Real Property Appraisals/New construction appraisal incorrect
Hello, i have just settled on a new constructed home in Berkeley, WV. When the appraisal came in we were told it was 16K below sales price. We were told that appraiser had a hard time finding comparable comps in the area and since our house was the first in the development with options that drove up the price.The builder would not negotiate or adjustment the price of home because sales contract said if appraisal came in low we still had to pay the purchase price. Therefore, we went forward with buying the house. However, after settlement we became aware that the appraiser did not list the amount of bedrooms and full bathrooms correctly. How will this affect us later when we try to sell the house? Do we need to notify the mortgage company of this error? I would like to get an appraisal that at least reflects the cost of the house. Should the bank pay for a second appraisal since we paid for the original and it was done incorrectly? Any advice you can give us on this matter would be greatly appreciated.
Incompetent appraisals is a major issue in the appraisal "Industry", I don't call it a profession any more. My first question is: When were you given a copy of the appraisal? You should have been allowed to review the appraisal before you closed on the loan.
Appraising the first home in a new development is always a difficult valuation assignment, especially if the Buyer has added significant upgrades into the house. Take a REAL close look at the appraisal. Get a copy of your options list and put the appraisal and options list side-by-side. Did the appraiser note all of the options that you had installed AND account for them in his/her appraisal? The appraiser should have listed all of the option upgrades, or at least included the "list of options" information from the Builder in the appraisal.
Other things you should look at are: Is the square footage of the house the appraiser indicted reasonably similar to the Builder indicated size? If you don't have a copy of the Builders Brochure GO GET ONE AND KEEP IT FOREVER. If the appraisers indicated size is more than plus or minus 5% of the builder size, you have a problem and the house was mis-measured.
HOWEVER, if one of your option upgrades added square footage to the house, make sure the appraiser accounted for that additional square footage and he/she didn't just use the builder size of the house WITHOUT the addition option square footage. Obviously, if you have additional square footage the appraiser did not note, the value would be lower.
Look at the Builder Brochure floor plan and compare it to the appraisers floor plan. The appraiser absolutely had access to the Builder Brochure so missing bedrooms and baths is incomprehensible. Where were the missed bedroom and bath supposed to be in his diagram vs. the builder's floor plan?
Next, look at the comparables the appraiser used. Were some of the comparables located in your tract? If so, go to the tract office and explain the problem and ask to be able to compare the upgrades in the in-tract comparables the appraiser used to your home. Did the appraiser adjust for the lesser upgrades in the comparables in your home? Were there any homes in the tract that were In Escrow that had similar options/upgrades and thereby had a similar final sales price? The appraiser should have noted these and commented on them
If comparables were used that were outside your tract, get in your car and drive to these outside-the-tract comparables, look at them and decide for yourself if they are a reasonable comparison to your house. I have a hunch that if outside-your-tract homes were used as comparables, that these are older homes. Upward adjustments should have been made to account for the fact your house was new.
Are there any other similar priced new home tracts in your area from which the appraiser could have found comparables. If so, get in your car and drive to each of the new tracts. Bring your builder brochure with you. Go into the tract office and get a brochure from this new tract. Compare the sizes of the homes in this tract, are there any similar size homes. If the agent is not busy, ask if you can speak with them. Briefly, tell them of your issue and ask if they have any closed homes with similar upgrades, or any In Escrow homes with similar upgrades. Compare the sales prices of the homes with similar upgrades in this tract with the upgrades that are in your home. If there are closed or In Escrow homes in these nearby new tracts, the appraiser could have used them, right? Hopefully, your tract is not the highest price tract in the area.
Finally, I would keep track of new homes that are built and are closed in your tract. When these close, I would go to your tract office and get the sale information and especially the option upgrades. The sales agent may tell you that this is confidential information or something like that, but I would insist and tell them that their upgrades caused you to pay a high price and you want to make sure other buyers are paying the same AND you want to be able to justify your sales price in the future. If you make enough noise, they will probably accommodate you.
With respect to your questions about getting the lender or appraiser to correct this information, you stated that your house is Settled, which I assume means that it has closed. If that is the case, then there is no way the lender or appraiser is going to do anything. I would tell the lender that you are going to report them to your State's real estate board for using an incompetent appraiser and file a complaint against the appraiser with the agency in your State that licenses appraisers.
With respect to whether this bad appraisal will affect you later, the answer is: No. No one will have access to the appraisal or loan file in the future. What will show up is that you put down the amount that you did to get the loan amount you did. I wouldn't tell anyone that you had to pay extra because of a bad appraisal.
I would however, keep the builder brochure and ALL OF THE SALE documents for your transaction in a file FOREVER. That way, in the future, you can justify the price you paid that included all of the options your ordered.
I wish I could be of more help, but my colleagues are not doing a good job. On this site, search for "Bad Appraisals" or "Incompetent Appraisals" and you can read my comments to other people like yourself who didn't get a proper appraisal.
If this answer was helpful to you please give an excellent score!
John C. Carlson
Victorville and Diamond Bar, CA