B2B: A Tale of Two Appraisals


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Yes. Hi, I’m Erin Spencer.
And I’m Stacy Smith.

And this is between two brokers a podcast about real estate, business and life.

Hang in there. We’re smarter than we look.

Hello, everyone and welcome to another episode of between two brokers. Get ready get excited today we have our wonderful guest Bill Payne from first home mortgage here to answer all of Erin’s burning questions that just burn inside of her. Anyway, welcome Bill, stop laughing and say hello.


All right, Erin, fire away.

Okay. I have lots of questions for you, Bill. First one is about appraisals. So I have a property under contract in Park Circle. We got it off market for $850. And the buyers went with an out of state lender. And I don’t know how much that matters, but they were a New Jersey lender, and the appraisal came back at $710. So we’re $140,000 off the asking price, big BFD.


All right, Erin just hates New Jersey, just FYI. And all things associated. Now we’ve given her another reason.

So I explained to the buyers, you know, our three options at this point in time, the sellers are not willing to drop the price to $710. So you can walk away now and get your earnest money back is option one, option two is we move forward with a new lender, because lender one wouldn’t issue a new appraisal and wouldn’t let us appeal it. So option two, we move forward with a new lender, we’ll get a new appraisal, if it comes back at $850, then you have to move forward, you don’t get to back out. Now that this seed has been planted that you are possibly overpaying for this house. Option three, we move forward with a new lender get a new appraisal if it comes in lower than at that time the sellers will agree to renegotiate the price don’t know how much. So we got a new lender, local lender, new appraisal, and it came back at $850. So my question is, how the fuck are two appraisals coming in for the exact same property a week apart at $140,000 price difference? I reviewed the comps I mean I get there they use different comps. And the second one I agree with a lot more. But just like WTF.

Okay, also, does it matter that the other lender was out of state the New Jersey Association that Erin has made?

Yeah, that’s what I was gonna address first is because they’re out of state, they don’t know or already have relationships with appraisers in the local area. So they’re just grabbing people off the internet. And so you don’t really know what talent or capability that appraiser has. And so that appraiser probably didn’t know the area. And the reason you had such a big difference in the value is solely because of the comps. Yeah, so appraisers knowledge of an area and understanding of like maybe that property was a little unique. Maybe it was historic, well, there’s value to that. But if the appraiser doesn’t know the area and what comparable homes there are surrounding it, they’re gonna miss it, and they’re gonna fuck up the value. Right? So you should never have about like a discrepancy of contact that large. Yeah, I mean, that’s just like 20%. So it sounds like the first the first lender had the option or the capability to have a second appraisal done. But they were at that point, seeing the first appraisal just didn’t even want to touch it. So they wanted to walk away. So the buyers didn’t get a favor by going to another lender. And ultimately it sounds like everybody made the right choice. Yes, getting another appraisal done which the value came in and was just about.

Yeah. So it was built in 1910. It’s on the historical register. It’s been completely renovated. It’s, you know, not in a flood zone, great location, you can walk to the little downtown of Park Circle. And I was shocked the number one comp the first appraiser used was built in 2021. It was in an AE flood zone, it was next to a trailer park, I just didn’t see any similarities. Because the I mean, the just construction materials alone for a house built in 1910, that’s been totally renovated, versus a house that was built in 2021, thrown up with two sticks. And it definitely wasn’t walkable at all to the downtown spot. So anyway, you know, I called the first appraiser and I just said, talk me through this. I’m reading your appraisal. And oh, the other thing I had a question about, that I asked him about was so on the comps, when there was a difference in square footage, he was only giving a value of $60 to $67 per square foot.

Like to quantify the difference in SQ footage and value?

Yeah, he would give us a $10,000 up.

The key driver of the value that an appraiser places on ultimately on this subject property are the comps. That’s number one. And they get to choose that. So the second piece are the adjustments, and so they actually get to choose — Alright, is the values the adjustment for this view? Marsh versus Trailer Park? Yeah, what’s what’s the what’s the adjustment for that? First, if you’re looking at like a marsh versus trailer park, then it shouldn’t be a comp, but you do have instances like similar to that, and you should adjust it for maybe $50- 100,000 to $175,000. That appraiser gets to choose what the value is. And so that’s why you have differences in value from one appraiser to the next. But they should be pretty consistent, you really shouldn’t have a value difference between two appraisers on one property that more than like 5%.

Well, the first appraiser was valuing the square footage differences $67. The second one was doing $197 A foot.

Okay, so there’s a difference. And so the other lender whenever there’s a that’s almost erroneous, or that’s at least inconsistent information for the for the area. And so that lender should have looked at the original appraisal and said, This doesn’t look right, then at that point, they have the option to immediately order a second appraisal, or at least have what’s called a field review, have a second appraiser review the subject report and say in either say they agree or disagree with certain aspects of it. And so then at that point, you can determine Okay, is this first appraisal crap? Or is it valid?

You can say shit.

Well, that first appraisal was dog shit.

Yeah, I agree. And unfortunately, it planted a seed in my buyers mind that they are potentially overpaying for this property. Totally. And so they were really shocked when the second one came in at $850. Because, you know, between these two happening, which was exactly a week, they said, you know, what do you think it’s going to come back? And I’m like, honestly, I don’t know. And I gave them a range of like 50 grand because it is such a unique house, we actually had to pull comps from downtown because of the age and the quality of the home. There’s just nothing else like that in park circle that has sold going two years back because there’s very few homes and park circle like that. I think that they are okay now, but they were shocked when it came back at $850.

That issue arises frequently if you use like National lenders, or lenders that are outside of that area, especially for us in the Charleston bubble, because it’s a little unique. And so if you don’t have a lender that understands the area and doesn’t have the right appraisers on their approved list, you can get a product like a an appraisal like that.

Yeah, and this is why you call Bill, okay? disputing an appraisal. That doesn’t work.

It’s a difficult thing to do.

So you have an appraisal that comes back low or a little low or whatever. The best thing to do in that situation is to renegotiate the contract, like let’s say, let’s say you have let’s say that property’s $500,000 And you have an appraisal and it comes back at $485 or $490. I don’t best thing to do is to try to get the buyer and the seller somewhere in between. Because when we have disputed the appraisal, first of all, no appraiser that I’ve ever known in my experience with you has ever changed their appraisal. I mean, Has that ever happened?

Not to my recollection. Because I take it personal, like questioning their work. Defense is a slippery slope. Yeah.

Right. Okay, so that and then, and I also didn’t realize, like when you were just talking to Erin that everybody has the option of getting the second appraisal Has that always been the case?

You gotta have justification, okay, so the field review is always the easiest thing to slide in there. Because you’re just having somebody look over the work that was all already performed. And if the lender is stating that we don’t have enough justification to order a second appraisal, that field review may get you to that point. So that’s, that’s usually the easiest path to go down to try to figure out do we have a shitty report here or bad value? Or is it on point. But there are instances where you it’s just obvious this person didn’t know the area or the adjustments don’t make sense, then is totally justified.

After they read the appraisal, they didn’t want to do the loan anymore, because they pointed out some things on and they’re just looking like on Google Earth or whatever. They pointed out some storage tanks that were holding, like flammable liquid, or whatever. It’s like, oh, yeah, those things that are exploding left and right. Like they made it sound like it was a dangerous place to live. And then we train tracks nearby. And so they weren’t excited about it. And like you guys, you don’t understand Park Circle. So anyway.

The lender itself is just looking at what’s on paper in front of them. They don’t know the area. Again, that’s why it’s very important, or I think it’s important to have like a local lender, because I’m here and I can physically go down the property and describe what’s better describe what’s being seen on paper.

One other question. Both appraisals came back with a pretty good difference in total square footage. But I noticed that they were both using the same software. Wow. Yeah. So any idea how that happens?

And they, so they measure the exterior of the house.

They measure the exterior, and then they do the math to come up with square footage, right. So that would have to they have like a porch or something, some area that’s questionable whether it really meets interior, like square footage?

There is a porch, and both of them noted that it wasn’t heated and cooled. But one thing that that I could come up with is that that new standard or whatever that went into place last year about slanted walls, and it has to be like five feet off the ground before that is counted. So it was like everything underneath the slant that didn’t meet, you know, five feet off the floor, which was only in the closets. It was less than 200 square feet. But still, that’s a lot of square feet different.

It’s just mathematics at that point. You shouldn’t have any difference in square footage. Yeah. So I don’t know the answer to that.

Yeah. And that brings up another thing for real estate agents is that if you’re unsure about the square footage of your listing, you should have it professionally measured. We do that quite often. Because like, first of all new agents always look in the tax records, which I don’t know that I’ve ever seen the tax records actually be accurate with square footage. So a lot of people look at the old listing, which can be incorrect. I usually ask my my homeowners if they have an appraisal I can look at but if there’s any kind of discrepancy that I’ve seen, like let’s say the home was listed two or three times before and every single listing has a different square footage. I do not want my appraisal to you know, I tried to eliminate potential surprises and just be proactive about it. So I have somebody come out and measure it. And the reason is, if you have a buyer that comes in and they think they’re buying, you know your sellers like Oh, it’s 3500 square feet, we enclosed in our screened in porch, and now it’s an additional 500 square feet. Okay, first of all, don’t ever take your sellers word for it. No offense people, but y’all fluff and whatever, y’all are just trying to get the most money we know. And also an appraiser is going to value that it let’s say they enclose the screened in porch and they put like a little mini split back there, they’re going to use a different price per square foot potentially for that space. But anyway, you need to have that professionally measured. If a buyer comes in and you’ve represented something is 3500 square feet, and they’re like, it’s 3000 they get pissed off and they have the right to if they’re under due diligence, they have the right to walk. So definitely best practice to make sure that you get that measured.

So we’ll wrap this up by saying if you had been representing these buyers and they came to you and they’re like well, you know that first appraisal really planted a seed in our minds that we’re overpaying…. Bill Payne 100% confidence, we would have looked at it and tossed it out.

Yeah, and the bank is not going to let you overpay for a house, right?

Oh, no. They’re just making sure everything’s done correctly and fair. Right. That’s it. Yeah. But yeah, and the lending is set up so that nobody overpays for a house, but you have a willing buyer and seller, everybody wants the same thing here. So you got to work as a team to make sure it’s a success. So don’t lose sight of that. Where some lenders I get the feeling, especially these days, we’ll gladly run for a deal from a deal if they are given the opportunity.

And that’s going to wrap up our episode on appraisals with our mortgage guru Bill Payne of first home mortgage. Bill, thank you so much for joining us. We hope that you’ll come back soon and answer more questions.

Absolutely. Thank you ladies.

Thanks so much for listening. Don’t forget to rate review and subscribe and tell all your friends about between two brokers and all the valuable things you learned. Bye

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