CoreLogic: Chicagoland February Single Family Home Prices Fell 10.4% YOY
CoreLogic released its February single family home sales data which showed Chicagoland prices dropped 10.4% year over year, the second largest drop in the country. (Chicagoland extends out to Naperville and Joliet.)
But CoreLogic also provided data stripping out the distress sales- which would result in home prices declining just 0.37% year over year.
The big problem with stripping out the distress sales is that in February, they were about 50% of all sales.
One state politician is trying to legislate what constitutes a comp for the purposes of the appraisal.
From the Tribune:
Earlier this year, Rep. LaShawn Ford (D-Chicago) introduced legislation in Springfield that would bar real estate appraisers from using the sale price of a home sold at judicial sale — in other words, a foreclosed home — for 12 months after the date of the sale. Such a change to the state’s Real Estate Appraiser Licensing Act would be repealed five years after it was adopted.
Ford, whose district includes parts of Chicago’s West Side and portions of several western suburbs, is a broker/owner of a real estate firm, so he has seen the effect of foreclosures on the neighborhoods he represents, as well as in his business.
“You have homeowners who want to sell their homes or want to refinance and they can’t do it,” Ford said.
There’s one problem with Ford’s proposal, though. Appraisers are licensed by the state of Illinois but follow uniform federal guidelines that dictate that they analyze available comparable sales.
“It would lead to a misleading report,” said Chip Wagner of A.L. Wagner Appraisal Group Inc. in Naperville. “You can’t overlook any of the factors in the marketplace that are influencing factors. It sounds like a good idea in fairness to homeowners, but the appraisers that follow that would be in (danger) of losing their licenses.”
Joseph Magdziarz, president of Appraisal Institute, an industry trade group, said if a distressed sale is going to be considered, it’s up to the appraiser to investigate whether that property was sold to investors or to owner-occupants, and the property’s condition.
“Just because it’s a sale doesn’t make it comparable,” said Magdziarz, who is an appraiser in Rockford.
But, he noted, if the neighborhood has a preponderance of distressed properties in similar condition, “you can’t completely disregard what’s going on in the market.”
The trade group does not support any bill that’s meant to govern what appraisers can and cannot consider in their report, he added.
The CoreLogic report illuminates several issues facing the Chicago market:
- The growing numbers of distress sales
- Price declines are still occurring (distressed property or not)
Should distressed property sales be comps?
Chicago area home prices get boost with new math [Chicago Tribune, Mary Ellen Podmolik, April 7, 2011]
Hell throw it out. If the data doesn’t support the results you want, just throw out half of it. It’s like it doesn’t even matter anymore.
To steal a quote from Dan “this is all fercockte”
Distressed should stay for sure.
“Joseph Magdziarz, president of Appraisal Institute, an industry trade group, said if a distressed sale is going to be considered, it’s up to the appraiser to investigate whether that property was sold to investors or to owner-occupants … .”
Why should a sale be treated differently depending on whether its sold to an investor or owner-occupant? Whatever it sells for, that’s the market price.
Also, I can’t see the logic in excluding distressed sales. While I would disagree, I can see an argument for excluding sales that go under contract within (say) 14 days of being listed — selling so quickly may be an indication that the property was under priced, the seller wanted to sell quickly in a “fire sale,” and may have been able to sell for more by pricing higher and waiting longer. But if a distressed property has been on the market for several months before it finally sells, that’s a strong indication that its price was not below market.
Sad, the issue at hand is about them barring the appraiser from even having the option to make that determination themselves. Want to guess who is chirpin in Fords ear?
Yeah, I posted on this crazy law a couple of days ago. Unbelievable! And of course the real estate industry supports it. Here’s what’s really stupid. The way the law is written, an appraiser couldn’t use foreclosed properties to do an appraisal on a foreclosed property!
Of course they should be considered comps. I would only eliminate them if the property sold again a few months later. A sale is a sale. Let’s stop trying to cook the books here and manufacture data.
Oh, there are 4 states that were considering laws like this. In Maryland they dropped the proposal after they got deluged with complaints about it.
Prices will eventually rise, after all the disstressed sales have been sold. HAMP redefaults, vacant inventory, months plus no mortgage payment, foreclosures, short sales, overheloc’d owners…..the list is long. So basically, aboout a decade.
You can change the law to artificially inflate comps and appraisals but that doesn’t mean people will want to pay that price, especially if the distressed properties begin to look even cheaper in comparison. Market value is what someone is willing to pay, regardless of what cooked up calculation you use to price it.
The only rationale for removing foreclosures, etc from the numbers is to eliminate the “stripped” homes from the analysis. I’m (i) not defending condoning this practice; and (ii) think that elimating all distressed sales does not accomplish this goal because the majority of short sales and even foreclosures are fine.
I believe we should throw out not just the foreclosure comps, but all comps, and get rid of the system entirely. The problem with using the ‘comps’ system to value the price of homes is that it fails to take into consideration the budgetary constraints of today’s new breed of borrowers. Just because one house on the block sold for $X doesn’t mean that there are enough qualified and able buyers who can afford the rest of the homes on the block priced at $X. So $X is the comp because one seller got ‘lucky’.
There are many many buyers looking to buy but cannot afford the listing prices and asking prices.
Instead, sellers should price their homes
according to buyers budgetary constraints. It doesn’t make sense that I look at a house, occupied by an owner, who may even have the same job as me, and may even have a similar HH income, but simply because they choose to over HELOC or because they bought during the 90’s, their monthly mortgage payment should be significantly lower than the buyer they are trying to sell to. It’s not fair, it doesn’t make any sense, and it favors longtime owners who get higher prices to the detriment of younger buyers who simply want a home.
GIven the fact that today’s buyers are probably making less real dollars *(And in some cases, less nominal dollars), prices should be based upon the budgetary constraints of the buyers looking at your home. If the buyers looking at your home can afford only 30% of what your home is priced, it’s time to lower the price.
True HD. Unless you are a baller in finance, you are pretty much shut out of the market in many areas of Chicago. It’s sad for many people and they eventually will move out of the area to other states.
brilliant, HD!
ps i’m only being half serious, but it does make sense.,..
Homedelete must be being sarcastic here, right? Life isn’t fair. If seller’s can find a buyer to pay their price then more power to them. If not, they will have to lower it. And if the cost of housing is too high in Chicago then people can move to where it is more affordable and if there aren’t enough high paying jobs in the city to support the prices then they will come down. That’s probably why 200K people moved away in the last decade and that’s OK. People should move to places that make more sense to them.
http://dictionary.reference.com/browse/parody
HD+1
I agree the system needs an overhaul. It’s easy enough to compare one 2/1 condo to another but once you get into SFH it’s more subjective.
I do see a small benefit for refinancing purposes. If I’ve paid dillegently on my home and want to refi to get rid of PMI or achieve a lower rate, it’s not fair that my home value goes down because the other people on the block homes went into foreclosure.
From the perspective of the bank loaning you the money they want to know how much they are going to be able to recover if they have to foreclose. So from their perspective foreclosed properties are even more relevant than non-foreclosed properties. It’s “not fair” that someone can impose on them how to value their collateral.
Exactly gary, its not fair that some boomer bought his house in 1994 and wants double the price or higher which translates to a much higher percentage of his potential buyers budgets. Im on to something here, why else would 50 of all sales be distressed sales in an. Already low market. Sellers NEED to focus on the budgetary constraints of their potential buyers TODAY rather than point to a similar house that sold 6 months ago to a young and dumb couple that put down 3.5% that was borrowed against their 401(k) aka 50% of park ridge. The entire town is for sale andthe 400k houses are sold priimarily to the fha 3.5% dwners.
HD.. you hit the nail on the head, just takes time. Gary right on target too.
I don’t agree with legislating how comps are chosen, but I do think appraisers can often do a better job at picking them. If an entire neighborhood is overrun with foreclosures, then they are the norm and should be the comp, but one odd foreclosure in a stable neighborhood just reflects a single personal situation. The purchaser of that property should get a risk premium in the form of savings from market, and therefore it may not be a good comp.
I think many appraisers are good with the technical details of comparing like properties, but most are not good at factoring in general market conditions (maybe impossible to do anyway).
But what sellers “want” has nothing to do with reality. If it’s overpriced for the market they aren’t going to get it and if they get some ridiculous price it’s not going to appraise. The NAR claims that 1/4 of all contracts are falling through because they won’t appraise. We were just on the buyside of a deal where the square footage was overstated and frankly I’m glad the appraiser caught that and nixed the deal. Interestingly, the seller relisted the property at almost the same asking price, believing that some other appraiser is going to give her a different answer. Major denial.
“its not fair that some boomer bought his house in 1994 and wants double the price or higher which translates to a much higher percentage of his potential buyers budgets”
Yeah, here what else isn’t fair in life:
– some people aren’t tall enough to play in the NBA
– some people die in accidents that weren’t their fault
– some people develop cancer for no fault of their own
– some children are abused and nobody does anything about it
– some minorities get into schools because of affirmative action
– some people work their whole frickin life to get to a job, make money and end up paying WAY more taxes than joe schmoe slacker who goes out every weekend having fun!!!
Life isn’t fair – grow up and stop your fucking whining!!! Good Lord – you sound like my children – WHEN THEY WERE 13!!!!!
back to the real estate:
I think that foreclosed properties should NOT be included for appraisal purposes. Think about it – appraisers are involved AFTER the buyer has seen properties out there and have bid on one they like. These appraisals are not being done for the pricing of the house – but in order for the buyer (who obviously likes the property and can afford it) to get a mortgage. This is a simple fact that everyone so far has seemed to miss. Again, these appraisals are not being done to price properties but to make sure that buyers (who have already chosen the place) can get a mortgage.
Don’t worry HD. I just saw a property sell in the northern suburbs.
Bought in 1997 for $575k.
First listed for $950k in 2009.
Price reduction, price reduction, price reduction.
Just sold for $600k. The seller had equity after all those years so it wasn’t a short sale or anything.
It had a new kitchen (with stainless steel appliances) baths, windows, roof etc.
This is slowly making its way into the city. Because, as I’ve been saying for awhile, the suburbs are simply getting crushed right now (even the prestige suburbs.) The wealthier people have held on longer than the further out suburbs – but if the baby boomers want to sell- it’s not going to be at $700k or $800k to Generation X. It’s going to be $400k or less.
There is simply too much supply and not enough buyers who can afford it.
Is anyone else wondering what will happen to FHA loans if the federal government shuts down?
Gary- what are you hearing? Will it just put a delay on closings?
“I’m glad the appraiser caught that and nixed the deal.”
Who gives a f what you feel – how does your buyer (who obviously liked that place) feel? Seriously, Gary – it doesn’t matter that the square footage was wrong – your buyer liked the place the way it was and agreed to the price. It doesn’t matter if it is a great deal if someone wants to buy it – wtf is wrong with all of you. Can you see how stupid you are being? I could say the same thing about clothing. The same shirt costs different amounts at different places – should I not allow Nieman Marcus to sell for a premium? Give me a fucking break!!!
Clio- the appraisal is done to protect the bank.
If it’s FHA or backed by Freddie/Fannie, I want the appraisal to include foreclosures, distress sales and everything else in between. Because, as a taxpayer, I don’t want to be on the hook when that homebuyer finds themselves underwater and walks away.
OK Sabrina and HD – you guys obviously are living in some sort of demented fantasy world where all of housing is going to come crashing down over the next 10 years. Take a look at what is out there – the VAST majority of houses on the market (in the GZ at least) are listed far above what previous owners paid. Many are under contract. I could give you several examples – you guys pull a few examples here and there that show the opposite. Do you want me to show you properties that are under contract for much more than they were bought?
While I don’t agree with this law, I understand the premise. There are idiot appraisers out there who use “bad” foreclosures (ie one that has been *trashed*, stripped, etc) as a direct comp to a unit that is move-in ready without adjustments. I’ve seen it for myself and it’s ridiculous.
“your buyer liked the place the way it was and agreed to the price. It doesn’t matter if it is a great deal if someone wants to buy it”
I agree with you completely Clio, and if they have their own money, and not the banks, they should just go right ahead and buy it regardless of that appraisal!!
“Again, these appraisals are not being done to price properties but to make sure that buyers (who have already chosen the place) can get a mortgage.”
Wrong! They are being done to make sure the bank can get their money back if they buyer defaults. Owning a home is a privilege, not a right.
Many here also predicted that college and grad school applications will precipitously fall because of higher tuition. Well, I guess you guys were wrong about that also:
http://www.chicagobreakingnews.com/news/local/chibrknews-northwestern-sees-record-number-of-applications-20110408,0,7550771.story?track=rss
“Who gives a f what you feel – how does your buyer (who obviously liked that place) feel? Seriously, Gary – it doesn’t matter that the square footage was wrong – your buyer liked the place the way it was and agreed to the price.”
They agreed to the price based upon misleading information. Often when people are buying a home they get caught up in the emotion of it all. After they’ve been there a while they start to worry they overpaid.
“I agree with you completely Clio, and if they have their own money, and not the banks, they should just go right ahead and buy it regardless of that appraisal!!”
but ze and gary – what about credit cards and auto loans? Again, the same could be said about anything for sale out there.
“They agreed to the price based upon misleading information”
It DOESN’T MATTER – if they liked the place and they were willing to pay for it – then it really doesn’t matter. This is a home and not an investment – psychology SHOULD play a factor in the decision. These are all very basic concepts to real estate – I am surprised that so many people in the field have no clue…
Perfect example Clio… Credit cards and auto loans are only extended to the point the bank feels safe lending you the money. It is not about what the buyer and seller want, it is about how safe the banks are lending you the money. Joe teacher can’t just buy a lambo because he walks into the dealership and him and the dealer agree on a sale and we all agree the cost of the car is near value. The bank is just not going to loan him the money. He who has the gold makes the rules!
Sabrina, is there a secret reason you keep telling me to look at Humboldt park for bargains?
http://www.suntimes.com/news/crime/4725114-417/five-shot-in-humbolt-park-on-west-side.html
The only reason college applications are on the rise is because of extremely cheap financing. It’s one of the only way the government can inject stimulus into the economy. I feel bad for the students though. They can’t default on the loans they are taking out and it will follow them their entire lives. It’s also the only loan you can get without a job!
They’re not joking when then say “close to transportation”
http://www.redfin.com/IL/Chicago/4112-N-Keeler-Ave-60641/home/13479783
If distressed sales set the market and are so much cheaper, then why and how do regular-way sales occur at all? Wouldn’t everyone buy the distressed sale?
The answer is no. And there are lots of reasons. And that is why the distressed sales don’t set the market, though they can influence it. Temporarily.
Very move in ready though HD… going to be a nice weekend in Chicago for RE shopping!
“http://www.suntimes.com/news/crime/4725114-417/five-shot-in-humbolt-park-on-west-side.html”
Smacks of 1991…
I’ve seen both sides of this issue. I recently got an appraisal back on a property that valued the unit at $38,000. Yeah, I didn’t leave a zero off. This is a 1200 sqft 2 bed/2 bath, graniteel, parking, etc. Place is immaculate. New construction. The guy paid $180k five years ago. Unfortunately, it is on the south side and EVERY single comp in the appraisal is foreclosure where the buyers are investors paying all cash. One of the comps was even $30k. Client just wants to do a rate/term refinance and is stuck.
With that said, I question the stat that 1/4 or whatever of deals fall apart because of appraisals. I would say 1/4 of REFINANCES fall apart because of appraisal issues, but I haven’t seen too many purchase transactions failing over appraisals in the past year. Part of it is because buyers are being very cautious and only buying in relatively strong areas whereas no one is buying in areas like the example above.
Just as appraisers over valued on the way up, many do feel they are undervaluing on the way down. Right now, it is easier to just say something is worth less as a CYA.
Appraising is very much an art not a science. You can have three different appraisals and you will get three different valuations.
“Temporarily”
A decade is temporary in the grand scheme of things…
“They agreed to the price based upon misleading information”
It DOESN’T MATTER – if they liked the place and they were willing to pay for it – then it really doesn’t matter.”
So if they were lead to believe, say for instance, that the mechanicals had been updated last year but instead where 10 years old, or the double lot was part of the purchase, when it really was a separate pin and a not included, they should still buy the house?
“A decade is temporary in the grand scheme of things…”
..but not in a person’s life.
HD – I noticed that place when it came on the market last year. Sold for $95k as a foreclosure.
HD – I bought my in-town 3 years ago right before the precipitous decline in housing prices. I probably could have waited and bought now and saved 200k. Do I regret that decision – NOT AT ALL. Why? Because you can’t buy time and the great experiences I have had because of that in-town over the past 3 years far outweighs any money I may have lost. Money is not everything and you really have to live your life to the fullest. You really never know when you are going to get sick/die. Also, you can’t take the money with you and leaving it to your kids can result in poor spending habits and bad financial decisions (for them).
“So if they were lead to believe, say for instance, that the mechanicals had been updated last year but instead where 10 years old, or the double lot was part of the purchase, when it really was a separate pin and a not included, they should still buy the house?”
Of course not – but we were talking about square footage and things that an appraiser (and not an inspector (appliances/mechanicals or attorney (separate pin numbers)) would look at.
For $200k you could have stayed at Trump every weekend and still have money left over.
“#clio on April 8th, 2011 at 8:34 am
HD – I bought my in-town 3 years ago right before the precipitous decline in housing prices. I probably could have waited and bought now and saved 200k. Do I regret that decision – NOT AT ALL. Why? Because you can’t buy time and the great experiences I have had because of that in-town over the past 3 years far outweighs any money I may have lost. Money is not everything and you really have to live your life to the fullest. You really never know when you are going to get sick/die. Also, you can’t take the money with you and leaving it to your kids can result in poor spending habits and bad financial decisions (for them).
“
I agree with Clio as well. My wife and I are currently under contract for a property in the GZ and the appraisal just came back under what our negotiated purchase price is expected to be. Is the property worth what we are paying? Well considering the sister unit (its the third floor in a six flat) sold 12 months ago at about 12% above what we are paying, the appraisal appears low. But the appraiser pullled three months of comps (Dec, Jan, Feb) to come up with an appraisal which in my opinion is not a reflection of the value of the home.
I can see the point of protecting the bank, but we are very qualified buyers, with good income, ratios are significantly higher than those required by the bank. The purchase price of the property should be what someone is willing to pay, not what some appraiser thinks it is. This is market forces. What if the appraiser said it was worth $1? Do you think the seller would sell for that?
I don’t know, I’m conflicted at the $369,000 price tag. I mean it’s on a highway, but the home despot especial directly behind it sold for $340,000 in February (no pics in redfin anymore sorry).
http://www.redfin.com/IL/Chicago/4127-N-Tripp-Ave-60641/home/13479732
“#Chris M on April 8th, 2011 at 8:30 am
HD – I noticed that place when it came on the market last year. Sold for $95k as a foreclosure.”
MRK.. I had the same problem on that with me being the seller. We lowered to sale price to reflect the appraisal and I loaned him the diff which he did pay me back over 2 years.
“Is anyone else wondering what will happen to FHA loans if the federal government shuts down?
Gary- what are you hearing? Will it just put a delay on closings?”
I would think it would just delay things.
Sabrina, I’m seeing that dramatic depreciation trend too in my near west suburbs of Oak Park and River Forest, and even worse in adjoining Berwyn and Cicero, where prices are now incredibly low for decent blue-collar brick single-family homes in safe and tidy neighborhood.
Excluding local foreclosure comps in home appraisals will set an inaccurate home valuation for lender for neighborhoods with high foreclosure rates. Appraisal is for lender’s protection, not buyer’s confirmation of offer price.
Per “College Confidential” web-site, Northwestern’s application count isn’t indicative of overall college market. It’s reflective of highly-selective, well-marketed, top-tier colleges’ application situation. Parents still push children towards college, but “total student loan debt” totals are oppressive long-term financial burden for many students. Caught are middle-income non-URM (under-represented minority) households with high FAFSA-determined EFC parental contribution amounts that family simply can’t afford, who scramble for admission at state university because they can’t afford private college for their non-“star” kids. We know several of these families, faced with hard choices and frugal budgets.
If they were bought within the last 4-8 years and didn’t have significant upgrades, yes. Definitely. I’ve seen an isolated few (and Sabrina posted a couple, like Crilly Court). But I’d be very interested to see a list of places selling for much more than their 04-08 price. For one thing, it’s interesting to see what differentiates those places from the vast majority that have declined 10-30% in value. Please, clio, post away.
“Do you want me to show you properties that are under contract for much more than they were bought?”
“If distressed sales set the market and are so much cheaper, then why and how do regular-way sales occur at all? Wouldn’t everyone buy the distressed sale?
The answer is no. And there are lots of reasons. And that is why the distressed sales don’t set the market, though they can influence it.”
I’m not saying that non-foreclosures should be valued the same as trashy foreclosures. However, if the only thing moving is the foreclosures and the non-foreclosures need to be marked down to only a slight premium above the foreclosures then the foreclosures are a very relevant part of the market. The fact of the matter is that when foreclosures are a viable alternative everything else needs to be priced accordingly. Otherwise you could have a money machine flipping foreclosures.
“I don’t know, I’m conflicted at the $369,000 price tag. I mean it’s on a highway, but the home despot especial directly behind it sold for $340,000 in February (no pics in redfin anymore sorry).”
It will be interesting to see what 4108 N Keeler Ave comes back on the market at (also a foreclosure, sold in October for $120k). Even closer to the highway but, IIRC from the interior photos (no longer available on the MLS), had a lot of nice vintage charm still intact. I’m assuming it was purchased by a rehabber/developer.
MRK: the appraiser doesn’t think it’s worth $1 so that’s a non-issue.
Here’s real issue: “The purchase price of the property should be what someone is willing to pay, not what some appraiser thinks it is.” In 2006 people were willing to pay whatever the maximum were allowed to borrow. ANd then those people defaulted. SO no, a property is NOT worth what someone is willing to pay; at best, it should be worth what a borrower is able to pay, and if you can pay more, great, put down the cash. But you aren’t paying for the house, the bank is, they’re the entity lending you the money to purchase the house and they, essentially don’t want to overpay.
The fact of the matter is that you overbid for a unit and the bank is doing a favor but you’re too upset to see that.
Consider yourself lucky. Either get the seller to lower the price or walk.
If appraisal is lower than agreed-upon purchase price, buyer still has option of increasing down payment amount to reconcile mortgage amount, if seller won’t agree to lower purchase price. Sale can still proceed, if buyer truly wants property. Bank wants valuation set at a realistic “sell now” price, not “buyer/seller agree it’s worth”.
Yawn.
chris m: I’d also like to see the 4108 property too but that’s WAY to close to the highway for me. it’s literally on the on ramp!
Here’s what I’ve got my eye on, I’m wonder what this will eventually close at.
http://www.redfin.com/IL/Chicago/3725-N-Lowell-Ave-60641/home/13459254
I think both of those properites on Keeler, regardless of how nice they’re rehabbed, need to sell at a serious discount. 4112 shouldn’t sell over $300k…the location is horrible and the rehab is cheap. Those rehabbers took on a huge risk buying a place that close to the highway on a relatively busy street…I think the market of potential buyers is very small for that.
Surely it’s not the case that multiple people here do not understand the concept of collateral? Please tell me MRK is just Clio posting under another name.
Once again, yes, the purchase price of the property depends on what the partners in the transaction agree it should be. If the only partners in the transaction are the buyer and the seller, they decide.
If Joe Banker is a party — say, providing 80% of the total value as a loan to Jill Buyer, and the property secures that loan — the price will also depend on what Joe Banker thinks it should be.
Is this really so hard to understand?
“The purchase price of the property should be what someone is willing to pay, not what some appraiser thinks it is.”
“Is this really so hard to understand?”
But I want it, rome. I. Want. It.
And if the bank won’t give me 80% of how much I want it, that’s not fair!!!
The concept of a secured loan makes complete sense. The problem is when appraisers don’t understand the local market and can’t accurately value a property. The HVCC implemented in 2008 prevents lenders from having any contact with appraisers. In theory this is great. In practice it is an absolute nightmare because it brings in an intermediary, or appraisal management company (“AMC”), to bridge the gap. The problem is appraisers are selected not on their skill level, experience, or knowledge of a particular market–they are picked based on how cheap they are. That doesn’t mean appraisals are cheaper though…they are more expensive than ever but the AMC gets that money. The outcome is often times a hastily assembled report that’s often times inaccurate and sloppy. I’ve seen this a lot and I bet that Gary and Russ have seen it as well. The HVCC had good intentions but needs to be reevaluated to work for both banks and borrowers.
HD,
Interesting that you can say that we overbid when you have no idea how much the property is selling for, what the location is, or any other details. There was another appraisal on the property done 1 week before our appraisal which came in higher than the purchase price (in fact, the purchase price is in the exact middle of the two appraisals). It is particularly odd to read the appraisal report which states that the prices are flat over a 12 month period and 13 months ago the exact same property was bought at 15% higher.
My example was an example to the above point that sales are not falling through because of appraisal. They are. And before you make an assumption that we have not, I can tell you we have gone to the seller and asked them to lower the purcahse price to match the appraisal, but I am unsure they are willing to do so, given they have another appraisal which is higher than the purchase price.
Why was there another appraisal done a week before? Did that deal fall though too?
Prices are declining precipitously, maybe a week does make all the difference.
“There was another appraisal on the property done 1 week before our appraisal which came in higher than the purchase price (in fact, the purchase price is in the exact middle of the two appraisals).”
Chris M., That is exactly right. This is the exact problem I am dealing with now
MRK – Where did the appraiser come from? I’m assuming the subject property is in the city and the appraiser is from somewhere in the suburbs.
or maybe the previous appraisal was commissioned by the seller, as opposed to someone in a position to issue a mortgage.
“Why was there another appraisal done a week before? Did that deal fall though too? Prices are declining precipitously, maybe a week does make all the difference.”
The property is bank owned and an appraisal was done right after it was put on the market by the bank to determine a price at which they would be willing to sell. We agreed to a price under that appraisal and the new appraisal is even lower. I do not believe in the thought that prices are declining precipitously. This maybe the case in some areas, but in good locations, properties which are nice are going under contract fairly quickly.
Chris M. Appriaser was from Skokie. Property is in Lakeview/ LP
All banks need to do is require two independent appraisals on every mortgage. The truth is probably somewhere in the middle. Right now, only one appraisal is required and that appraisal may or may not be a good appraisal. Because of HVCC, there is very little recourse if you get an idiot appraiser assigned. As Chris M states, appraisers are assigned based on who is cheapest, not necessarily the most competent. I’ve literally seen appraisers based in Plainfield appraising condos in Lincoln Park.
Underwriters will also challenge appraisals if they feel the comps are not representative or the adjustments excessive. Sometimes field reviews are conducted where the appraisal is reviewed by a desk jockey halfway across the country. The worst is when a lender tries to use a AVM model (a la Zillow) to verify appraisal accuracy.
That’s interesting that they did an appraisal after they put it on the market. Would make sense to do a valuation before listing a property. I’m wondering if they’re misrepresenting the date of that appraisal.
“I do not believe in the thought that prices are declining precipitously.”
Did you not read the headline of this thread? Especially in relation to distressed properties??
“Chris M. Appriaser was from Skokie. Property is in Lakeview/ LP”
Exactly. I’m surprised the appraiser came from an inner ring suburb. Most of the reports I’ve seen over the past year are being completed by guys coming from 20+ miles away from the city.
I was unaware that 10% in one year (or flat ignoring the distressed properties) was a “precipitous” decline. What would you call the pattern of the stock market over the 2007 and 2008 timeframe?
In a declining market you would think that a property would be appraised for more, since comparables over the past 6 months would presumably be priced higher.
“It will be interesting to see what 4108 N Keeler Ave comes back on the market at (also a foreclosure, sold in October for $120k). Even closer to the highway but, IIRC from the interior photos (no longer available on the MLS), had a lot of nice vintage charm still intact. I’m assuming it was purchased by a rehabber/developer.”
I remember those photos from when the sellers were trying to get over $400K for the place. I liked the fireplace and the driveway but perhaps too close to the expressway and on ramp for my liking.
“In a declining market you would think that a property would be appraised for more, since comparables over the past 6 months would presumably be priced higher.”
ha ha ha – G, HD- your response?
“perhaps too close to the expressway and on ramp for my liking.”
That house couldn’t be any closer to the on-ramp. I think it’s far too close to the on-ramp for the vast majority of buyers.
This issue has nothing whatsoever to do with foreclosures per se. As Chris M, Russ, and others point out, there are plenty of factors that make one transaction similar/dissimilar to another, and plenty of room to disagree. Attempting to discount entirely any transaction because it was a distressed sale is ludicrous. Rather, the details of that transaction (just as the state of the mechanicals/appliances, location, size, or whatever) should be priced in.
Obviously, this is hard work, and I’m not surprised to hear there are many who don’t do it very well. Russ’ suggestion of multiple sources seems like good business practice to me.
“There are idiot appraisers out there who use “bad” foreclosures (ie one that has been *trashed*, stripped, etc) as a direct comp to a unit that is move-in ready without adjustments.”
We got burned by this twice, but were able to refinance the second time as we have a lot of equity and near-perfect credit.
I would like to slap anyone on principle who comps a house on a calm residential street with one on say, Diversey or Kedzie (which happened to us). An extra slap for not taking into account any proximity to CTA stations. They don’t call it “location, location, location” for nothing – in Chicago location is hyper-local, not just by zipcode.
“MRK – Where did the appraiser come from? I’m assuming the subject property is in the city and the appraiser is from somewhere in the suburbs.”
“I would like to slap anyone on principle who comps a house on a calm residential street with one on say, Diversey or Kedzie (which happened to us). An extra slap for not taking into account any proximity to CTA stations. They don’t call it “location, location, location” for nothing – in Chicago location is hyper-local, not just by zipcode.”
So many areas of the city have pretty well defined borders beyond which property values dropped significantly, either due to school attendance areas, psychological factors, etc. It’s really important for appraisers to take those borders into consideration if it has a material impact on prices in the area. For example, everyone knows that Western is a huge border for a lot of people. I saw an appraisal on a house in Hyde Park where all of the comps were taken from Washington Park and Grand Boulevard…yeah, that appraiser was from Bolingbrook.
One more thing – the appraiser’s (or the company’s) address is completely irrelevant. Their knowledge of the market is what matters–and where they live or work doesn’t give them any automatic advantage. If I spend all my time in Sleepy Hollow researching Lakeview home valuations, I’ll have a much more accurate appraisal than some random shmoe who happens to live/work in Lakeview.
For example, one doesn’t need to know anything about Kedzie to know this:
“I would like to slap anyone on principle who comps a house on a calm residential street with one on say, Diversey or Kedzie (which happened to us)”
One simply needs to looks at pricing history on said residential street and on Kedzie.
Don’t be so quick to scoff at the idea that distressed sales are not valid comps. There are a lot of instances where assets change hands for depressed prices without setting a new “market” price.
Just like a distressed home sale, these instances typically occur when some aspect of the legal system has placed a burden on the sale process. Easiest example is buying assets out of bankruptcy or receivership. Investors do this all the time and they typically get a steep discount. Why? Because to do it right they have to be good at valuing the assets, good at navigating the legal rules to complete the purchase, and good at doing all of this fast. On the smaller end of the spectrum: buying forfeited assets, like cars, at auction. In the middle you have numerous examples of investors buying things like corporate bonds that are in default or on the verge of default.
I don’t think distressed properties are any different. Most of those sales go to professionals who: (a) know how to navigate a complicated legal/procedural process; (b) have cash; and (c) are willing to assume a risks that most home buyers are not willing to assume.
For the average home buyer to claim that a distressed property is a comp isn’t much different than me saying I shouldn’t have to pay more than a bond paying —%— because that’s what Carl Icahn paid for bonds yielding the same % when he bought them out of —– bankruptcy.
Then the problem is that this person is bad at their job, not that they are from Bolingbrook.
“I saw an appraisal on a house in Hyde Park where all of the comps were taken from Washington Park and Grand Boulevard…yeah, that appraiser was from Bolingbrook”
“One more thing – the appraiser’s (or the company’s) address is completely irrelevant. Their knowledge of the market is what matters–and where they live or work doesn’t give them any automatic advantage. If I spend all my time in Sleepy Hollow researching Lakeview home valuations, I’ll have a much more accurate appraisal than some random shmoe who happens to live/work in Lakeview. ”
The other side of that coin is those appraisals will become more expensive. Much More.
Roma – you have a point, although in today’s market appraisers are randomly assigned to properties. So, yes, someone from Sleepy Hollow might be an expert on Lakeview, but chances are that they’re more familiar with Sleepy Hollow and the appraiser based in Lakeview is more familiar with Lakeview. Just like someone looking for an agent to buy/sell in Lakeview will go with a local office than get an agent in Sleepy Hollow (unless the Sleepy Hollow agent is a friend or relative).
I’ve often thought appraisers should also be active Realtors. Yeah, laugh all you want, but I am somewhat serious.
In fact, the best appraisers I’ve worked with are also active RE agents who lived in the area that they served. Seriously, I just see way too many appraisals where the appraiser isn’t really in touch with the nuances of why certain properties sell and why they don’t. Nor do the appraisers have intimate knowledge of particular properties. I don’t see how you can value a property if you are unable to really take the intangibles into account effectively such as border streets, school districts, amenities, etc. Appraisers have certain guidelines that they must follow in regards to adjustments and the like, but I just see where SIGNIFICANT issues or assets of properties are under valued or overlooked. It is mostly by appraisers who really aren’t familiar with a particular area like someone who lives in the hood or actively sells properties in that area.
“Easiest example is buying assets out of bankruptcy or receivership. Investors do this all the time and they typically get a steep discount. Why? Because to do it right they have to be good at valuing the assets, good at navigating the legal rules to complete the purchase, and good at doing all of this fast.”
I left out the most important part, which is critical to the distressed home sale as well: they have to be good at figuring out the minimum amount of money the creditors will accept to avoid further legal wrangling.
All the agents, lenders, and mortgage brokers wanted number hitters during the bubble mania, and now they wonder where all the quality appraisers are?
It’s that pesky law of unintended consequences again.
“Then the problem is that this person is bad at their job, not that they are from Bolingbrook.”
I think the problem is that they aren’t qualified to appraise every neighborhood and suburb in Chicagoland. But if this is your line of work, orders are down, and an AMC calls you and says “Hey, Bolingbrook appraiser, we have a job for you in Lake Forest” he’s going to take the job even if he never has done an appraisal in Lake Forest because he needs to pay his bills. The problem is the HVCC and the fact that an appraiser’s area of expertise is not even considered. I really could care less where they’re coming from but it’s usually an indication of where they used to do appraisals and where they can competently perform.
The appraisal on my recent home purchase came in $5k over the purchase price. I was obviously happy to get over this hurdle, but man was the process a joke. The appraiser never mentioned the most relevant comps, all within a block of our house, and all of which sold for more than we paid. Instead, he focused on three houses that were all several blocks away. All of them sold for lower than we paid. He went through an elaborate, but completely non-sensical, analysis to extrapolate our “value” from these three properties. He never mentioned that one of them was a foreclosure. He never mentioned that all three were several blocks away, which makes a big difference in our neighborhood. He never even mentioned that our house is on an oversized lot while the others were on standard lots. He got where we needed him to be, but it was pathetic.
Here we see a common misconception: that there are two kinds of comps – valid (which apparently perfectly reflect the value of the property at hand) and invalid (which apparently are completely irrelevant).
Sure, RE appraisal may be more art than science, but it often appears people resort to the above thinking simply because they can’t do any calculations at all. What’s that you say? I need to price in increased risk in a foreclosure sale? Let’s just throw it out altogether! Huh? I need to try to evaluate a probability, instead of a certain event? Let’s just say it won’t happen.
“Don’t be so quick to scoff at the idea that distressed sales are not valid comps.”
“Here we see a common misconception: that there are two kinds of comps – valid (which apparently perfectly reflect the value of the property at hand) and invalid (which apparently are completely irrelevant).”
Yeah Roma, I agree with you. Distressed property sales clearly have some relevance and I probably should have chosen my words more carefully. But there’s two problems. One is the other extreme of what you are saying. Too many people (including a lot on this site) think the distressed properties should be treated as equal comps. The second is a matter of practical application. Most appraisers are not very sophisticated. How do we expect them to assess the impact of a distressed property sale on the market value of non-distressed properties? That is a very complicated analysis that I doubt many appraisers are capable of doing.
Everyone would be wise to strongly consider roma’s views on this subject.
I repeat: all the agents, lenders, and mortgage brokers wanted number hitters during the bubble mania, and now they wonder where all the quality appraisers are?
I can see where this would be a serious problem. And if recent legislation has necessarily made it so, that’s a regrettable consequence.
“although in today’s market appraisers are randomly assigned to properties. “
alanon,
it is truly amazing how they pick the comps and the adjustments or lack thereof that are made. All of the comps picked in our appraisal are on major streets, N and NW of our property (read, closer to belmont and further from the lake). Ours is on a quiet street in the southeast corner of his defined boundaries. No adjustments were made for the fact that we have private roof rights and a 3rd floor condo (2 of the comps were 2nd floor, the others did not have roof rights). The finishes are significantly nicer than the comps, but since the appraiser cannot view anything but pictures, no adjustment again. Oh and we have 15 foot ceilings, guess what, no adjustment. The appraisal is a joke.
“Too many people (including a lot on this site) think the distressed properties should be treated as equal comps.”
What is an “equal comp”?
“What is an “equal comp”?”
Unit A sold for $300k so anyone would be crazy to pay more than $300k for Unit B.
You mean something that requires no adjustment at all for comparison to the subject? Is that even possible?
I love how everyone feels that they should decide the comps for their appraisal – despite having no prior experience doing comps or BPOs – and they deride the certified and trained appraiser because he lives in the suburbs and he’s (allegedly) not familiar with the ‘nuances’ of the hyper-local Chicago real estate market. Amazing.
G, please. Not ALL. Were there a lot of people looking for number hitters? Yes, but certainly not all. In fact, you need to add CONSUMERS to that list as well. I doubt you’ve ever had to call a borrower and tell them their appraisal came in low after they spent $300 bucks on a useless report. In some cases, you would think the buyer would be thanking you for pointing out the property is over valued on a purchase, but in most cases you get an angry borrower blaming you for ruining the purchase of their dream home.
HVCC was totally unnecessary and like most government drivel, shows a total lack of understanding the issues at hand and the consequences of said regulation.
Banks desire for loan originations at any cost causing them to focus on volume through increasingly absurd loosening of underwriting guidelines is what drove the bubble. Wall Street wanted the loans and they got them…
“although in today’s market appraisers are randomly assigned to properties. “
Sure, but it is a direct violation of USPAP to accept an assignment if they are unfamiliar with the local market. Using out-of-market (or subdivision, in suburbia) comps is pretty good proof of incompetency when market comps are omitted.
“in fact, the purchase price is in the exact middle of the two appraisals”
If you viewed the purchase price as the true mkt price and the appraisals as estimates of that true mkt price, that doesn’t seem bad. You’d expect appraisals to be distributed around the purchase price. I take it that’s not the way the world works?
As a buyer I WANT my appraiser choosing less desirable properties as a comp to the property I’m buying. It makes it easier for me to adjust the price downward.
What you people don’t understand is that appraisals are not meant to be hyper-nuanced. They’re primarily about PSF in the surrounding area and some minor credits or deduction for various things. They don’t include granite countertops, or quiet streets vs. the next street over, or cool party neighbors, or your lot gets more sunshine, or your house is *special*. Amazing stuff here.
“Sure, but it is a direct violation of USPAP to accept an assignment if they are unfamiliar with the local market. ”
And *no* professionals ever take on projects for which they aren’t really qualified, right? Even if the ethical guidelines and the law but them at risk of liability–civil and even criminal–if they mess up. I suspect we’ve all seen it.
“after they spent $300 bucks on a useless report.”
I have no problem adding aspiring homedebtors to the list. I don’t see where the report was useless, though, since it served the lender well. The buyer was still free to purchase at their agreed price, so what’s their beef about?
“Wall Street wanted the loans and they got them…”
Of course, and mortgage brokers etc. wanted number hitters and they got them…leading to the current state of appraisal affairs.
G, the problem is there is no way to police if someone really knows the area in which they are appraising. AMCs are setup to find the cheapest guy, not the best guy. Appraisal costs have gone up to consumers, but the appraiser compensation and quality is down.
There is no longer an issue of individual LOs putting pressure on appraisers, but much of that issue would have been fixed through more thorough underwriting by the banks. Right now, probably 50% of the reports are challenged. Hardly any appraisals were challenged by u/w’s during the boom letting through the fantasy appraisals.
The other issue is that when values are going up, the comps are going to be data points justifing the over valuations. Now, we have values declining and comps are justifying the lower valuations. If we can say that properties were being over valued during the bubble, why is it that it is not possible to under value during the deflation based on questionable comps? I think the bigger issue with appraisals is that they are a snap shot in time and the methodology of using comps in some cases seems questionable in markets that are rapidly increasing as well as rapidly decreasing.
“I suspect we’ve all seen it.”
Russ and what appear to be a couple of agents on this thread claim to have, indeed. It sure sounds from the whining here that they believe these violations improperly interfere with their business. The question is: were they professional enough to do anything about it?
DZ, I completely agree. Appraisals certainly have a range and we settled in the middle of that range. Seems to be a fair market deal. Unless the appraisal from the lender comes in lower, then you are required to put in the additional equity up front. This is where the problem lies.
HD, I did not say I necessarily disagreed with the comps. I did state that certain adjustments should be made. Are you not someone that comes on here daily and speaks about finishes, living on main streets, being on the El tracks, being too far from public transit, differences between even a few blocks, etc. These things drive VALUE and it would be stupid for an appraiser not to consider them. Buyers consider these factors, why would appraisers not?
““I suspect we’ve all seen it.””
I was speaking more generally, but you knew that, and using it as a jumping off to continue your point is fine, I guess.
“Buyers consider these factors, why would appraisers not?”
Because every buyer values different things.
“When looking for a place to put down roots, homeowners do seem to have some clear preferences. They want great neighborhoods close to work. In the National Association of Realtors’ 2010 Profile of Home Buyers and Sellers, based on survey results from over 8,000 buyers and sellers across the country, buyers ranked quality of neighborhood (64 percent) and convenience to job (49 percent) as the most important considerations when selecting a place to live.”
http://www.chicagotribune.com/classified/realestate/ct-mre-0403-real-estate-location-20110401,0,4703486.story
– Just how exactly are appraisers supposed to value for ‘quality of neighborhood’ and ‘convenience to job’?
That’s why they use PSF and other various other credits/deductions.
Face it, the comp is just fine, the issue is the amount of your bid. The appraiser is doing you a favor.
Here are the remaining important factors to buyers, directly from the NAR.
“Convenience to friends and family, quality of the school district, and proximity to shopping and leisure activities also topped the list. Seven percent of buyers sought homes close to public transportation.”
7% want to live by public trans (metra, buses, cta included).
How are appraisers supposed to account for these esoteric things that buyers value?
I think that is interesting given that you have no knowledge of the comps or the subject property. But yes, you are correct, we have overbid, shame on us.
I would bet that we do not know the market near as well as the appraiser. Even though we have been looking for over 6 months now in a very defined portion of the market we must not know anything about value. Once again, with all of your knowledge, you must be correct.
Why should the appriser value your house on a quieter street vs. the busy street over? Why should they care about a roof deck that might get used 1x a year buy some buyer? IT’s PSF vs. surrounding properties
“Once again, with all of your knowledge, you must be correct.”
Again, it’s not MY knowledge, it’s the appraisers knowledge and experience drafting appraisals, that you want to disregard, just because you think it’s worth more doesn’t mean that with the comp formula it’s worth more.
How exactly is an appraiser supposed to include ‘proximity to work’ as something that buyers/sellers value in a transaction?
Apprisers have a comp forumla that it is what it is. What buyers favor is so much more subjective vs the PSF that the comp formulas use.
Always helps when you read the end of the article
“Location may also present opportunities, especially for first-time buyers. Homes on busy streets or near schools or shopping centers often have lower price tags, within reach of buyers who may not otherwise be able to afford them.”
“7% want to live by public trans (metra, buses, cta included). ”
That’s a national number, so it’s pretty much garbage in Chicago. That 7% could* constitute *everyone* looking to buy *in* the handful of cities with good public transit networks. So, 100% of Chicagoans want to be near transit.
*yes, it does not, but it’s more likely than only 7% of Chicagoans wanting to be near transit.
“IT’s PSF vs. surrounding properties”
If it’s that easy, why use an appraiser at all? Should just be an automated database that spits out a number, right? So there *must* be something more to it than you keep arguing about.
And to continue the logic, you stated that quality of neighborhood is the most important. Then all comps should be very close in proximity. Do you think a premium is paid living on Armitage vs. Fullerton? I would say yes based on pricing in these areas, and yet our comps are even further away than that. You have so many holes in your arguement its hard to try to plug them all for you.
If Mr Clueless purchased his fiance a diamond ring represented by seller as a 2 carat ring which she & he loved greatly but upon appraisal it was in fact a 1.6 carat diamond would anyone believe the seller should be allowed to keep the value differential – hey it was an emotional decision and they loved it as shown. It is obvious who is clueless here
“They agreed to the price based upon misleading information”
It DOESN’T MATTER – if they liked the place and they were willing to pay for it – then it really doesn’t matter. This is a home and not an investment – psychology SHOULD play a factor in the decision. These are all very basic concepts to real estate – I am surprised that so many people in the field have no clue…
“Do you think a premium is paid living on Armitage vs. Fullerton?”
You enjoy banging your head against the wall?
haha, I must.
MRK, you seem to believe the appraisal is too low and that the seller should lower to that price, anyway. I don’t get why you won’t just pay what you agreed it is worth, especially since you believe that is market value? Is it that far below your offer?
Did you try to get a loan from the selling bank that had the 1 week old appraisal for over your price? There would have been no need for another appraisal, if it was legit. It could have really only been for “portfolio valuation” or marketing purposes – both of which could be performed by an appraiser that IS chosen by the bank (wink-wink, nudge-nudge.)
“If Mr Clueless purchased his fiance a diamond ring represented by seller as a 2 carat ring which she & he loved greatly but upon appraisal it was in fact a 1.6 carat diamond would anyone believe the seller should be allowed to keep the value differential”
Huh? I don’t think anyone is suggesting that a house misrepresented to be on a double lot, when the vacant lot actually belongs to the neighbor, wouldn’t face an adjustment of the agreed price.
What’s happening is: Tiffany sells a ring for $20,000, but after purchase the appraisal come back showing that everyone else bought similar rings for less and the open market value (that is, w/r/t who the retail seller is) of the ring is only $18,000. Does that mean the buyer paid too much? Yeah, probably, but you also can’t get a Tiffany ring anywhere else, so that’s the freight.
Of course, jewelry is an awful, awful analogy as we all know that that ring–whether $18k or $20 is the fair retail price–would likely not sell for even $10k “used”. And–apart from unsecured credit (which is *entirely* based on ability to repay, rather than collateral value)–no bank is going to lend 80% of either the 18k or 20k nor even the $10k re-sale value, so it’s just off-base.
Selling bank wants out and will not provide a loan. It is about 3.5% below offer, but would require us to bring the extra cash to close, which I am somewhat unwilling to do.
“It is about 3.5% below offer, but would require us to bring the extra cash to close, which I am somewhat unwilling to do.”
Sincere question. Do you have to bring 3.5 percent of offer or do you have to bring whatever your downpayment percentage is of that, e.g. 0.02*0.035*Offer?
“0.02*0.035*Offer”
I meant 0.2*0.035*Offer, but who knows?
Doesn’t it make sense that the bank, in a time when values are increasing, would be willing to allow less stringent appraisal standards than in a time of decreasing values? If I were a bank making a loan for less than 20% down in this market, I would want the appraisals to be aggressively low to allow for further depreciation.
“The other issue is that when values are going up, the comps are going to be data points justifing the over valuations. Now, we have values declining and comps are justifying the lower valuations. If we can say that properties were being over valued during the bubble, why is it that it is not possible to under value during the deflation based on questionable comps? I think the bigger issue with appraisals is that they are a snap shot in time and the methodology of using comps in some cases seems questionable in markets that are rapidly increasing as well as rapidly decreasing.”
Plenty of places still use automatic valuations for various functions.
“#anon (tfo) on April 8th, 2011 at 11:33 am
“IT’s PSF vs. surrounding properties”
If it’s that easy, why use an appraiser at all? Should just be an automated database that spits out a number, right? So there *must* be something more to it than you keep arguing about.”
Yeah, MRK, how much are you putting down that an extra 3.5% is going to kill the deal? Does the extra 3.5% effectively double your down payment?
“Plenty of places still use automatic valuations for various functions. ”
But what you have posted 15 times in this thread lead to a conclusion that it’s all so close to automatic that it *should* be a desktop function and that appraisers are a waste of money.
MRK, You said your offer was in the middle, so your lender’s appraisal is only 7% below the selling bank’s? Play hardball, the selling bank would be foolish not to agree. Even if they kill your deal, have your agent write another offer at your lender’s appraised amount. Heck, wait a week and offer even less. HOWEVER, IF you believe the place is all your heart desires and you will perish without it, and the contract price is fair to you, then pony up the 3.5% and be happy. Oh yeah, don’t look at current prices for a long time, either, if you are the “could of, should of” type.
funny you mention this, as the first appraiser we got said that in the current market, “your extra lot is just surplus land and has no value.”
now what I *think* happened is the guy just couldn’t find a similar house on a double lot (bundled) that had sold, so he covered his ass not knowing what else to do.
my retort was “if it has no value, please do direct me to where ever they are giving away standard Chicago lots on the northside a 5 min walk from the Blue Line.”
“Huh? I don’t think anyone is suggesting that a house misrepresented to be on a double lot, when the vacant lot actually belongs to the neighbor, wouldn’t face an adjustment of the agreed price. “
“Plenty of places still use automatic valuations for various functions. ”
Absolutely true, and very useful, if the purpose is to NOT obtain an accurate value.
That’s more or less the purpose of Zillow’s/eappriasal/realestate.com
“#anon (tfo) on April 8th, 2011 at 12:04 pm
“Plenty of places still use automatic valuations for various functions. ”
But what you have posted 15 times in this thread lead to a conclusion that it’s all so close to automatic that it *should* be a desktop function and that appraisers are a waste of money.”
“That’s more or less the purpose of Zillow’s/eappriasal/realestate.com ”
To produce garbage “data”? That’s your grand defense of “it’s a PSF calculation”? Garbage data?
“funny you mention this, as the first appraiser we got said that in the current market, “your extra lot is just surplus land and has no value.”
now what I *think* happened is the guy just couldn’t find a similar house on a double lot (bundled) that had sold, so he covered his ass not knowing what else to do.
my retort was “if it has no value, please do direct me to where ever they are giving away standard Chicago lots on the northside a 5 min walk from the Blue Line.””
Awesome! Total moron. Can he point to *anywhere* on the northside that they are giving away vacant lots? I’ll take two, please!
“I love how everyone feels that they should decide the comps for their appraisal – despite having no prior experience doing comps or BPOs – and they deride the certified and trained appraiser because he lives in the suburbs and he’s (allegedly) not familiar with the ‘nuances’ of the hyper-local Chicago real estate market. Amazing.”
HD – I don’t really care what comps our appraiser picked. Like I said, he came out where we needed him to be. But I do think he picked the wrong ones . . . by a long shot. If there are three houses within a stones throw, all with similary oversized lots, why choose three houses several blocks away all on standard lots? With these three houses he did pretty much what you said – a price per square foot analysis. He then added in some credits for newer mechanicals and such to get to our “market value.” I guess in a way you are right: he ended up in the same place. But it just smacked of the “backing into it” method of valuation. He could have just as easily, and more accurately, worked off the three houses in our actual neighborhood (it doesn’t take anything more than a redfin account to see that the three to four blocks makes a huge difference). To me this process did not suggest that the comp appraisal process yields meaninful data. Instead it suggested that the process is so pliable that you can use it reach whatever conclusion you want.
We have to bring an extra 15K to the table at closing. Basically the bank approved up the the appraised value (just above 400) and the sale price is 15k higher. So even though its a low amount overall (as a% of PP), its a lot when you are talking cash up front. We are first time homebuyers and to be honest, the 15K is not in the budget right now.
We are playing hardball and asking them to drop the price to the appraisal. Not sure the selling bank will accept though given they have an appraisal for 15k over the purchase price. Will be interesting to see what happens
“Appraisal is for lender’s protection, not buyer’s confirmation of offer price.”
This is true. We’re having issues with appraisals on financings for industrial properties. The appraisal, banks contend though not in the same words, is the “get me the f’ out in less than 12 months” value.
If you have an industrial property that processes chemical coatings, the 12 month horizon buyer is a pretty limited set unless you are only valuing the 4 walls and the land, which is pretty much what it reflects. In some cases, the bank appraisals have been 10% of the insured value.
As Russ said, appraisals are problematic because–competency aside–they are snapshot in time of an asset that, in most cases, will be utilized as collateral for a 30 year loan. That opens up the asset to a large degree of price changes over time. It’s not appropriate for an appraiser to skew the value of a property upward or downward based on recent trends in market conditions. They are required to note recent market conditions on the report–stable, increasing, decreasing–and that is reviewed by the lender during underwriting.
skeptic, Besides the obvious incompetence, an extra buildable lot by definition is not surplus land. It is excess land.
Still waiting for Clio to post a handful of Green Zone comps sold post economic collapse for > than 200X-2007 purchase price. Ain’t gonna happen. And if there are a few, they ain’t the norm.
Another thing @ Clio. It’s impressive that you feel your experiences living in your home over the last 3 years are worth $200K. From an economic standpoint you’re rational–you feel you’re better off by spending the $200K to have those experiences.
I hope you recognize that most people can’t say that about $200K for any experience over 3 years; they just don’t have it.
Your posts makes me wonder: Are you wealthy and indifferent to this $200K depreciation (unrealized loss)? Or are you something else?
Tell that the zillow. Their valuations work much better in tract home subdivisions
“#anon (tfo) on April 8th, 2011 at 12:12 pm
“That’s more or less the purpose of Zillow’s/eappriasal/realestate.com ”
To produce garbage “data”? That’s your grand defense of “it’s a PSF calculation”? Garbage data?”
“I guess in a way you are right: he ended up in the same place. But it just smacked of the “backing into it” method of valuation.”
It’s pretty hard for them to resist. You know what would make the appraisals more interesting (and probably valid)? Have them value the property WITHOUT looking at the price on the contract. But that would make too much sense.
“Yeah, here what else isn’t fair in life:
– some people aren’t tall enough to play in the NBA
– some people die in accidents that weren’t their fault
– some people develop cancer for no fault of their own
– some children are abused and nobody does anything about it
– some minorities get into schools because of affirmative action
– some people work their whole frickin life to get to a job, make money and end up paying WAY more taxes than joe schmoe slacker who goes out every weekend having fun!!!”
Yet only one of these inequities is the result of government policy (AA) and that’s the one, much like extensive government intervention in housing, that drives me nuts.
In any case this law being discussed won’t really impact the market. It may allow a few more bozos to overpay as the appraisal won’t be shot to bits, but I think the overall affect will be muted.
“He never mentioned that all three were several blocks away, which makes a big difference in our neighborhood. He never even mentioned that our house is on an oversized lot while the others were on standard lots. He got where we needed him to be, but it was pathetic.”
They should make an adjustment for this, but it is silly — if you calculate the incremental value ascribed to the sq ft on the lot, you can basically buy a city block in Chicago for the price of a SFH. Somnething low like $7 per sq ft or like 20k lot value.
What would likely make them more valid would be to get 2-3 and average / take the midpoint of them. Turn on CNBC and you can find people saying the Dow is going to 10,000 and people saying it is going to 15,000. These people are all also considered “experts” in the field. Some people are pessimistic, some are optimistic. Does not seem reasonable to rely on one single person’s point of view.
I wish we were back to local banking where bank representives knew who they were lending too and knew the market. After all, isn’t that what they get paid for?
MRK — don’t be afraid to walk away.
BUT — Let me tell you a little story first. My wife and I were in a similar situation (didn’t involve appraisal, but similar bind). We won a small bidding war for a house. A situation arose that would have required me to pony up an extra $10k. I said no. My wife told me we wanted the house, it wasn’t a lot of money in the grand scheme of things, and I shouldn’t be so pigheaded. I said no, I thought the situation was dirty, and out of principle I told them to go fuck themselves. Needless to say, contract fell apart and we didn’t get the house. My wife was very angry with me and I quickly realized there was a countervailing principle that I had ignored: sometimes it’s more important to be happy than right. Now, we eventually found another house that we like just as much, but saving that $10k cost me a lot!
“Not sure the selling bank will accept though given they have an appraisal for 15k over the purchase price.”
Given that they don’t want to lend on it, I’d assume in negotiations that their appraisal was by their choice of appraiser for marketing purposes.
HAHA, similar situation alanon. Wife is starting to put the pressure on, but I am certainly not afraid to walk away. The way I view it, we certainly still have the power as we can walk away.
@ Chris… The appraiser needs the contract price so they can anchor to a value which is all you need to know about the appraisal process when it comes to accuracy. If they didn’t have the contract price the purchase market would collapse as nothing would ever get closed. At the end of the day, they are one guy’s opinion based on looking at properties that have sold over a defined period that are reasonably similar. Typically, lenders want the comps to be less than 3 mos old. You know what they say about opinions…
This is why we see the most appraisal issues on refinances as there is no value given to the appraiser ahead of time resulting in these piss in the wind values. Just got an appraisal where myself and borrower thought the value would be around $380…. appraisal came in at $455k. On the flip side, I am thinking I would get an appraisal for $150k on a garden unit and it comes in at $38k.
I actually don’t trip out as much when an appraisal comes in way off. What really gets under skin is when you get some guy who thinks he is so freaking brillant he can appraise a property within .25%. I literally have seen appraisers give a value of $440k on a property contracted at $442k. Even the underwriters are like WTF? If he said $420k or $410, you could then start rationalizing the difference, but $2k??? NO ONE is that accurate.
#MRK: So your down payment is 3.5% and the extra $15,000 is doubling your downpayment to 7%.
Look here, I’m being honest, you’re pretty emotional about this, but realistically, first time home buyers with little money down are a large part of the market and even buyers like you are slowly dwindling out of the marketplace. When the number of buyers like you dwindle past a certain point (And I don’t know what point that is but it’s close) the market is going to drop out below you because there are ever fewer first time home buyers with $80,000 down payments to buy $400,000 homes than there are first time home buyers with $15,000 to buy $400,000 homes. The fact that you’re so upset over an appraiser who’s value is off by a measly 3.5% is pretty indicative that a large part of your purchase is emotional and not completely based upon the finances. Hell, national election polling has larger margin of errors.
You should start savings your 20% down, hold off a little while, and revisit the market at a time when an extra 3.5% as a first time homebuyer IS “in the budget right now.”
But of course, homebuyers don’t listen to me, despite my great advice. They often get lucky and catch a break on a imprudent decision, as a way out (like your appraisal issue) and of course, they get upset instead of realizing this is a golden opportunity to back out of a bad deal.
“My wife was very angry with me and I quickly realized there was a countervailing principle that I had ignored: sometimes it’s more important to be happy than right. Now, we eventually found another house that we like just as much, but saving that $10k cost me a lot!”
Female nesting instinct was one of the primary drivers of the bubble. Of course guys went along with due to the adage “happy wife makes a happy life”.
But seriously most guys I know don’t have nearly the same obsession with “owning” a piece of real estate. Many think that if you “own” something regardless of the mortgage lien if is yours. Pretty hilarious.
They dont want to lend because they are underwater on several projects which they want to wash their hands of. The property was under contract in the fall for 20k over the banks appraised value, but that fell through due to Buyer financing.
That being said, I have no idea what the purpose was for the appraisal, and I do not necessarily put as much credibility into it. That being said. to the points above, there are several comps which could have been used and were not in our appraisal and I think the PP is fairly well supported.
“NO ONE is that accurate.”
Which seems to confirm why he rounded. Don’t tell me the $2k killed a $442k sale because the buyer couldn’t put down another 1/2%…
Russ – Are most appraisals different from the contract price by at least $10k or so? Because I’ve usually seen them come in very close on purchase loans. Obviously appraisals that come in below contract price mean the contract is going to fall apart or buyer/seller need to give on price, but are underwriters concerned when the appraisal price is significantly over the contract price? One loan originator told me that is sometimes a concern for them as well…that there’s concerns unless the appraisal comes back at contract price or slightly over.
No one said the down payment was 3.5%. It is not. I said we would be required to put 3.5% additional down. Even to someone covering 80K, another 15K on top is a good amount of money.
15K is good money but if you have good incomes, good credit and good jobs, how much longer would it really take to save that much? Especially if you have the income to support a $400,000+ unit?
Hell you could probably save that between now and the closing date. YOu don’t actually need the money until you have to hand the check to the closer at the Chicago Title.
“#MRK on April 8th, 2011 at 12:44 pm
No one said the down payment was 3.5%. It is not. I said we would be required to put 3.5% additional down. Even to someone covering 80K, another 15K on top is a good amount of money.”
assming you have an income of $125,000 a year to buy a $400,000 place that’s $10,000 a month gross. and assuming your make $125,000 HH income $10,000 a month is a conservative estimate of your income. Adjust your tax withholdings for a few months, stop eating out, move some money around from here to there and wallah! an extra $15,000. It’s not easy, but it’s not impossible.
Female nesting instinct was one of the primary drivers of the bubble. Of course guys went along with due to the adage “happy wife makes a happy life”.
But seriously most guys I know don’t have nearly the same obsession with “owning” a piece of real estate. Many think that if you “own” something regardless of the mortgage lien if is yours. Pretty hilarious.
————————
Actually Bob, I was pushing the home buying. It’s always been important to me and my wife generally didn’t care. I emailed her hundreds of listings and drug her to dozens of open houses. She finally fell in love with a house. Then I refused to close the deal because of the last minute shenanigans. She was angry that I had drug her through the process then pulled the rug out.
“The property was under contract in the fall for 20k over the banks appraised value, but that fell through due to Buyer financing.”
The bank has been trying to sell it since the fall, and your appraisal is still within ~12% of their best offer from an unqualified buyer? Or, is it that buyer’s appraisal was too low, the bank subsequently appraised for lower, and your appraisal is lower still?
Wait a week or two and lower your offer below your appraisal with a note that the next one will be lower still. Be sure to first check with your lender to see how long they will rely on your current appraisal, though. Too long and a new one might be lower.
“Adjust your tax withholdings for a few months, stop eating out, move some money around from here to there and wallah! an extra $15,000. It’s not easy, but it’s not impossible.”
Nonsense. If you are only making 125k HH income, there is no chance you are going to be able to save 15k over a few months.
10k a month gross is around 7k net. Take 5k out of that, leaves you 2k for the month. No one that makes 125k is living on 2k per month.
“I emailed her hundreds of listings and drug her to dozens of open houses.”
It might have been easier had you drugged instead of drug.
@G: No it doesn’t kill the deal, but the point is no one is so brilliant they can price a property so accurately that it $2k under the purchase price particularly on deals that size. There was no reason to not value it at the contract price. In the handful of times that this has happened even the underwriters thought it was retarded. It just further stresses a deal when both buyer and seller then have to go back to the negotiating table over some bullshit appraisal where the valuation is off less than .5% of the contract price.
Chris: 95% of the time the value will come in at the contract price or slightly higher. Values well above the contract price will cause the underwriter to take a hard look. I had a property two years ago appraise nearly $200k above the purchase price. The buyer got a great deal on a foreclosure where a developer of a spec home ran out of money. I think he paid like $450k for it an the appraisal came in at almost $700k. THe buyer just needed to finish the kitchen (maybe a $10k investment on his part).
In my experience, if the value comes in lower, it is lower by a pretty substantial margin to where you really do question if the listing price was unrealistic OR if the appraiser is an idiot (usually it is 50/50). IF the u/w thinks the appraiser is off or questionable, they will order a field review (second look by a desk jockey appraiser) and request additional info from the appraiser. In some cases will request a new appraisal (at the consumer’s cost of course).
HD – the word is voilà. It’s French.
“Still waiting for Clio to post a handful of Green Zone comps sold post economic collapse for > than 200X-2007 purchase price. Ain’t gonna happen. ”
I am too. As always, however, I try to remain skeptical but open-minded.
“Your posts makes me wonder: Are you wealthy and indifferent to this $200K depreciation (unrealized loss)? Or are you something else?”
Human? http://en.wikipedia.org/wiki/Cognitive_dissonance
“Female nesting instinct was one of the primary drivers of the bubble.”
Primary DRIVERS? This seems highly unlikely, unless you believe “female nesting instinct” drastically changed c. 1999. Would make for an interesting paper in evolutionary psychology or something.
My household has managed to save $15,000 in 2011 and that’s AFTER daycare and student loans (including a smallish tax refund). LIke I said, move some money around (daycare FSA’s, healthcare FSA reimbursements to savings, tax refunds, lower withholdings so you don’t get a refund in 2012, etc).
OF course I dont have a car payment, high rent or any other major drains on my cash flow.
The only nonsense around here is yours.
“#chukdotcom on April 8th, 2011 at 12:55 pm
“Adjust your tax withholdings for a few months, stop eating out, move some money around from here to there and wallah! an extra $15,000. It’s not easy, but it’s not impossible.”
Nonsense. If you are only making 125k HH income, there is no chance you are going to be able to save 15k over a few months.
10k a month gross is around 7k net. Take 5k out of that, leaves you 2k for the month. No one that makes 125k is living on 2k per month.”
appreciate the help. Odd that you can make a guess at HH income (and you are off) but all that being said, we are expected to close in a week, so that does not help a whole lot. Best possible scenario is for the bank to drop the price
I was figuring roughly a housing price a little more than 3x income. $125,000 x 3 = $375,000 which for back of the envelope calcs is close enough to your closing price a little north than $400,000. I also said that $125,000 was ‘conservative’.
I stand by my assertion that this is a blessing in disguise.
“Odd that you can make a guess at HH income (and you are off) “
$125,000 /12 is roughly $10,000 a month gross which is a nice easy figure for back of the envelope calcs
agreed. But each buyer is differnet and I would certainly expect that as the floor.
MRK: I also spend 70% of my day looking at household incomes from people who make $8.00 an hour up to professionals making $300,000, but more skewed towards lower end because there are more households in that category. I have a pretty good handle on how households spend their money and what they make and how much their mortgage payments are and how much their housing costs
Would the selling bank be open to a 3rd appraisal? Sounds like they don’t want to budge and you are unable to put up the $15k, so you have to come up with an alternate solution. Personally I can’t believe they are desperate to get out on a $400k+ place and are crying over $15k, especially when their last contract was all the way back in October. Doofuses.
I would demand that they lower the price to agree with your appraisal and, if they refuse, walk away.
But if they demand a lower price then there’s no way they’ll close next week! They’ve already put a down payment with the movers, the furniture is being delivered … the following weekend is the housewarming party..
“#Chris M on April 8th, 2011 at 1:22 pm
I would demand that they lower the price to agree with your appraisal and, if they refuse, walk away.”
Did you just get this appraisal? Because I don’t understand how your closing is in a week and this is still an open issue.
also why can’t you just take out a bigger mortgage? Are you up against the $417,000 conforming limit?
“also why can’t you just take out a bigger mortgage? Are you up against the $417,000 conforming limit?”
Probably an LTV issue.
JJJ: technically they need to come up with 20% ($3,000) of the $15,000 because could borrow the rest and keep the LTV…unless of course he was up against the conforming limit and couldn’t borrow any more hence the $15,000 they’re asking for.
“technically they need to come up with 20% ($3,000) of the $15,000 because could borrow the rest and keep the LTV…”
You might want to check your math.
I think that you’re wrong on this one, hd, since you can only have the applicable LTV as against the appraised value, you have to come up with 80% of the amount by which the appraised price is under the purchase price.
Example: if the property purchase price was $415k, and it appraised for $400k, and they were planning on putting $83k down, now they can only borrow $320k, so they have to put $95k down, which is 80% of the difference in the appraisal and the agreed purchase price.
Not true HD. Bank lends LTV against the lower of the PP or the appraised value. If it was an issue of the 3K, it would not be as big of a deal, but at 15K it becomes a bigger deal.
You’re right, you’re right, i’m only half paying attention to what’s going on here today. Strike my previous comments…
JJJ, you are much closer, but in your example, if PP is 415, appraisal is 400, you need to come up with 80 (20%) + 15 = 95k at close. Bank lends you 80% of 400K not 415.
“JJJ, you are much closer, but in your example, if PP is 415, appraisal is 400, you need to come up with 80 (20%) + 15 = 95k at close. Bank lends you 80% of 400K not 415.”
I might be missing something, but I think that’s what JJJ posted.
“if PP is 415, appraisal is 400, you need to come up with 80 (20%) + 15 = 95k at close. Bank lends you 80% of 400K not 415”
MRK, that’s what I said, I just dropped a few words in the explanation – I meant to say “which additional amount reflects 80% of the difference…” The portion of the difference the buyer has to pay should be 1 – the portion they are putting down, unless there is flexibility in the LTV requirements and they were putting down more than the LTV in question required.
“now they can only borrow $320k, so they have to put $95k down, which is 80% of the difference in the appraisal and the agreed purchase price.”
Agreed. Sorry, been a long day.
Well, MRK, best of luck to you, regardless of what you decide to do.
No worries, MRK, good luck.
I think that your approach should be to pester your lender as much as you can to try to get them to take another look at it, and to do the same to the selling bank to try to get them to come up a little bit. Pretty much what G said, though, if you want it and you think that the price is right, you’re the one who should be deciding that.
“No one said the down payment was 3.5%. It is not. I said we would be required to put 3.5% additional down. Even to someone covering 80K, another 15K on top is a good amount of money.”
MRK you certainly have a lot of optimism with regard to the housing market if your jumping in now. Which makes me wonder, what IS the downpayment? Are you really bringing an 80k downpayment to the table?
If so I would think that lends a lot more credence to your opinion that now is a good time to buy real estate vs. someone who scrounged up just a little bit of money and is having the bank cover the rest.
So are you bringing 80k to the table? What size downpayment are you putting on the line for your real estate purchase as a % of sale price?
““Female nesting instinct was one of the primary drivers of the bubble.”
Primary DRIVERS? This seems highly unlikely, unless you believe “female nesting instinct” drastically changed c. 1999. Would make for an interesting paper in evolutionary psychology or something.”
Never said it was the catalyst. It likely was there before, but due to economic constraints (traditional underwriting standards) they weren’t allowed to bid up RE to crazy prices.
Bob – Aren’t you going to eat popcorn and laugh at his misfortune?
“Bob – Aren’t you going to eat popcorn and laugh at his misfortune?”
He hasn’t bought _yet_. The appraiser is trying to save his butt but he doesn’t even realize it and complains instead and considers it an obstacle.
DP is 20%. I am confused as to why you said I am so optimistic on the RE market. None of my posts have said it is going up. There are other reasons to buy a house, not just as investment. Clio says all the time on here it is about finding a place on your own, not paying rent anymore, etc. We are tired of living in a rental and while I dont expect the market to improve dramatically, I personally do not expect the gigantic declines some on here are calling for.
And I don’t understand the coorelation between putting 3.5% or 20% or 50% and where you think the market is going. If I thought it was going to skyrocket, I would put 3.5% down, wait for the price to increase and then flip it. I believe that is what the most optimistic RE investor would do (this is basically what happened in 2004-2008).
“I believe that is what the most optimistic RE investor would do (this is basically what happened in 2004-2008).”
The *most* optimistic borrowed 110% to 125% on a OARM, made the minimum, minimum payments and expected to be able to flip for a profit 366 days later (for long term gains treatment). Worked for some, ’til it didn’t, and worked for builders.
“I would demand that they lower the price to agree with your appraisal and, if they refuse, walk away.”
I’d walk. A family friend offered on a house in Chicago that appraised about 50k less than the 800k offer. They offered to buy at appraised value, but seller refused. 6 months later seller accepted an offer 30k below the original appraisal.
Walking away from a low appraisal is just a casualty of the process. It is the same with private equity deals where the banks can’t get to the right funded debt to make a deal work on the IRR.
Last piece of advice. Don’t buy a crappy condo in Lake View. There are many better SFH alternatives in the city. Consider a 3br SFH further north. Condos are getting absolutely crushed right now, and that market is far from stable.
MRK, you have to realize that there are a lot of people on here who don’t really have the ability or the desire to own real estate, and others who can’t evaluate real estate other than like a stock. These people can’t understand that anyone is different from them. They assume that anyone buying real estate right now much think that the market is guaranteed to double in the next 3 years, since that’s the only reason these folks think would be reasonable to buy right now. hd, for example, has already decided how much you make, that you’re paying too much for this property, that you’re a fool to buy right now and probably thinks he knows your wife’s middle name, etc., etc., etc., so it’s not worth trying to tell him otherwise. He works in personal bankruptcy or some similar field so he assumes that everyone is like his clients.
It sounds to me like your approach has been pretty thoughtful. If you’re within $15k of the appraisal price, you can probably push it through and get the seller to budge $5k, the lender to budge $5k and then throw in the other $5k yourself, or something like that.
If you really have the stomach for it, post the property address and we’ll all take a look.
“If you really have the stomach for it, post the property address and we’ll all take a look.”
Don’t do that. The bank may not want non-public knowledge out there. The downside is not worth the “upside” of having a bunch of lurkers tell you they don’t like the finishes, etc.
“And I don’t understand the coorelation between putting 3.5% or 20% or 50% and where you think the market is going.”
The 3.5% down crowd is largely the paycheck to paycheck crowd. Little financial discipline (or at least no prerequisite to have any) and focusing on monthly payment above all else. Many on here use the straw man argument that it’s savvy investors who value liquidity over all else, but I’ve found that’s not the case. Its people wanted more house than they can reasonably be expected to afford.
It is extraordinarily easy to become an owner of real estate with 3.5% down vs. 20%, leading me to believe their predictions about the future of the RE market is “dumb money”. Someone like you willing to put down 80k for serious skin in the game I would trust you’ve done your homework much better than Joe Schmoe with 10-15k.
If you have 20% DP and the appraisal is what’s killing it and you really want the place I’d shop around. There are still places doing seconds and you seem like the ideal purchaser for one. Alternately you can get another appraisal done which might be a far easier route.
You can appeal appraisals too.
Wow, Bob, you went soft on him. You must be in good spirits.
“The bank may not want non-public knowledge out there.”
I guess, but they’re an adversary, not a party to be accommodated, and I really doubt they’re going to kill a deal because they happen to find some info on the internet. I also think you’re ascribing far too much initiative to folks at banks who want to do the minimum along some well-defined guidelines. It’s not like they’re out Googling for info on the properties they’re trying to sell.
“MRK, you have to realize that there are a lot of people on here who don’t really have the ability or the desire to own real estate, and others who can’t evaluate real estate other than like a stock. ”
Left out to whom anyone who has been listening to the last two years would be grateful to.
“Left out to whom anyone who has been listening to the last two years would be grateful to.”
I need a hit either to get the phrasing or to get over the phrasing, I’m not sure which.
“It’s not like they’re out Googling for info on the properties they’re trying to sell”
Assuming there is an agent involved with a commission that is calculated on an ad valorem basis, I wouldn’t necessarily conclude that.
I need a hit either to get the phrasing or to get over the phrasing, I’m not sure which.
How about 2 hits and a comma?
The bank may kill the deal rather than budge. That’s how banks work. Firsthand knowledge here. They don’t really carwe to negotiate especially if its a tbtf.
“How about 2 hits and a comma?”
Puff, puff, punctuate?
Good one anon, that was witty.
Don’t you guys have anything better to do than pick on me? It’s spring and 45 degrees outside there, shouldn’t anon be out playing volleyball on the beach and enjoying his 9.5 months a year of great weather? 🙂
“9.5 months a year of great weather?”
I never said “great”, but the contention that there are only 15, non-consecutive days of acceptable weather here is absurd.
“9.5 months a year of great weather?”
“Chicago, Maui of the Midwest” … I like it!
Supposed to be 85 this weekend in chi, man!
Hope you’re not stuck in realengo or sth…
tragic.
“Supposed to be 85 this weekend in chi, man!”
Now that I have a deadline and have to work the whole weekend it is going to be 85…sigh
Actually, it’s forecasted for 84 this Sunday. The ol’ patio heater is cranked up and I’m grilling again tonight. Spring in Chicago rocks.
Hah! we all jumped on the weather tip. Sorry ze.
“Supposed to be 85 this weekend in chi, man!”
Means more shootings.
“Hah! we all jumped on the weather tip. Sorry ze.”
I’d be on the lake by 7. Enjoy!
oh whoops, i didn’t mean to reference the shooting on purpose. i knew there was a reason that neighborhood name came to mind…
should have said:
hope you’re not stuck in inhauma.
85 degrees Sunday? Wow, last I checked they were saying “70’s” and upon further review, you are right… Those are gonna be some crazy thunderstorms on Sunday, better get those hurricane shutters installed! LOL
Roma… closest one to me is this one… at night it’s like looking at a Christmas tree.
http://upload.wikimedia.org/wikipedia/commons/e/e3/Favela_do_Vidigal.jpg
and roma.. did you spend much time visiting family or something in these lovely neighborhoods?
Have a good weekend everyone. MRK, I would let this fall through but I’m ruthless. Last weekend I put an offer down on a condo that was listed about 60k too high. Based on comps that were not distressed. After a weekend of negotiations we were still too far apart and I walked. Now just a few days later they did a price change on the MLS that brings it 10k below their final offer. A few more weeks and maybe we’ll make another go at it.
Nice thing about Chicago is that you can get cheap flights to anywhere in the US, like the $90 flight to Miami I’ve got tomorrow morning.
nah, just tryna bust your chops since you were ragging on chicago
probably jealousy…
This so called law proposed to eliminate distressed sales from comps is as ridiculous as it sounds. I was slightly baffled as to how a politician could support this law. I’m not racist or anything, I have black friends, but when I read that the legislator’s name is LaShawn I started to get a feel of what was really going on. When I read that LaShawn is not only a politician but also a real estate hustler (crafty guy). Things became perfectly clear. No doubt LaShawn supported fuzzy math on the way up when he was talking uneducated people right into the American dream at the peak of the market. Now he’s proposing a new sort of fuzzy math on the way down.
When it comes to pricing there are only two things that matter. 1) Supply and 2) Demand. Everything else is quite frankly bullshit. LaShawn’s idea is to boost prices, not by making communities safer, improving schools, investing in infrastructure or anything like that, which government is supposed to do, but by forcing appraisers to exclude up to half of the comps (the bottom half of course). So the new “appraisal” will show a higher price and BOOM every owner in Chicago just gained 10% on their home value. Imagine what happens if this law were to pass. Due to the “success” of the law in raising prices, there will be another law and another. It will be like a winning lottery ticket for every owner. All because of LaShawn and his ingenious idea that no one had ever though of. LaShawn will be hailed as a financial savant, a math wizard, a hero. Of course every bank would have the right to simply ignore every LaShawn Appraisal or just discount it by 10%, which makes the whole thing pointless. I actually hope his law passes. More chaos in the market means more opportunity.
Just the other day my business took me to the southside. On the way back I cut off the dan ryan. Even though I was less than 2 miles from the city center, I realized that I wouldn’t want to live there at any price. Indeed I wouldn’t live there if the landlord paid me $1500/mo. I figured that no one in their right mind who had a job would want to live there either. It’s just a matter of personal and property security. Yet there were homes nearby that undoubtedly people paid $500k+ for. Q: What is the value of a home where the upkeep and taxes alone cost more than any rational person would be willing to pay? A: ZERO. Hard to believe but there are thousands of properties that really are going to zero.
I’ve seen some talk on here about the Green Zone, which I assume to include Streeterville and Lincoln Park among others. Well unfortunately for the people there, unlike the real Green Zone, Chicago’s GZ does not have walls around it keeping the riff-raff out. There are fewer distressed GZ sales because a GZ owner can on average hold out longer than a non-GZ owner. The effects of financial stress take longer to play out in a richer area. But those effects will of course still be felt in time. GZ prices are indeed falling, just at a slower rate.
In Lincoln Park people are constantly getting mugged and cars broken into, and worse. A close friend lives there and I recognize my West Ridge neighborhood (well outside the GZ) to be much safer than his. In the past year he has seen vandalism, muggings, and even a vehicle firebombing right on his block. (Don’t believe me? Call me on it and I’ll get a picture of it up on flikr or something.) At the nearest gas station I saw an undercover cop pull out a revolver and hold it directly against a gangbanger’s head. This is while they already had 3-4 other bangers cuffed and laid out in the parking lot. I snapped a pic of that too from my car. My neighborhood has seen nothing of that. I regularly transport valuables in and out of my car as part of my business with relative safety at all hours. The fact is that Lincoln Park has a lot of younger people with newly found money, either from their first job, from their parents, or from easy credit. It’s essentially a welcome sign for burglary and robbery crimes and attracts that element as such.
If you read my previous post (linked below) about how and why the chicago RE market will continue to decline, you know that nothing has changed.
http://cribchatter.com/?p=10050#comments
(Clio hated it and flamed all over it, which means it was well thought out.)
Every reason why the market is set to fall still exists today if not more so. And by the way I’m still legally living rent free in a new construction modern 3/2 with parking. It’s been about 20-30 months since anyone has made a mortgage payment. After the requisite number of years if it gets to that, I will file a adverse possession claim to gain title from the bank too. Maybe by then the RE market will finally start to turn.
Can we please stay on real estate topics and not get into a whole race discussion again?
Thanks.
Brad: Do you think the bank will try and re-sell your property eventually? (or the property you are hanging out in- I should say)
How long has the bank actually owned it now?
It would be interesting to see what most people would do in Brad F’s situation (where he is not paying rent because the owners of the unit he is living in haven’t paid mortgage in 2.5 years). Obviously the ethical and morally right thing to do would be to move to another unit and pay rent – but I really wonder if someone was in that situation what would they do…. I think that maybe everyone would do the same thing. Life is hard and there are already so many things that you have to pay for that aren’t “fair” – so why not take advantage of a situation where nobody is really getting hurt – it’s kind of like shoplifting – nobody gets hurt, right?
Actually, there are many dangers of doing what Brad F is doing:
1. you get used to not paying rent and then, when you DO have to pay rent, you may have to cut back on other things that you used that money for when you were not paying rent (even savings) – this could be materially and emotionally irritating and depressing.
2. when you DO have to get another place, you will be very angry and upset over how much things cost (because you are not used to paying for housing).
3. your friends may be jealous and pass judgement. I know that I certainly couldn’t be friends and have a normal good time with someone I knew wasn’t paying rent – it is too sore of a subject.
4. when you DO have to find another place, you will have no references – how are you going to explain to your new landlord/mortgage person that you weren’t paying rent? (although everyone is so god damn stupid that I am sure this won’t matter is you bring a big enough deposit).
but all in all, if you can deal with these issues, then go ahead and do it.This is the same mentality of many of the people in the neighborhoods you complain about in your post…. you will just become another one of the leeches/parasites of society that will come to expect so much on the backs of others..
“Obviously the ethical and morally right thing to do would be to move to another unit and pay rent”
I disagree. You mean in clio’s world that is. And I would never want to live in clio’s world.
“In Lincoln Park people are constantly getting mugged and cars broken into, and worse. ”
It’s because of two things: Fullerton & Belmont red line stops. Go further north on the Brown line after it splits off from the Redline and the Pookies don’t venture there as much. Pookie with his baggie jeans that don’t quite cover his arse stands out like a sore thumb north of the Belmont stop on the Brown line.
Also north of Belmont on the Brown line it’s not 24 hours. So they aren’t going to mug you then take a bus to transfer to the Belmont stop at 3am (most of them don’t drive). Not to say crime doesn’t happen there but from what I hear it’s significantly less frequent.
Must be rough out there:
97% off at Dream Town Realty
http://www.groupon.com/chicago/deals/dream-town-realty
Of course it’s rough out there. The unwritten rule that ‘any SFH structure on a 25×125 or small lot must list for at least $499,999 if it the kitchen is from after 1982’ is really putting a damper on sales in the neighborhoods located between Roosevelt to Western to Devon to the lake. The same rules apply to suburbs where GZ’ers prefer to live: north shore, northwest side, nw suburbs, western suburbs, dupage county, etc. And they wonder why things are slow? They don’t understand that Auntie Sallie Mae has reduced the purchasing power of a large number of college graduates by at least $50 to $100k because of student loans. No I can’t pay you $500,000 for your house because I’m already supporting AUnt Sallie at $600 a month (or higher for most profesional households)…so that takes off roughly $100,000 off the price on that basis alone. Whatever, all signs are pointing to a slow declining market (after this sharp and quick fall through the end of the year) for the next decade.
Enjoy your nice weather this weekend!
#Bob on April 9th, 2011 at 9:32 am
Must be rough out there:
97% off at Dream Town Realty
http://www.groupon.com/chicago/deals/dream-town-realty“
It’s rough out there bc we are still at a stalemate b/t buyers and sellers. Hi end props will contiue to sell, along with the awesome and unicorns. The crappy ones, cookie cutters, and problem props will continue to dwindle.
The comment abt LP and crime is something I have said for a very long time…it’s THE most dangerous neighborhood in Chicago bc everyone thinks that it’s safe and the richest reside here. It’s a target for crime.
“The bank may kill the deal rather than budge. That’s how banks work. Firsthand knowledge here. They don’t really carwe to negotiate especially if its a tbtf.”
I didn’t read the context intent of this statement but I will tell you first hand that banks will negotiate, especially with REO’s and short sales. It may take many forms (closing costs, price, interest rate, workmanship, time to close, etc..) but they absolutely will negotiate.
“No I can’t pay you $500,000 for your house because I’m already supporting AUnt Sallie at $600 a month (or higher for most profesional households)…so that takes off roughly $100,000 off the price on that basis alone. Whatever, all signs are pointing to a slow declining market (after this sharp and quick fall through the end of the year) for the next decade. ”
Oh yeah and lets not forget there are FEWER private jobs now than in 2000, and those jobs don’t pay as well on the aggregate.
Private workers in 2000: 109.080 million
Private workers in 2011: 107.360 million
In the last 11 years private employment fell by 1.72 million
In the last 11 years private employment fell by 1.58%
One can conclude from this that clio is going to lose a lot of money.
That Groupon deal is a joke. There are plenty of agents out there that will cut you up to 1/2 of their commission…and you don’t need to risk $25 to do that. I’ve said on several occasions that I will rebate 1/2 my commission to any CC posters that work with me.
And a $975 net rebate is nowhere close to 1/2 commission rebate. You’re better off going with an agent offering the 1/2 rebate deal UNLESS you’re buying a property under $80,000.
Yeah I thought it was pretty funny too. The Groupon craze seems to have caught on like wildfire even in places where it doesn’t make much sense.
I work in an law office that represents banks. Smaller banks sure they’ll negotiate, to a degree. Larger TBTF banks as servicers that hire 3rd party asset managers to market and sell the REO’s. It’s much much more difficult to negotiate. I’ve seen plenty of deals killed when buyers tried to negotiate and the bank says ‘no’ even if it means relisting at a lower price months later.
“#a-fed on April 9th, 2011 at 10:06 am
“The bank may kill the deal rather than budge. That’s how banks work. Firsthand knowledge here. They don’t really carwe to negotiate especially if its a tbtf.”
I didn’t read the context intent of this statement but I will tell you first hand that banks will negotiate, especially with REO’s and short sales. It may take many forms (closing costs, price, interest rate, workmanship, time to close, etc..) but they absolutely will negotiate.”
But more power to Dream Town if they can pull in some business in that way. I suppose it’s not laughable unless you understand how commissions work and the other types of (better) offers that are out there. A lot of people on the discussion board were more concerned with whether it was legal to do that rather than whether it was in their best interest. Of course, it is legal and it’s unlikely a company would promot an illegal promotion via Groupon.
“I work in an law office that represents banks. Smaller banks sure they’ll negotiate, to a degree. Larger TBTF banks as servicers that hire 3rd party asset managers to market and sell the REO’s. It’s much much more difficult to negotiate. I’ve seen plenty of deals killed when buyers tried to negotiate and the bank says ‘no’ even if it means relisting at a lower price months later.”
I agree. I went through this myself with an asset management company. The property was so unique it couldn’t appraise (no adequate comparables). Much more expensive financing with a local bank offering a portfolio loan was found and the offer price was lowered to compensate for the more costly loan…asset manager turned it down and deal fell apart. The property went back up several more times at about $10k lower each time and nothing. Property then sat vacant over the winter (probably even more damage from freezing pipes, etc) and just came back on market again about $40-50k below previous contract price (and pretty close to the adjusted offer price). Doesn’t seem to be moving still. But the property at this point is unlikely to sell to anyone without an all cash offer or rehab financing.
“Larger TBTF banks as servicers that hire 3rd party asset managers to market and sell the REO’s. It’s much much more difficult to negotiate. I’ve seen plenty of deals killed when buyers tried to negotiate and the bank says ‘no’ even if it means relisting at a lower price months later. ”
I once worked at a large public company which was making decisions that weren’t in shareholders economic interests but helped them hide losses. Several years later they settled with the SEC for accounting fraud for what was a nominal sum to them.
It’s funny the same thing is going on here. And likely the same outcome.
So after repeatedly vilifying me and attacking me for living rent free legally in a bank owned unit, Clio’s brilliant advice is that I should move and find a different unit. This makes no sense for multiple reasons.
1. If I were to move out, this would leave behind a unit that would remain vacant for many months if not years. Under Clio’s plan I take an unneeded unit off of the rental market, which would have been someone else’s home. No one benefits from vacant units.
2. The property would deteriorate, be subject to squatters (people without leases, utility payments, and assessments – unlike me), theft of the wires and appliances, freezing of the pipes, etc.
3. The assessments would go unpaid. These assessments are significant. They’re roughly one-third of what the rent should be. Nobody benefits from that either. The rest of the unit owners would have to pick up the costs that I currently pay. Essentially no one would benefit under Clio’s advice, except that Clio would get to feel better about himself.
I paid off my landlord’s back assessments (in the thousands of dollars) and I continue to pay the very significant current assessments. Yep, the reason I do this is so the association doesn’t kick me out. Quite frankly if the association lost it’s mind and said I didn’t have to pay the assessment, then I wouldn’t be paying them either. The bank makes it’s choice not to accept rent, the association made it’s choices too. Freedom, it’s great. See when the unit finally went into foreclosure, I assumed a real professional Bank of America employee will call, send a letter, or show up at my door and either tell me to leave or discuss my options. Wow was I wrong about that. An extremely shady acting, full length leather jacket wearing, scraggly guy posted a note to call some number, when I called they didn’t seem to know what I was talking about. These are the people who represent one of the most powerful and lucrative financial institutions in the world! The notice said I could pay rent, but on the phone they said no they don’t rent out units. It took a lot of effort and multiple voicemails just to get someone on the phone. Then on another call, months later they actually said “You know, you don’t have to pay rent.” Gee, thanks guys. The bank made a choice to not ask me to leave and choose to decline my rent. So now I’m a bad person? now I should leave a unit vacant, now I should move for no personal reason and with no one asking me to do so? This after putting down a long gone and significant security deposit, schlepping all my stuff here, and painting the place. Good advice Clio.
I deal with what comes to me, good and bad. Is it fair? Sometimes things are fair and sometimes not. We all have varying levels of natural health and abilities. I am healthier than many, but also less healthy than many others. Am I crying about it, the unfairness of it all? No. Is it far that a bad driver wrecked my car and I got stiffed, no. Is it fair that my productive endeavours produce enough taxes to carry 50+ non-tax paying individuals – well that’s subject to anyone’s opinion. Is it fair that I live nearly rent free in a 3/2, while another guy pays up for a run-down 1/1, while yet another guy somewhere lives in an ocean view mansion rent free, while yet another guy made x-hundred-million taking big risks while the government absorbed the losses? I’m not trying to morally justify what I’m doing, I feel absolutely no need to. See there are injustices and there are windfalls. It’s called life.
Now I will easily shoot down everyone of Clio’s so called “dangers” of living in a bank owned unit rent free.
DANGER #1. I’ll get accustomed to not paying rent and thus irritated and depressed when I actually do have to pay rent or mortgage.
ANSWER: lol…Seriously? While the money I know I’m saving does feel good, I recognize it as a windfall, not something I depend on either emotionally or financially. As far as personal spending, the $800-1000 month has little to no effect on me. I did not develop some new $800 monthly habit or go on a shopping spree because of this.
DANGER #2: Clio’s danger #2 was the same as #1. Same answer.
DANGER #3: My friends will be jealous and pass judgment. Clio said he “certainly couldn’t be friends with someone…[who] wasn’t paying rent – it is too sore of a subject.”
ANSWER: If anything Clio’s reasoning speaks to his own interpersonal relationships (or lack thereof), rather than how my friends feel. Yeah, I’m not just going to walk up to an acquaintance and say “Oh, btw I live rent free, how much is your monthly payment?” But a true friend will feel more of a sense being happy for me. If a friend gets a lucky break do you feel happy for them or jealous? Or maybe a little of both? The answer is a good way to know if you are true friends, false friends, or in between. My close friends know of my living situation. One of my friends who owns outright says good for me, he shares in my joy, it’s a laughing matter for both of us. We laugh at how dumb and bad the banks are and the politicians for facilitating the whole thing. Another good friend is underwater, maybe he feels a tinge of jealousy, but he understands that he made his choices. He placed his bets and I placed mine. You don’t cry unfair after the dice are rolled – at least men and women with dignity don’t do that. He also knows that lucky and unlucky breaks are a part of life. The fact that I live rent free and he makes underwater mortgage payments is inconsequential to our friendship. He’s going to inherit a good chunk, should I be so overcome with jealousy that I can’t be friends with him because of his lucky break? Any person who thinks this way has serious personal issues. Sounds like some kind of mental social disorder.
DANGER #4: I won’t have a good landlord reference when I go to get another place.
ANSWER: The real answer is a landlord references is not a significant issue for me. But hypothetically what is the dollar value of a good landlord reference? $15,000 $5,000? How about maybe $100 bucks. Credit check matters a lot more than what any alleged landlord can say. I highly doubt my landlord checked any of my refs when I leased this place, and it has been the best place ever, hehe!
Clio likening my situation to shoplifting? Well I’m just going to let that comment speak for itself. No rebuttal necessary.
What’s really going to happen? Nobody really knows in my opinion. There are so many vacant, shadow, nonpaying units out there. Government is supporting the charade so who knows how long this can go on. @Sabrina, Rough timeline for my unit is that a bank employee stopped by in Oct ’09 to check on the place (I should have known right then my landlord hadn’t been paying anything for a long time, I was so distracted with other things). About 6-8 months after I moved in condo association hit me with a surprise, and I had to make them whole financially. I think foreclosure was started in Jan ’10 and finished in June or July ’10. One theory is that major banks will become reits (with low yields) and eventually rent out all of their crap. (Which is obviously what they should have been doing all along with units they weren’t selling.) US Goverment will become the nations largest residential landlord by equity. Maybe they will just hold everything off the market for 10-20+ years until they can sell them all for a profit. If their friends in government are going to carry them the whole way, why not? I suspect that the bank is eventually going ask me to leave in about a year, and maybe offer the place for sale a year later, and then maybe a year after that it goes to the auction block, and then the investors puts it back on the rental market (about 6-8 years after it should have hit the rental market). But then again I thought the banks would act responsibly long ago and I was wrong about that. Best case scenario, the situation will hold for long enough for an adverse possession claim to kick in. In the mean time the no-mortgage, no-equity, no-rent, fully legal, luxury lifestyle is great. Best of all worlds if it luckily happens to you. I hope my friends that rent fall into a situation like this too. And no, I won’t disown them for not paying rent due to some emotional hangup.
Clio is an idiot Brad F this is common knowledge. You are in an enviable position and should milk it for all it’s worth. The fact that clio wouldn’t want to hang out with you because of what you’re doing I consider a positive externality, actually.
“Best case scenario, the situation will hold for long enough for an adverse possession claim to kick in.”
Now if this happens I will be seriously jealous.
“Maybe they will just hold everything off the market for 10-20+ years until they can sell them all for a profit.”
Big problem with this: properties unoccupied for 10-20 years will have significant wear & tear (either from being vacant or occupied) and banks aren’t good at landlording. So even if we inflate our way out of this mess no way the banks can sit on this shit for 10-20 years. You can’t keep a big lie going for that long.
U.S. real estate is shot in the intermediate and long-term. Short term not so much due to seasonality.
Even when we get inflation then we’ll get higher rates (the ECB is already hiking) and that’ll put further downward pressure on residential real estate price–it’s a death spiral.
They’ve only sold 109 of those Dreamtown Groupons so far, in 2 days.
Yeah, I’m mostly just joking about the adverse possession, but who knows. Stranger things have happened. But that would be funny as hell. One thing I haven’t mentioned, is that I offered to buy the place for cash in January ’10. During that whole government incentive bubble. We had a tentative short sale deal, the bank came out and did multiple bpo’s and everything. I started with what I thought was a good but low offer at $140k. (The 2005 price was $300-ish). The bank counted at $160k. I was initially adamant about not paying over my internal valuation of $145k. The realtor haggled me up, and I haggled with him to cut his commission so we could get a deal done with me paying $155k. So the deal looked all set, I contacted a lawyer, then all of the sudden realtor tells me that now the bank wants $175k or no deal. I laughed. Keep it. (I didn’t even know at the time that I would still get to live here either way.) Now I figure the market value is way under $140k. So by stringing me along, and then yanking the deal the bank ended up screwing themselves again. Good times.
@Jennifer: Yeah, I saw that it said 109 buyers a short while ago. Now it says 108. Somebody unbought it. hehe
I don’t think you can adversely possess if you have a lease, and im positive if the property is a fannie?freddie?fdic property you cant adverssely possess against the US government. Its been a while sinvre legal writing 101.
“Now I figure the market value is way under $140k. So by stringing me along, and then yanking the deal the bank ended up screwing themselves again. Good times.”
The bank doesn’t have to mark to market their REOs so they engage in quite economically irrational behavior. Their probably still carrying it on the books at the last sale price LOL.
Clio check out 3950 N Lake Shore unit 528E. Its a 3/1.5 listed for 100k that needs renovation. Run, run!