed appraiser and use their appraisal for mortgages and PMI removal, yet oddly enough precisely zero banks that I'm aware of will allow that. You MUST use the appraiser of their choosing in all cases. Laws and regulations aside, you cannot deny that there is indirect pressure to appease banks in order to continue getting work. Whatever that means to you is fine, but objectively it is a perverse incentive. DaveSauce fucked around with this message at 22:56 on Jan 4, 2021 |
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Jan 4, 2021 22:52
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GoGoGadgetChris posted:The appraisal is ordered by the lender, and is performed by the appraiser FOR the lender. Surely there is no opportunity for influence there! GoGoGadgetChris posted:I can think of no better indicator of market value than a property that was listed for sale, received offers, and had a final price negotiated between buyer and seller. Selling price and appraisal don't work in separate vacuums. You might be able to say that appraisal is not based upon asking price, but given that funding is based upon the appraisal most of the time, the appraisal at least in part determines the selling price. If there were regularly large mismatches in asking price vs appraisal, do you think as many mortgages would be written, given that would mean buyers would have to bring a lot more cash or sellers would have to come down? GoGoGadgetChris posted:maybe the buyer was convinced that home values were about to skyrocket and they offered 10% more than any other offer. What bearing do offers that aren't sales have on the appraisal? We had a housing crisis in 2008 caused in no small part by ratings agencies committing outright fraud. Wells Fargo famously opened fraudulent accounts in people's names without their knowledge or consent just a few years ago. I don't think a financial act written in 89 has been cutting it.
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Jan 4, 2021 23:00
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DaveSauce posted:They are your customer. Wrong, they are a client DaveSauce posted:If they don't like your appraisals, they will find someone else. Mostly wrong. They cannot reject an appraisal or blacklist an appraiser for their conclusions, only the quality of their analyses and any substantial errors and omissions that may have affected the credibility of the report. DaveSauce posted:The appraiser's function is to give the bank a number that justifies the loan they are about to give out. Incredibly wrong holy cow lol DaveSauce posted:If you appraise low, they don't lend as much and miss out on revenue. Wrong, jfc what are you basing this all off of? DaveSauce posted:If you appraise high, they lend too much and take on too much risk. Wrong. If you apply for an $800k loan on a $1M house and the appraisal comes in at $1.1M, you still get an $800k loan. The lender doesn't up it to $880k... DaveSauce posted:If none of this mattered, then I would be able to hire my own licensed appraiser and use their appraisal for mortgages and PMI removal, Wrong. You are not a lender and so you don't get to change the terms of the loan you borrowed. DaveSauce posted:You MUST use the appraiser of their choosing in all cases. Wrong. You don't use the appraiser or the appraisal, the lender does. They might be able to pick the appraiser though. DaveSauce posted:Laws and regulations aside, you cannot deny that there is indirect pressure to appease banks in order to continue getting work. Wrong. I kill deals all the time and banks do not want appeasement; they want accurate balance sheets. DaveSauce posted:Whatever that means to you is fine, but objectively it is a perverse incentive. Even this is a misconception! The work dries up in an instant when you're identified as a Yes Man who adds no value to the process.
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Jan 4, 2021 23:07
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GoGoGadgetChris posted:Wrong, they are a client If appraisals were as standard and well regulated as you claim they are, any appraiser, including the one a buyer picked out, would give the same number so it wouldn't matter which one was selected. And yet banks insists on picking for themselves. Why is that?
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Jan 4, 2021 23:17
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Dik Hz posted:Appraisal comes in too low -> deal falls apart. Bank doesn't get paid. Appraisal comes in too high -> Bank doesn't get PMI cash for a deal that should have it. Neither of these statements is accurate, and they're also based on the flawed premise that banks suffer rather than benefit from being told the sale price is not at market. Dik Hz posted:If appraisals were as standard and well regulated as you claim they are, any appraiser, including the one a buyer picked out, A buyer never picks out an appraiser because a buyer has no use for an appraisal. Lenders need them, and so lenders order them. They charge the borrower a reimbursement fee which seems to confuse a lot of posters into thinking they are paying the appraiser, and are the client and/or intended user of the report. Dik Hz posted:any appraiser, including the one a buyer picked out, would give the same number so it wouldn't matter which one was selected. And yet banks insists on picking for themselves. Why is that? Why does anyone pick anything? Quality, reliability, timing, cost! Appraisers have broad flexibility and significant responsibility in determining the appropriate scope of work for an appraisal, and so lenders gravitate to the ones who have a couple of brain cells to rub together. Of course, maybe your usual ace-appraiser is booked out for the next month and is telling you he can do a report for $1,000 in four weeks, so you go with someone available in 2 and only asking $500. If he is a disappointment by any metric, he probably won't get picked again! (note that some lenders have no ability to select the appraiser although all have the ability to maintain approved or blacklisted registries)
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Jan 4, 2021 23:27
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You're an idiot (dik hz) that's not how it works but you do you. (USER WAS PUT ON PROBATION FOR THIS POST)
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Jan 4, 2021 23:30
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tater_salad posted:You're an idiot (dick his) that's not how it works but you do you. Man let's not be meanies, I think this is just a poorly understand aspect of the home buying process. Bfc is otherwise an extremely financially enlightened bunch so I think it is worth it to know a bit more about why the clipboard man looks at your house for $500 before you can buy it
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Jan 4, 2021 23:31
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Do lenders not get a random appraiser from an appraiser pool anymore? I thought there was random chance installed after the last trillion dollar bailout? I realize this doesn't change anything since appraisals are based upon actual sales which are driven by prices only go up!
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Jan 4, 2021 23:46
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^^ yes I believe it's still some randomness in there, For my purchase my appraisal was from someone that ~100 years of experience with successful people involved in the transaction had not dealt withs as discussed previously theyre not told ' house is going to be bought for 190k is it worth it'. It is more along the lines of 'this house is getting bought what's it worth'. . GoGoGadgetChris posted:Man let's not be meanies, I think this is just a poorly understand aspect of the home buying process. Bfc is otherwise an extremely financially enlightened bunch so I think it is worth it to know a bit more about why the clipboard man looks at your house for $500 before you can buy it I was a bit mean there but there's also this huge push from poster that your the moran here.
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Jan 5, 2021 00:22
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Appraisals sound like so many other safety net fields: "why do we run this test/check/evaluation if the results always match our expectations." "Because the one time it doesn't match people die/lose their property/go bankrupt."
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Jan 5, 2021 01:26
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Except that happens regardless of the existence of an appraiser 
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Jan 5, 2021 01:30
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