As-is appraisals

[bankworking]

So, part of my job is doing home equity loans for customers. For any not in the know, home equity loans are money borrowed against whatever value of your current home that remains after subtracting out your mortgage balance.

A big part of how much a customer can borrow, then, is dependent on what the house is worth.

NOT what the customer thinks it should be worth. NOT what the house was worth back before five neighbors foreclosed and sold off their houses at a tenth of the prior value.

Not even what the house might be worth, maybe, after all your construction dreams are completed. (Speaking of which: the amount of money you spend on fixing up your house is in NO WAY equal to the increase in value. Some major repairs will show up as a wash on an appraisal... little things like them expecting that the roof should be solid and in good condition, so if you get a brand new shiny roof, the appraisers don't really care... unless of course the prior appraisal was looking at the house with a big hole in the roof.)

We're strict in that we won't even allow projected value increase using current work orders. You want a home equity to add a garage to your house? Well, the value needs to be there before the garage is added on. We're not looking at the future, only now.

As-is. This is what it means.

It also means that when I warn you not to tear up your kitchen to the floorboards for the work you are intending until AFTER the inspector gets there, because they WILL mark off the value for having an unusable kitchen I really do mean it.

[wolfie]

I gather you've dealt with some morons who would do the tearout part of the renovation before the appraisers did their job, resulting in the value of the home bing lowered to the point where the bank wouldn't lend the money needed to complete the renovation.

[bankworking]

I gather you've dealt with some morons who would do the tearout part of the renovation before the appraisers did their job, resulting in the value of the home bing lowered to the point where the bank wouldn't lend the money needed to complete the renovation.

*sigh* Unfortunately yes. Latest customer where this came up wasn't a huge SC about it or anything, but we couldn't do the loan because he didn't listen to me. Hell, the value might not have been there anyway, but the lack of one of the essential rooms for the property certainly didn't help.

[earl colby pottinger]

Quick Sell

Also banks seem to value your house for what they think they can get in a quick a sale.

The local real estate agents say they can get $205K to $240K for my house if I put it on the market. But my bank has only stated they will offer a line of credit of $144,000 which I know that if they had to foreclose on me they would sell the house at that price in less than a day. If they tried to offer my house at $204,000 they would get it, but who know how long it will have to be on the market to sell?

The bank on a defaulted loan wants it money now, not a month or two or even longer from now.

For some reason when I point that out I still have met people who think the the bank should offer a line of credit equal to what the sales people say.

[bankworking]

We seem to get a pretty decent value for the property.... but then we almost never approve up to 100% of that value, and if we do, it's for customers with fantastic credit (not just score, but history), VERY low debt-to-income, so we know that the payment isn't likely to be a stress on them, and preferably good assets so if something like a time of unemployment happens, they're likely to have some breathing room before the bills become too much to handle.

Home equities are on a person's HOUSE... we really are trying not to have to take the home later, so we try to be careful about what we lend. Which has caused it's own arguments with customers....

[notalwaysright]

I love it.

"Hey, don't do the Thing, really don't do it, wait to do the Thing!" Customer "Okay. I'll do the Thing right now!"

These people own houses and I'm stuck using Command hooks everywhere since I rent, and it's in the lease not to poke holes in the walls. I know people ignore that, but I actually want my deposit back. So in my case it's "Hey, don't put holes in the walls." And I'm like "Okay."

[Slave to the Phone]

Totally different from houses, but my sweetie buys totaled cars and fixes them. Then he gives them to me to drive for a couple of months before selling. He's an ethical and moral guy so wants to be sure that said car works before selling it.

The number of people who ask if the totaled, as is car comes with a warranty is amazing. You are getting a thousand dollar car with a salvage title, what the heck do you think?

[protege]

The number of people who ask if the totaled, as is car comes with a warranty is amazing. You are getting a thousand dollar car with a salvage title, what the heck do you think?

You'd be surprised. I've seen people flip out on dealers when their "great deal used car" doesn't come with much of a warranty. Here, most are marked "as is" on the window stickers. Some dealers will give you a few months, some nothing. Locally, the days of the shady used car lots are pretty much gone. Even so, you should check out a vehicle, even get a trusted mechanic to look at it, before signing on the dotted line. Once the vehicle leaves the lot, and it spits out its transmission a few days later, you're screwed.

I remember my dad getting screamed at when he'd sold one of our old clunkers on. Seems the guy who bought our '79 Volvo 264GL found out it was much rustier than it appeared. Uh, you noticed the 200,000-plus miles on it, the huge dents in the fender, the bleached-out paint on the roof and hood, the mismatched silver and crude repairs down both sides...yet didn't bother looking underneath? If you had, you'd have noticed the stop signs used as floors. There's a reason the car was so cheap--it was a bleeping shed! Needless to say, my dad told the guy to fuck off, and that was the last we heard from him.

[Gilhelmi]

What about major repairs that are needed to make the home livable, but are not visible.

My sewer lines are collapsing and will need replacing soon. I am going to spend $3000 to get that fixed. HYPOTHETICALLY, will that affect the value of the home or will it go unnoticed because it is underground? (personally, I hope not because that will raise my property taxes.)

[mhkohne]

What about major repairs that are needed to make the home livable, but are not visible.

My sewer lines are collapsing and will need replacing soon. I am going to spend $3000 to get that fixed. HYPOTHETICALLY, will that affect the value of the home or will it go unnoticed because it is underground? (personally, I hope not because that will raise my property taxes.)

If you don't do it, it lowers the value of your home. (Disclosure of things like that is required in most places).
Doing it just maintains the value.

[bankworking]

If you don't do it, it lowers the value of your home. (Disclosure of things like that is required in most places).
Doing it just maintains the value.

This. Pretty much.

While I don't do the appraisals myself, the basics I gather from them is they start with a baseline. The take your house size, number of rooms/bathrooms/bedrooms, the age of the structure and the fixtures, then they try to find houses with these similar features that have sold recently. With the comparables, they try to find at least one property a bit better than your house that sold and one house a bit worse than your house that sold. This gives them a range to bracket their baseline value for your house. Where your house fits within that bracketed range depends on market trends and whether or not your appraiser is an optimist or a pessimist. Seriously, there is some judgement call going on here.

Then they start adding value. Value added for a completed basement, or for upgraded fixtures, or for a few extra square feet than the comparables. They really have to be able to quantify the value-added features.

Then they subtract value. Value lowered for anything that's not up to par. Like that damage to the sewer line. Value lowered for rooms not deemed usable (though that can have the additional negative of lowering which houses are looked at for the starting baseline value). Value lowered for dampness where it shouldn't be that could be an indication of worse. This is why a lot of home repairs doesn't raise the value... if they knew it wasn't in good repair in the first place, the last appraisal should have LOWERED the value for the needed work. The assumption is that everything in place is supposed to be sound.

IF the bank allows for it, they may skip some of the negatives for work-orders. But the work generally costs more than the value adjustment.