We're in the process of getting our financing to build a house.

We've been approved but got the appraisal back and it's a lot lower than our price which is causing issues on the loan.

I called the guy who did the appraisal and he was very nice but said our issue is that they're aren't any good comps in the area for it and that dictates most of the appraisal.

The main issue seems to be that we're getting a custom house built and they have to have MLS numbers in the area for the comps and most people building the type of custom house we area aren't selling them so you end up with older comps or spec homes, not custom homes.

We've found a few comps that look more promising so we plan on sending those in with our dispute. Our builder said he could send contracts from previous homes they've done but doesn't have any MLS numbers so it doesn't sound like they'll take them.

Builder said it's dumb and that the cost of building materials has gone way up. Even the appraiser said it was a bad way of doing it but it's the nature of the beast.

Any one have any other suggestions for disputing it? I plan on writing them a letter explaining that the house is custom and expensive building materials, blah blah blah. We're going to ask the builder to send us something stating that we've got higher end finishes, etc.

Anything else that might help our cause?

TLDR: Need suggestions on things to send in on an appraisal dispute.

I had a similar issue with a house I built a few years ago in College Station.

We submitted a bunch of stuff to try and convince the appraiser the value needed to be increased, but in the end, the ONLY thing he considered was what the builder paid for the lot.

The lot and house are valued separately. When we produced evidence that the builder paid more for the lot than what the appraiser valued the lot for, he adjusted it (but not by the full amount).

None of our other arguments related to finish (i.e., hardwood throughout the whole house/no carpet) worked.

The new appraisal was still a few thousand low (I think the original appraisal was $6k low), but something was better than nothing, since it directly affected how much I had to bring to closing.

Make sure your builder's "sales" are actually sales where the newly constructed house and the lot were sold together with one sale price. If they are, the appraiser should be able to use them provided your builder can provide him with the closing documents.

Many times, custom homes are built on the borrower's lot and it is just a construction loan. These type of transactions are not allowed to be used as comparable sales.

Typically we can only use sales that have closed in the last twelve months. In the event that the subject is someone unique and adequate comparable sales are not available, we can include homes that sold up to 18 months in the past. Check for any sales from 12 - 18 months prior to the effective date of the appraisal. (There is a date on the signature page that says "effective date"). The appraiser will likely be cautious in using older sales, but it is possible he will consider them.

Custom homes like this are hard to appraise for the exact reason your appraiser stated. He needs proof that the market will pay what you paid.

Did he provide a coast approach? Curious to see what his cost valuation was compared to your sales price.

Ask him for a cost approach.

Appraisers are elite demigod's that are always right.

We had an appraisal done on a house on 32 acres, the lender wouldn't accept it because the appraiser used houses on lots in town.

In his appraisal he had so much copy and pasted old **** he left the 'demographics' from Palmer Texas on his appraisal. He also had the subject property in freestone county when it was located in limestone county.

He had 0 comps from limestone county.

When we confronted him about his errors he said he couldn't use comps on similar sized acreage because our house was build in 1991 and all the sold comps were much newer (which is bull**** he could adjust for the year built).

So in the end he fixed his Palmer Texas bs, wouldn't fix the comps, and even though the house appraised for 30k more than sales price, the lender would accept the appraisal or order a new one.

Dumbest process on earth, with little to no recourse.

We're disputing the appraisal.

We've found a good comp a little farther away than they normally use but he had said the area the comp is in would work so we submitted it on our appraisal dispute.

Are there any negatives for the appraiser to change his decision?

If he comes back and says that the new comp will work and now our house is worth the loan, is there anything negative that comes back on him? Is it worth it for him to hedge his original assessment whether it's right or not because it makes him look better? Or can he totally change his opinion based on the new comps and no one cares because that's what the information shows?

You found one comp that is farther way that supports your position. The problem is, the appraisal already has probably 3-5 comps that may not support your position.

One comp will not remove the other comparable sales. It's just one additional piece of data. On the other hand, if the original appraisal has 2 comps that support your price and 2 that don't, this addiitonal sale may be reason enough to increase the appraisers opinion. If the new comp is the only comp supporting the number you want, it probably won't be able to overcome the original analysis.

aggie appraiser said:

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You found one comp that is farther way that supports your position. The problem is, the appraisal already has probably 3-5 comps that may not support your position.

One comp will not remove the other comparable sales. It's just one additional piece of data. On the other hand, if the original appraisal has 2 comps that support your price and 2 that don't, this addiitonal sale may be reason enough to increase the appraisers opinion. If the new comp is the only comp supporting the number you want, it probably won't be able to overcome the original analysis.

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That's kind of what I was wondering.

When I spoke with the appraiser he admitted the comps he had weren't good comps. His comment was that houses like ours usually don't make it to market, they're custom built, so there's not a lot out there with an MLS#.

One of the newer comps we submitted is a new build and more in line to what we're building. I think it's a lot better of a comps as far as quality, age, size, etc. than what was on the first go around.

If the originals were not good comps per the appraiser, would the new one supersede them or is it still just added to the pile?

What about the Quality rating?

When I talked to him, I asked if there was anything that separated the fact that ours was a nicer custom home versus the spec homes/ more builder design plans he found. He said not really but after reading through the appraisal I found the quality section, which seems to be what I was talking about.

So we also disputed the fact that he had our house marked a Q3 along with everything else he found. Based on talking with others and what I could see of the original comps, if they were all Q3's then ours should've been a Q2.

Not sure how much that affects things at the end of the day.

Seems we're in a hard situation. No one seems to be doubting that the house is worth it just trying to prove it with existing options is apparently difficult.

I'm not sure if there's anyone at the loan place that could waive it or if they're going to stick by the appraisal 100%. Hopefully I don't have to find out.

The variances in the Q and C ratings are sometimes significant and adjustments can be made within the same Q rating and sometimes I don't make adjustments even when the Q rating may be different. For example, a high Q4 may be very similar to a low Q3 and closer in quality than a low Q3 versus a high Q3.

If the appraiser thinks that the new comparable is similar to your home and significantly superior to the other comps, it is possible that he could make an adjustment to the original comps. It just depends on his evaluation of the comps and how they all relate to each other and your home.

So, what I said originally might be wrong. It could affect the comps in the original appraisal. Of course all this is speculation and hypothetical situations.

Quote:

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Based on talking with others and what I could see of the original comps, if they were all Q3's then ours should've been a Q2.

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Q2 are really the top of the market properties in my area. They are probably going to be million dollar properties or close to it.

The majority of custom homes around Texas are going to be in the Q3 rating and there is significant difference between the bottom of Q3 and the top of Q3.

Q4 are going to be your typical tract built homes.

One more time and I'll leave you alone.

We got our dispute back and he went up a little bit but not much. We tried to keep it to houses in the immediate area and I think that screwed us.

No one seems to doubt that our house is worth the loan, there is just apparently no good comps in the area and it's killing us. They're using smaller houses on larger pieces of land and we're getting hit negatively both ways.

We have some friends that went through the same builder and got a different appraiser.

They're building about 5 miles from us, little bit smaller house.

They're appraisal came back really high, a lot more than ours although ours is larger, technically nicer, more custom house. Their appraiser grabbed some monster houses to use as comps versus ours using 7-8 year old houses.

My friend talked to the guy that did their appraisal beforehand and he mentioned he'd go out 50 miles if needed to find comps. He seemed less worried about the area.

All that to say, how common would it be to range 10+ miles out to find comps? We're trying to decide if it's worth it to spend another $1,000 on an appraisal. Not sure if we roll the dice and get someone with a different opinion or if we can expect the same results from a different person.

Not sure how much an appraisal differs from appraiser to appraiser.

Nagler said:

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One more time and I'll leave you alone.

We got our dispute back and he went up a little bit but not much. We tried to keep it to houses in the immediate area and I think that screwed us.

No one seems to doubt that our house is worth the loan, there is just apparently no good comps in the area and it's killing us. They're using smaller houses on larger pieces of land and we're getting hit negatively both ways.

We have some friends that went through the same builder and got a different appraiser.

They're building about 5 miles from us, little bit smaller house.

They're appraisal came back really high, a lot more than ours although ours is larger, technically nicer, more custom house. Their appraiser grabbed some monster houses to use as comps versus ours using 7-8 year old houses.

My friend talked to the guy that did their appraisal beforehand and he mentioned he'd go out 50 miles if needed to find comps. He seemed less worried about the area.

All that to say, how common would it be to range 10+ miles out to find comps? We're trying to decide if it's worth it to spend another $1,000 on an appraisal. Not sure if we roll the dice and get someone with a different opinion or if we can expect the same results from a different person.

Not sure how much an appraisal differs from appraiser to appraiser.

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I don't mind answering questions. Feel free.

If your friend has a contract for the land and home together, that place could possibly be used as a pending sale/closed sale. If it is a custom build on their (previously owned) land, it can't be used.

I guess the question here is, can the appraiser go out 50 miles for comparable sales. There are several appraisers who post here, so maybe you can get multiple answers, but typically, no, that's too far. However, there's always a "but" in appraisal. If you are in a significantly rural area, you might need to do it. For example, a home that is significantly unique in some way (i.e. large, historic, previously a church, high quality, special exterior features, etc), the appraiser can expand the search, using his discretion.

From the prior discussion, it seems that you found a comp that was more similar in quality of construction some distance away. If the appraiser agreed that that comp was more similar, I'd try to find multiple comps in that subdivision to try to get the guy to increase his weight on the higher quality (more similar) comps, and possibly consider quality adjustments for the other comps that are closer, but lower quality.

Obviously, both of these appraisers know the area better than me and I am just giving "in general" answers. I don't even know where your home is being built. What is normal for Marfa is not going to be normal for Doss or Kingwood. The appraiser will have much more latitude finding high quality comparable sales larger than 5,000 square feet in Madisonville than in Round Rock. They could probably get away with comps 30-50 miles away from Madisonville in similar markets but they would probably not do the same in Round Rock. This is just a factor the the Madisonville property might only have one decent comparable sale in the last 18 months. The lack of data might necessitate extending the search. On the other hand, there might be 50 similar comps that closed in Round Rock (just guessing) which provides enough data that looking farther away might be considered fraudulent or misleading.

If you are in a somewhat remote area with no real comparable sales, it is up to the appraiser to decide what is acceptable. If you are close to a major area and are suburban, probably not. If you are in a rural area, that may be ok.

10 miles is basically the same problem as 50 miles. How many comps are available? Are they in a similar market? Are they truly more similar than the closer comps? Are the school districts comparable? For rural properties, 10 miles is not uncommon.

As you have found, appraisers can differ significantly. I would hate to tell you to spend them money on a new appraisal only for you to find out that your original appraiser was the straight shooter. However, if you do decide to pursue it, what you need to do it put together a packet of information for the appraiser. Meet with them at the property and have your comp information printed for the appraiser. Bring any marketing materials from your builder if they have brochures listing their specs, upgrades, etc (if it is professionally done). Talk to the appraiser and explain with your comps are better than the closer comps that are more similar to tract homes. You can't really threaten or strong arm them and I definitely do not recommend trying to do so, but there is no reason you can't provide them data and some of the insight you have gained during your research.

Hope this helps. Good luck.

The problem with cost approach is lenders won't accept the loan if any significant weight is put on it. Other issue is lenders put so many limitations on date of sale, percentage adjustments, across the board adjustments, distance etc., it can be very limiting in complex appraisals. People are so quick to condemn appraisers, but forget lenders constrain things in the engagement letter that sometimes there's just not much an appraiser can do.

Nagler said:

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We're disputing the appraisal.

We've found a good comp a little farther away than they normally use but he had said the area the comp is in would work so we submitted it on our appraisal dispute.

Are there any negatives for the appraiser to change his decision?

If he comes back and says that the new comp will work and now our house is worth the loan, is there anything negative that comes back on him? Is it worth it for him to hedge his original assessment whether it's right or not because it makes him look better? Or can he totally change his opinion based on the new comps and no one cares because that's what the information shows?

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If the Comp is deemed to be a good comparable they'll use it.

In the last 200 appraisals I received a request for reconsideration of value twice, and in both instances I deemed the requests to be very reasonable in light of some other comparable sales. I explained why I was adjusting my opinion of value, and everyone was happy. I received no negative feedback in the process, just a polite request from the homeowners through the client.

We have always made a point, whether buying or selling (I.e., if we want the property to appraise under list price if we are buying and want to negotiate, or appraise well over our buyer's offer, etc.), to leave the appraiser a set of comps in a nice folder on the counter. This is usually not the same set of comps a listing agent pulls. Even better if we can hand-deliver it and chat the guy up and see what the appraiser is using. Can avoid a lot of "lol appraiser" mistakes here - "bro, no way, that's a different ISD on the other side of that street" - "oh it sure is."

Jason C. said:

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We have always made a point, whether buying or selling (I.e., if we want the property to appraise under list price if we are buying and want to negotiate, or appraise well over our buyer's offer, etc.), to leave the appraiser a set of comps in a nice folder on the counter. This is usually not the same set of comps a listing agent pulls. Even better if we can hand-deliver it and chat the guy up and see what the appraiser is using. Can avoid a lot of "lol appraiser" mistakes here - "bro, no way, that's a different ISD on the other side of that street" - "oh it sure is."

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How can you quantify that this actually had any bearing on your transactions? You never see the buyers appraisal, what is more important is that the appraisers know the sales prices ahead of time. Most stop when they get to the sales price, the dumb ones don't and have threads started on texags about them.

Good question. We're always dealt in larger Texas cities with a lot of inventory moving, so it's not always the case any of the interested parties are working from the same set of comps. In some cases even zip codes matter. Can't say for sure he went with exactly our comps/numbers or not, but we have had the numbers work out exactly in our favor a few times this way whether buying or selling.

Have you thought about adding additional bathrooms to the upstairs to help boost the appraised value 30-40%?