selling a house - appraisal problems.

[julie Graf]

so, i totally gutted and renovated a small house in pittsburgh. nice neighborhood, cute house. i did it up really nice, with hickory floors, new anderson windows, all new drywall, new bathroom. the upstairs is a loft style one bedroom with cathedral ceiling and skylight. it's great.

i put it on the market, and got an offer in about 10 days. now, the problem is, the apprised value is about 20,000 less than the selling price. The reason - it's only one bedroom. Loft's in the area with the same square footage sell for hundreds of thousands more.

can anyone clue me in on why a one bedroom house will appraise different from a one bedroom loft or condo? i don't understand the reasoning, and no one can explain it to me.

so now the buyer is backing out because they can't get the mortgage, and i'm back to trying to sell it again. i would love to refinance it and keep it for a rental, but because i own my business for less than 3 years, i can't get a loan!

ugh...

[Jim Becker]

Appraisers are being held to pretty strict standards these days, Julie, largely as a result of the mortgage morass in recent years where, umm....generous...appraisals resulted in loans that went sour in large numbers. If anything, they are being extra conservative and there isn't much "we" can do about that. When we did our re-fi about a year and a half ago to support our addition project, the appraisal was clearly short from what three separate highly qualified Realtors already said it could sell for. (and they were not stroking me since they knew up front that there was no sales opportunity and were also a close friend and two of her senior partners in the business) I'm talking a $60K difference, too.

A one bedroom home has some different metrics relative to a one-bedroom loft of condo relative to things like upkeep and the type of buyer likely to be interested. Is there any possible way that you can make any other room a potential bedroom (needs a closet), such as a den, to change the description? Ask your Realtor for any suggestions on this, too.

[Joe Pelonio]

Around our area, when the prices of single family home were so high a couple of years ago, the condos started to become more popular to new buyers, as they were more affordable. Before long people, especially the younger, first-time buyers discovered that condo living without yardwork gave them more leisure time, and before long the prices started to escalate as the supply was less than the demand. People with kids were still buying houses, but young singles and couples wanted condos. In your case, they still have the yard and maintenance to do themselves, but with just 1 BR have no room for raising a family, so it's a somewhat unique situation. You will have to find a buyer with a much larger down payment, or as Jim suggested, add another BR.

With the help of a creative realtor, there is one other option. If the buyers do still want the home at your price, you could carry a 2nd for the difference. There could be some tricky legal and risk issues though, and it might have to be done with a contract separate from the purchase. In other words, they buy the home at the lower price that gets them the loan based on the appraisal, and after it closes, you do a contract with them for the balance.

[Pat Germain]

I'm not real estate expert, but I do know a two bedroom single family home is a tough sell. A one bedroom can only be more tough.

I think Jim's suggestion is a good one. If you really want to get maximum dollars for your house, adding a second bedroom is essential. Another bathroom would be an even bigger bonus. Be creative. Try to leverage any existing space be it in an attic, basement, den, office; anything. Put in a window, door and a closet and it's a bedroom.

You can't compare a loft to a single family home. Many lofts are priced high because they're located in or close to a downtown area with shops, restaurants and bars; the places where singles and young couples hang out. (That's really what a "townhouse" is supposed to be. Unfortunately, many developers build townhouses where there isn't any town. Then they don't understand why people don't want them.)

[julie Graf]

With the help of a creative realtor, there is one other option. If the buyers do still want the home at your price, you could carry a 2nd for the difference. There could be some tricky legal and risk issues though, and it might have to be done with a contract separate from the purchase. In other words, they buy the home at the lower price that gets them the loan based on the appraisal, and after it closes, you do a contract with them for the balance.

that is interesting... although i'm not sure i'd do it with this buyer.

i found out a bit more info:
the appraiser can't value it more because there aren't any comparable properties - no other one bedrooms have sold in the area.

so, i am talking with an appraiser to see if we could perhaps change it into a two bedroom. which is a shame, because it's a really neat space.

here are some pics:

[julie Graf]

You can't compare a loft to a single family home. Many lofts are priced high because they're located in or close to a downtown area with shops, restaurants and bars; the places where singles and young couples hang out. (That's really what a "townhouse" is supposed to be. Unfortunately, many developers build townhouses where there isn't any town. Then they don't understand why people don't want them.)

yeah, the place i'm selling is right in the city - great, great location. walking distance to everything - many people in the area do not have cars. pittsburgh is a bit different than other cities i think - people still live in the city and there are lots of really cool neighborhoods. this house is in one of those neighborhoods, and people are rehabing and selling places often.

[Chris Padilla]

Looks nice, Julie! I think you and your realtor need to get a lot more creative in trying to sell this place but it appears the appraisal is the sticky point. Can you get a second appraisal?

I think an offer in 10 days is quite good for the horrid real estate market most areas are in right now so I wonder if the 'right buyer' is still out there?

[Dewey Torres]

Julie,
Let’s get back to another option discussed earlier...

I own four properties and I can tell you that if you want to rent this thing you can.
Rather than putting in the effort to add a bedroom, go ahead and pursue financing to turn it into a rental.

They told me the same thing on my second property about the dreaded 3 year deal... but bottom line is that in order to make money, they have to issue loans.

So shop around and find someone who will. You may go through quite a few financial institutions but sooner or later, you will land one.
I also find that meeting in person with the institution managers (when you can) is far better than over the phone.

Going this route, you will always have the option for the addition while some else (the tenant) is paying the mortgage for you.

Oh, and I almost forgot, DO get property management! They will charge 8-10% of your rent but it is well worth it to have them collect the rent, field the calls at 2am, advertise, send you tax forms at the end of the year, and more… just a great (no stress) way to be a landlord IMHO.

Good luck with your real-estate venture.

...now if that market will just rebound

Dewey

[Jim Becker]

Dewey makes a good point and rental properties are pretty hot right now given so many who are reluctant to buy with the way the market is right now.

But I do agree with you, that's a really kewel house "as is" based on the pictures!

[julie Graf]

thanks dewey,

i am going to look into refinancing it for a rental. it that would work out, it would be an ok option. not ideal at this point, but better than nothing!

i can't really add on - it's in the city. no space. unless i go up!

the good thing about keeping it is the neighborhood is really coming around and on the upswing, so perhaps value will increase over the next few years to the point where i could sell it then.

then again, it would be nice to get rid of it and move on!

Jim, i was planning on posting more about the rehab, but never got around too it. the floors are hickory, which looks nice but what a pain to sand! it is a nice place, i wish i was rich enough to live in 2 places, i would keep it for myself!