Appriasals

I just don't think appraisers are playing the game as much anymore. Appraisals for NYC apts will be based most heavily on comps--especially building comps. If the unit you are interested in is the most expensive (overall or per sq/ft or in the same line) in the building's recent history, that could be a stumbling block lately.

Well its interesting, because the unit we went to contract on had considerable renovations...But you're right - the comps were in the same building, in the same line, on a lower floor. So the bank doesn't seem to want to lend on light and renovations in this market. I have a mortgage contingency, so we can walk away. The seller already owns a larger apartment in the same building. I am not willing to make up the difference in cash. He appears confident he can find another buyer...but what makes him think he can find a cash buyer, or that the appraisal will be meaningfully different? Wild times.

We had a similar issue with a co-op we wanted to purchase--seller refused to allow a mortgage contingency so we walked. I really didn't want to be stuck holding the bag when the appraisal came back low, as I am certain it would have, based on building comps.

I can't believe there are still people who would go without a contingency. I will post what my seller does. If he walks without negotiating with us, he is essentially better on a different future appraisal or finding a buyer who is willing to ignore the appraisal and put 45%+ down

And sorry for spelling appraisal wrong in the damn title!

""I can't believe there are still people who would go without a contingency.""

Well, when we were trying to negotiate our broker kept trying to tell us that mortgage contingencies were 'not common' and were considered a 'big concession'. This is BS and an out-and-out lie to boot. But clearly buyers' brokers hungry for a sale are still pushing their clients to accept non-contingent deals. We stuck to our guns and I'm glad the whole sorry affair is now in the rear-view.

Our broker told us she had not seen a contingency in 10 years. Clear lie. So I said, I don't know if you only show on Park Avenue in the 70s and 80s or what but you are clearly not in tune with the earthly manhattan market in the post 2006 world.

^^^ Ha! That's just about the same line we got. Pure, unadulterated horse crap.

I only represent buyers, and "no mortgage contingency" deals are certainly the exception for me. My sense is that about half the deals being done today are NMC's. Just like price, NMC / MC is something to be negotiated.

Often that NMC has a tangible $$$ value. I recently had a buyer client close on a nice West Village One BR. The seller had recently had a deal fall due to financing, and was determined not to have that situation repeat itself. Our options were 510K (MC), or 499K (NMC). My buyer had the resources and so was comfortable going with a NMC.

Honestly $10k doesn't say much. And the US banking system seems to shift daily. I mean someone would have to be a cash buyer to not get one here. I was shocked at how low our place appraised. It was likely the units that sold it the same like.

Breaking news - they are putting the apartment back on the market.

True, for someone "on the edge", saving 11K by going NMC might be too big of a risk. My client was already putting substantial $$$ down, and could easily weather a low appraisal. And resources were available to go "all cash", if need be.

Every situation is different, and clearly taking the NMC option is not for everybody.

It's not that it's not for everybody...It's that it's plain dumb not to have one. Why weather anything? No disrespect but you are a broker, and you want to see deals get done. If NMC gets it done you would support it. You'd never tell your client, get a contingency. If I were you I wouldn't either.

thirnald--

I had this issue a year ago in the middle of the credit crunch -- I was repping a buyer in FiDi, where there aren't many co-op comps, and the lender, which was in trouble, decided to reappraise the apartment (which had already been appraised at the sales price) 48 hours before closing.

So yes, conservative appraisals -- like the liberal appraisals that came before them -- are a lender issue.

What can you do about it? Well, as you mentioned, you can throw money into the deal, or you can walk.

You can also take the middle path of requesting a second appraisal and/or get your broker to supply new comps to the appraiser. I don't know how far off you are from contract price and what you were expecting -- but you should get SOME premium for light and renovations.

This is where a little broker finesse is required. You and your agent should take this as an opportunity to see if you are getting overcharged (and therefore walk) or if you're just a victim of your bank not wanting to lend.

If that's the case, then it's the job of BOTH brokers to close the deal by judging how much to muscle up on the lender and to what extent they can get you to kick in to close the gap.

ali r.
{downtown broker}

That's too simplistic. Life is full of risk /reward decisions - in this case, the risk was near zero, and the reward was 11K. I was clear to point out that it was a prudent choice for this buyer for this apartment at this time, but certainly not for everyone.

Just to be clear, when there is a meeting of the minds on price, (my) default position is that there IS a mortgage contingency. While I never want to play lawyer, I inform my buyer clients early on what the impact of a NMC can be. In practice, it's the attorneys who usually thrash these things about, and usually - at least in my recent experience - to the benefit of the buyer.

I recently bought with NMC. It wasn't a big deal - I had my own comps before placing an offer so I knew it was below recent comps, I was able and willing to put extra down if need be, and I was very positive that I'd qualify for the mortgage. My lawyer of course requested one (no harm in asking) but of all the things to negotiate, I said that's one I'm very willing to give in exchange for other considerations.

All worked out well. Compared to the risk of buying at all in today's market, NMC risk was tiny. For my own personal situation - everybody's situation is different.

I don't use a broker...and the seller's broker (and aunt!!!) is taking the tack that I should be worried they are putting it back on the market. I asked for a new asking price and she got persnickety.

Re: no mort. contingency... We've discussed these recently on some other threads. I recently purchased after going to contract w/ no mortgage contingency. For me it was okay because: (1) I knew my market niche inside and out and was more than versed in the value of the unit; (2) I could afford to do the deal if all financing fell through [although I'd not have been happy about doing that]. For some people NMC is okay. But if you can't afford to lose the escrow money or pay cash if financing doesn't come through, you have no business even entertaining NMC. Whether it is a common or rare clause is irrelevant. Risk is risk. Period. Your finances drive this decision--not how much you like the unit or feel the price is fair.

So far as the seller being intransigent on the NMC point, you are quite right to walk away if it doesn't work for you. Who cares if they are relisting it. Just make sure you officially withdraw your offer so they don't just use it to parlay into higher offers from others.

I'm not withdrawing my offer. I had a signed contract and I am invoking the mortgage contingency to break it, since they have not offered to reduce the price.

If you are not using a real estate agent, then you need to have the seller's broker and your mortgage broker lean on the lender. Your position vis-a-vis the seller should be that if the apartment didn't appraise out at that price for you, it won't appraise out for anyone, and they need to work with the bird in the hand.

ali r.
{downtown broker}

Why would I lean on the lender? It appears the seller and the sellers broke/aunt seem to think they can find someone who will put down enough cash (roughly 40%) and look past the appraisal. They may be right....I'm just not that person.

^^I am trying to separate out the "mortgage contingency/NMC debate" -- which is interesting but kind of general -- from the original poster's particular problem.

thrinald, I still think you are in a decent position. If the seller has just started marketing their apartment, they might break the deal, but basically if Bank 1 thinks the apartment is not worth that price, it will be tough to get Bank 2 to think so.

I am sure you have already said this to them, but you might want to say it one more time before you wave goodbye.

ali r.
{downtown broker}

I took my board package back. Seller just called me. On phone now!

He wanted me to counter....I said there is no counter.... there's just the appraisal price and the contract price.

Well, I disagree with that -- I would say the best outcome is probably a price in the middle, where you nudge the mortgage bank up and the seller comes down and maybe you throw in a little more cash and maybe the seller's agent throws in a little more cash -- one of those situations where everyone feels a little pain is probably the best compromise -- good luck with it, though!

ali r.
{downtown broker}

Sure it's somewhere in the middle. But a low appraisal is a pretty current piece of info that tells us something about the banking system. Also, he already bought a larger apartment in the building. Clearly the price based on bargaining should be below the average of the contract price and the appraisal price. The way the math works, I could put the same down payment in and still come to a price $70k above the appraisal....which would be $160k below the contract price. I think a 1/3rd / 2/3rds compromise is probably right. I hadn't thought about the broker cutting commission.

With all due respect to front_porch, when you say "the best outcome is probably a price in the middle", that's a bit disingenuous.
That is certainly the best outcome for the broker who would get a fat commission.
That is the best outcome for the seller trying to sell a property that an EXPERT appraiser says is NOT WORTH the price (in a FALLING market, where the appraised value is likely to be even lower in 12 mos)
Unless the buyer MUST have that and only that apt, the buyer would be a FOOL to pay more than the appraised value, especially in a falling market.
For you to say everyone feels a little pain is also disingenuous, yes everyone except the broker.

In fairness, no one knows where the market will be in 12 months...other than that the momentum is in fact negative. But yeah...this is not the case where everyone should share the pain. That's all about being a broker. All that said, I am not sure there is anything expert about what an appraiser does. In my case here, the comps in the same line in the building were not in the same condition as my unit. As such, the bank won't lend on the value. But don't worry, I'd never pay much more than the appraised value. Don't forget there is a lower after tax cost of owning vs renting, even after adjusting for interest on the downpayment...and some amorphous value to owning an apartment (not that the latter is huge for me). If you want to really make money in real estate, you wait till interest rates are high, and we're not there yet... High interest rates, like the mid 1990s. 8-9%+ It will take time.

I'm not a NYC real estate bull.

That said, if you do want the apartment, first congrats on your negotiating skills so far. Then, your comment about the broker sharing in making the deal happen sounds fairly relevant as there is only a selling broker and no buying broker. As such that selling broker would otherwise get the full commission rather than just half. Be tough - but also keep the discussion pleasant and business-like.

Good luck.

In fairness, the folks who are really going to be impacted by the stare down that's going to go on between buyers as sellers are the brokers. The sellers will hold on to their asset unwilling to sell. The buyers will rent, waiting for prices to come down and the brokers will receive no commissions. Therefore it's always in the brokers interest to convince buyers to not listen to the obivious and not to stick to their guns. If appraisers and banks say your apt isn't worth X, then unfortunately since they control the money, it is not worth X. End of story.

Thanks for reminding me of that.... I forgot the seller's broker is getting 6% vs. 3%...and since she's the sellers aunt, all the more personal....and I also don't like her. I am a trader.. There is a price for everything. This appraisal, whether its right or not, changes the price. He owns another big apt in the building. He pointed out he appraised it at his ask months ago for a neighbor looking to buy and combine. That was funny, because that's old, and irrelevant. A combination is accretive to his neighbor and you could actually get a mortgage 6 months ago. I am not sure if I want it or not. But thanks for finding me about $30k through the broker commission.

Now, street_easy, wait a minute.

FIRST, I did suggest walking away as an option.

however, thrinald has suggested that he/she believes that the apartment is actually worth more than appraised value, and that a case can be made to that effect using in-building comps! Given that, I'm trying to help him/her brainstorm ideas as to how to get to the most painless close.

SECOND, what is this "everyone except the broker" stuff? In my share-the-pain plan, I did suggest that the broker cut her commission.

THIRD, expertise and bias are two different things. I'm a real estate expert (with a record of both transactions and publications to prove it) but I would never in a million years suggest that I'm unbiased.

Similarly, the appraiser works for a bank, and the bank has an agenda. That doesn't take away from the appraiser's expertise, but it does suggest a bias that may need to be -- what's the best word? -- questioned.

ali r.
{downtown broker}

"I could put the same down payment in and still come to a price $70k above the appraisal....which would be $160k below the contract price." If I am reading this correctly you are saying the delta between the appraisal and the contract price is $230k??

What is/was the contract price if you don't mind me asking? As an appraiser I'd think that $230k would be difficult to fudge, if I was so inclined, based on light and condition, although it is difficult to say without knowing all the facts (side note: I work commercial and don't do individual co-ops/condos). A $230k difference on a $750k place is much different than say $230k on $5MM.

I said its worth more than the appraised value...but NOT based on the in building comps, based on comps outside the building in comparable condition, size, block and building. It is $1.18mm contract price with a $950k appraisal...on an 1100 sqft doorman 2 bed / 1 bath in a very desirable neighborhood. This is somewhat circular, because if appraisals are getting this tough, then the actual financing picture changes, and then actual value actually changes.

Stop the sh*t front_porch. Broker gets a commission vs no commission. The "cut" is irrelevant. The bank has an agenda but the broker doesn't. Please excuse yourself.

THE BANKS CONTROL THE MONEY. IF THEY DON'T GIVE THE BUYER THE MONEY THE BUYER CAN'T BUY IN MOST CASES. THUS WHATEVER THEY SAY THE VALUE IS, NEWS FLASH, THAT'S WHAT THE VALUE IS. What's so tough about that? Unless you're a broker, or unrealistic seller.

I agree with you street_easy...just don't refer to me as a FOOL in caps. What's interesting is that by your logic, condos should get creamed worse, as they have been more propped by leverage (10% or less down). Which is an argument I have made. Prewar stuff in 25-30% down buildings may be a little more defensive.... But at a price point people would say screw it and go for the price cut on the cheap glass condo.

Sorry fool:)

Your argument actual applies to stocks, or any financial assets. The cost of money is going up, the value of everything is going down. Clearly this appraisal isn't wrong unless it turns out to be an outlier if many appraisals were done. But I don't care, I am going to put the screws to the seller.

thrinald, what happens when you want to sell the place and the appraiser says he doesn't care what you paid for it, it's worth 250k less, your prospective buyer is going to balk -if he's not a fool;) You won't be able to sell it until the appraiser acceptw your price thereby letting the banker open up the money spiget.
Even if we forget about the likely falling market it 12 mos, right NOW the appraiser says it's not worth that. Period. Unless you MUST have that particular apt, why pay a high premium over its current present value? Surely you could find another place you like in this market if the seller can't come to terms with the appraisal.
As to stocks and other financial assets, I don't pretend to know how anyone values stocks. Often they go up when the company reports bad news and down when they report good news. Go figure. This case seems so much more clear cut.

Your point is taken. I am just saying there is probably some variation in what appraisers would come up with as a value. And in this case the appraisal is tricky because you have lower-floor, same floorplan, bad condition comps. In my job I decide what value is all the time. So I do not take the appraiser as absolute. That said, as you and I agree, if all the appraisers are going to come up with this same low value, it would be a bitch to sell. But that might be in 4 years when the world is different. On other places, they might appraise higher for simple reason of not having the tough comps in the building which will be the first the appraiser looks at.

For stocks, good and bad news is relative to expectations in the stock. What I refer to is the stock market as a whole. It is also falling because debt is more expensive these days / harder to get.

okay, thrinald, *now* I'm peeved--

You ask a question and I give you my best expert advice. You may not want to take it, but don't curse at me.

ali r.
{downtown broker}

I would agree with you on those points. But, certainly it's in your interest to run with the appraisal you got and not to shop around looking for an appraiser who will assign a high value.

Well I didn't ask you specifically. And no one has called you an expert but you.

I am running with this appraisal. Just saying there is some argument that a price above the appraisal (not much) is defensible.

was agreeing w/ you thrinald.

front_porch, I've seen your posts and as brokers go, your posts are not wacko. Nevertheless, you as a broker are by nature so intrinsically biased, that frankly everything you say has to be considered suspect. That's the lot you accept by becoming a broker. On the upside though, you make tens of thousands, even hundreds of thousands of dollars per transaction for which you do very little work, need very little in the way of education or skill and assume absolutely no risk. Not a bad gig, even if you have to accept some written abuse on the web from time to time.

Remember brokers have to run around a lot for nothing...which in times like these is going to be more running for less, usually have low/draw of a base salary. Yes brokers deserve all the abuse they get. And yes, the idea that we should all take pain in this together in my scenario...that was actually silly advice and if I were a FOOL, might actually be destructive to me.

Tell your buyer to chop her broker relative out of the transaction and keep the 6% and lower the price to the appraised value

I meant seller

Actually more than a million people read my last article in Money magazine, but I'm not here to have a press-clip war with you.

I've made my larger point, which is that if you ask for advice in a public place you should be civil to the people who take time to respond.

good luck with the deal.

ali r.
{downtown broker}

The media also has a bias. When real estate is rising, they publish bulls. When it falls they publish bears. And honestly, telling you to cut the sh*t is not cursing at you. The problem is with brokers that they almost don't know where there BS ends and reality begins...Because as Constanza said, it's not a lie if you believe it.

As a Real Estate broker, I guess I'm one of those that's "spreading the poison", as well. What a surprise, that a Real Estate discussion board draws input from the Real Estate community. And often advice - or at least, a point of view - that many on these boards seem to appreciate.

Back to the topic - when settling on an offer price, the chance of an apartment not appraising is a real risk that the buyer and / or seller assumes. While I can understand a buyer being unhappy if the appraisal comes back low, I rarely see a buyer who wants to pay more because the appraisal came back high.

Three appraisers would rarely come back with the same appraised value - even though they would all start with the same contract price. Appraisers attempt to establish a baseline value for the lender; they don't try to decide what an apartment "should" have sold for.

fron_porch, please see my earlier comments about how since you are widly overpaid for the minimal work, education and skill that goes into being a RE broker, not to mention the complete lack of any risk to you whatsover, why don't you just laugh it off all the way to the bank. You get the last laugh anyway. 3-6% off the top...That's got to have a nice ring to it. 3-6% off the top...yes I rather like the sound of that.

We are upset that your cut is far higher than you deserve for our transaction. You reply that for every real transaction, there's a ton of work you do with zero reward for non-serious buyers and sellers.

The solution should be obvious. Charge for time spent, not for done deals, so the non-serious people either pay up or stop wasting your time, and the serious people pay less for the same work. But, all the big real estate companies engage in illegal price fixing, so that'll never happen. Not the fault of the brokers, just broker management.

What's funny is that you can tell brokers you don't think they are smart and you don't care what they think... And they still keep talking... And they still dream that just writing on a discussion board is inviting their participation, which you should react to kindly...even when its bad advice. Brokers are not developers or real estate entrepreneurs for various reasons, some of which we have covered here, some of which we have not.

ali r. doesn't deserve disrespect. have an opinion. express your views. but do it with civility. and no matter what the field or profession, one size doesn't fit all. I'm not a fan overall of the community of brokers, but whenever I've written about my views on here, I've always cautioned that some agents are outstanding, value integrity and transparency and fair-dealing, and bring value to the transaction. Most don't. But bashing all of them isn't fair. I can't believe I'm defending them, but I just don't like decent and smart agents (as Ali R. comes across) being lumped in and bashed along with the Ardor-types.

Maybe brokers aren't evil. But do notice that they are always trying to find the solution. Notice their solution is always getting a deal done. Also notice that I didn't start this post by saying, "Help me get this done". Ali R's advice was amateurish. Ali R also called himself an expert. Who does that? And the expert advice was awful.

FYI: ali r. is a woman...a "herself," not a "himself."

I am with Kylewest on this. Brokers clearly have a bias (whether they admit it or not), but Ali and John that post here are pretty consistently helpful and knowledgeable. I think their input is generally appreciated, bias and all, and they deserve civility.

I'm with newbuyer99 on his comment. Many brokers on this site are, indeed, quite knowledgeable and insightful. And many do, indeed, work very hard. It's an increasingly tough profession.

That said, you do, of course, have to understand they only get paid on done-deals. And like most areas of American business, there are inherent conflicts.

Topper- "It's an increasingly tough profession"

You mean you actual have to work to get a deal done. Welcome back to reality.

"That said, you do, of course, have to understand they only get paid on done-deals. And like most areas of American business, there are inherent conflicts".

I guess because there are conflicts, it's ok to lie to buyers and exaggerate expectations to sellers.

Topper - I have no idea if you are one of the good ones or not. However, I have no sympathy for the "difficult" time Broker's may face. They were clearly one of the contributing factors, which led us into this credit crisis. I'm not say they are solely responsible, however a definite factor.

If you are one of the honest hard working professionals in the RE business, I thank you and encourage you to educate your colleagues on ethics.

Perhaps those who have been around for years, should take an active role in educating the youth of the business. Take the chance to remind them that it takes talent and knowledge to sell in a tough environment

Yes I am sorry that apartments don't sell themselves anymore...and that 22 year old real estate brokers who can't remember the 1990s and hadn't learn to talk by the end of the 1980s can't make an easy living.

I'm not a broker, dco.

When it comes to various business transactions I've generally found you can catch far more flies with honey than vinegar. And there is a lot to be said for win-win transactions.

The problem is win win in this market is people selling their apartments for much more than they paid in 2004, but less then they thought it was worth (or that it was worth), just 8 or 9 months ago. Sellers don't get that yet. But it appears that banks will clarify it in the coming months. Meanwhile brokers will continue to do as they have always done, encourage sellers to take less and buyers to pay more.

Topper- I wasn't sure, however I think the message and my feelings are clear. Sorry, it was never meant to be a personal attack.

Not a problem, dco.

I'm frustrated too, thrinald. That's why I'm staying on the sidelines for now. And probably for the next couple of years. Sellers are in denial. Buyers are increasingly on strike. I wish things would sort themselves out quickly like typically happens with the stock market. But residential real estate simply trades quite differently than stocks over time with substantial positive serial correlation (it trends). Much like an ocean liner it takes a long time to change direction. What I found interesting about your post was the notion that banks may be starting to nudge the ship in a new direction. That is significant.

The stock market trades in long trends too....you are just forced to watch the short term volatility. I mean clearly banks must be wondering what loans will qualify for sale to Fannie and Freddie now. So banks will resist lending and sellers will resist selling for a while. I thought I found a seller who "got it"...But then I found out the lending market was tougher than I had given it credit for. I predict my seller will not bend far enough backward. I think it will be interesting when the real estate data starts showing the negative momentum that anyone watching closely already knows is there. The fact is only the BEST apartments are selling right now, so the year over year comps are not like like.

"And in this case the appraisal is tricky because you have lower-floor, same floorplan, bad condition comps."

As an appraiser, (although once again I don't do single-family/owner-occupied) with the numbers you provided earlier, I am inclined to think one of two things:
A) He/she did not know what they were doing
B) The value isn't there

The difference between $950k and $1.18MM is roughly 24%. That is huge in this context, and it works out to over $200psf as well.

The point is its so big that its probably a little of A and a little of B. I mean UES and Madison doorman space is $860/ft now? Seems low. $950k/1108 sqft. If the comps are bad condition on a lower floor at $820/sqft....how much do you adjust if YOU are the appraiser? 4th floor (dark) to 7th floor (top)? 70s finishes vs brand new mint condition?

Seller came back with a $1.1mm counter. I said why would I consider anything over the midpoint between $1.18mm and $950k (if that high). He's convince he finds a buyer, a bank, and an appraisal that gets something done at the $1.1mm level.

TheFed: check your math. I think the difference is more like 20%, fwiw here.

Kylewest, you're right. 1.18-->950k is roughly a 20% drop. (950k-->1.18 is roughly a 24% increase though, not that it is relevant here).

Back to the OP, if the same building comps were $820psf and yours came in at $860psf, it sounds like he/she already adjusted for light, but the finishes? Hard to say without knowing exactly the disparity in quality/condition.

What is significant about this post is that this particular bank's appraiser is becoming more stringent in his/her appraisals because the bank realizes that REAL ESTATE PRICES ARE FALLING! I often wondered about this catch 22 that goes like this: Prices are based on comps from homes previously sold at over inflated prices, so the next time a home in that building goes on the market, they can also justify the overinflated price because that is the comp. Now there is an indication out there that maybe that is no longer the case. Maybe appraisals might start to come in lower than previous comps because the market has softened and the banks don't want to be exposed to a depreciating asset. Does this logic make any sense? PS, I get it that trinald's appraisal was actually for more than the comp, but not as much as the asking price. I'm just thinking in a broader context.

What is significant about this post is that this particular bank's appraiser is becoming more stringent in his/her appraisals because the bank realizes that REAL ESTATE PRICES ARE FALLING! I often wondered about this catch 22 that goes like this: Prices are based on comps from homes previously sold at over inflated prices, so the next time a home in that building goes on the market, they can also justify the overinflated price because that is the comp. Now there is an indication out there that maybe that is no longer the case. Maybe appraisals might start to come in lower than previous comps because the market has softened and the banks don't want to be exposed to a depreciating asset. Does this logic make any sense? PS, I get it that trinald's appraisal was actually for more than the comp, but not as much as the asking price. I'm just thinking in a broader context.

It's a little more subtle NYRENewbie. I think people already know prices have fallen around 10%. The new bit here is the appraisals are becoming more conservative, likely through pressure from the banks that want a lower loan to value. This in turn becomes self fulfilling. Basically an appraiser knocked 8% off my purchase price, and if I pushed the issue and still wanted to move forward, it might have been as much as 12-15%.