Appraisals, How do we Dispute

[Kathryn Bowden]

We are waiting for an appraisal on a house we have for sale and under contract.  I am afraid the appraisal might come in below our contract price.  This is because it's already happened with a previous buyer.  That contract ended up falling through for reasons completely unrelated to the house, so we never tackled the appraisal that had just come in.  This is a 600 sq ft house, and there just aren't comps that small.  I feel like we are getting the short end of the stick because of it.  This is the second buyer willing to pay this price.  And the house started off with multiple offers in the beginning.  I don't know how much our sq footage price should increase (all things being equal), if it's half the size of the next biggest comp, for example (not to mention better finish-out).  How can or should my realtor approach this if the appraisal again comes in low.  I'd like to feel better prepared, as I'm beginning to get angry in advance.  Thanks for any ideas or insight on this.  Btw, this time I did put out a comprehensive remodel/upgrades sheet.

[Jon Holdman]

Hard to comp houses are dangerous.  Appraisals are a crap shoot in the best of circumstances.  With a hard to comp house its more like trying to win the lottery.  I've been burned playing this game.  IMHO your mistake was buying this house in the first place.

Appraisers normally adjust by size by applying an adjustment factor to the comps.  Say you're comping a 900 sq.ft. ranch w/o basement to a 1000 sq.ft ranch w/o basement. and the 1000 sq.ft. house sold for $100K or $100/sq.ft.  The appraises chooses an adjustment factor for the size.  On appraisals I've seen, this is about 33-50% of the per sq.ft. price.  So, the adjustment would be, say, $50/sq.ft.  Multiple by 100 sq.ft. difference to get an adjustment of $5,000.  So, the adjusted price would be $95K.  The adjustment is less than just the size difference because 100 sq.ft. can be achieved by just moving a couple of walls a foot or two.  The plumbing, electric, bedrooms, etc, are still about the same.

Now, that's for comparing pretty similar houses.  Sounds like you're trying to compare to houses more than double the size of yours.  That's more than just stretching a wall a foot or two.  That probably implies much more significant differences, such as number of bathrooms.  Number of bedrooms doesn't directly affect appraisals - that's covered by the size adjustment.  But bathrooms will.  A 600 sq.ft. house is tiny, especially if its in a neighborhood where all the other houses are 1200 sq.ft. and larger.  Around here that would have likely been a scrape candidate.

Another factor is the floor.  Ground floor footage is worth the most.  Second floor footage maybe half of what ground floor is worth.  Basement footage very little.  Ideally comps are the same style as the subject.  If not, the adjustment is that much more complex.

Do you have a copy of the appraisal from the failed deal?  What about when you purchased?  What do those say?  Is there a specific item that is causing the low value?