In this episode of the Accunet Mortgage and Realty Show Brian and David Wickert dispense wisdom as they explore the complexities of complex appraisals and coach a family through the purchase of a condo as an owner occupied rental property for their daughter.
This week’s highlights:
- Bridge loans and complex appraisals: uniqueness can be hard to quantify.
- What you need to know about owner-occupied rental properties.
- Can you close early on a jumbo loan? Not without an accepted appraisal.
Uniqueness is hard to quantify: complex appraisals.
Brian’s first story this week begins with a couple who fall in love with a new to the market, completely remodeled and absolutely gorgeous, for sale by owner home in Racine County. They knew they had to act fast, but, there was a wildcard in the mix—the appraisal of their existing home; a lake house. Unfortunately, uniqueness can be hard to quantify.
Now, because it’s for sale by owner deal, the sellers are not going to want to wait for you to sell your home. We’re gonna have to do a bridge loan, which remember, is just a fancy word for a cash out refi, no problem at all for the Accunet team. However, a bridge loan adds a contingency to offer letter; this offer subject to the appraisal on the buyers existing home coming in at not less than fill in the blank.
The appraisal came in $50,000 low.
Appraisals and good comparisons
Finding comparable home sales can be a challenge for appraisers, especially when the home subject to the appraisal is qualities that make it unique from the other homes in the area. In this case, not only is the home in question one of the nicer homes in Racine county, it’s also located on a lake. Unfortunately, uniqueness can be hard to quantify.
An appraisers comparison is typically made using six home sales from the last 12-months. In this case, the appraiser was only able to find one comparable sale, and even that sale fell slightly out of the 12-month range.
Given the a choice between evaluating the property at $35 a square foot or $150, appraiser’s will uniformly go with the $35 valuation. It’s a really nice home, with no comparable properties, and while that won’t be a major pricing factor when the house hit’s the market, it’s a critical concern when dealing with a bridge loan contingent purchase.
Closing early on a Jumbo Loan? Not without an appraisal.
Rounding out this weeks highlights is another appraisal related story from Brian Wickert. In this case, we’re dealing with $900,000 jumbo loan on a property in Minnesota, with an accepted on Sunday, the 25th of October. On Monday the 26th, we ordered the appraisal and seven business days later, the appraisal took place on November 9.
Normally, if the appraiser was there on a Monday, we should have the report on Friday.
Well, Friday came and went and on Monday morning, Brian inquired with the appraisal management company, and the appraiser who replied, “Well, this is a complex property,” remember, it’s around $900,000 purchase price, “and I’m having trouble finding comps. So I hope to have a to you by for righty 16th is when we get this information.”
Comparable properties, again.
Now, the real estate agent is is getting agitated, “What is this guy an idiot? the comps are a no-brainer. Can you order a new appraisal?”
Well, sure, we could order a new appraisal, but after some digging, Brian discovered that no less than three appraisers turned down this assignment prior to the fourth appraiser finally accepting the job!
Why? Because it’s a complex appraisal.
If you’re keeping score at home:
- Close date, December 4th
- Contingent on the appraisal
- Three appraisers have turned down the assignment
- Start to finish, the first and current appraisal will have taken 15 days to complete (Nov. 20th)
- The real estate agent is requesting a new appraisal
- It’s a Jumbo loan
With all of this background noise mounting, the appraisal arrives, on time and at or above the sales price, but now the buyers would like to close early.
We’re not done.
With jumbo loans, we’re talking about lending somebody three quarters of a million dollars or $700,000, which involves jumbo investors. They like to take a look at that appraisal, and in some detail. In fact, many jumbo investors have special departments staffed by appraisers. From here, it’s going to take them three to five days to review that appraisal.
And they might have questions.
At this point, Brian recommends extending the financing contingency subject to final approval of the appraisal. Which means, this deal could all fall apart if there are any issues in the appraisal review.
So will this Jumbo loan close early? No way.
Will this home sale close at all? We’ll have to wait until next week to find out.