A client of mine called me to help with her refinance. I sold her the home, located in the custom neighborhood of Old Agoura, about 2 years ago. The home’s value has increased signifiganty. Wanting to take advantage of even lower interest rates since her purchase date, my client applied for the refinance and paid for the requisite appraisal.
Nearby recent sales easily demonstrate the increased value of her home. No problem, right? Wrong. The appraiser said that he omitted a couple of choice comparables since those homes sold with more than a third of the purchase in cash. The appraiser explained that these were likely investor purchases and did not reflect an “arms length” transaction.
I am speculating about the appraiser’s reasoning. How does the loan-to-value ratio, or whether or not a purchase is made with all cash, affect the price paid? Conversely, there are many examples of an all cash purchase selling for slightly LESS than top market value*, yet in this case, the comparable property sold for higher than the average selling price for the area. In defense of this appraiser, I am also seeing buyers pay cash for properties with no comparables to support the price they are willing to pay. Without the benefit of an appraisal, buyers are purchasing properties for more than what a lender would say the property is worth. It would behoove a buyer paying cash, to obtain an appraisal prior to removing all purchase contingencies. Not only do appraisers estimate value, they measure property dimensions and call out discrepancies with public records, recognize health and safety concerns and possible code violations. In a custom neighborhood, it is not uncommon for buyers to pay more than appraised value. With that appraisal in hand, they can at least make an informed decision.
I was able to provide my client with alternate comparable sales to support the true value of her property. Hopefully, my client’s lender will recognize that the appraiser they assigned to evaluate the property had prejudiced methodology. A check with reliable sources confirms that this appraiser’s policy is not a new industry standard.
With property values increasing in the wake of rampant lending abuse, appraisers are sometimes conservative to fault. A homeowner, especially of custom or rural property, should have an area specialist in his or her corner. I can advise the appraiser, or the lender how one property can be superior to another, even if the difference is not obvious by looking at the MLS detail.
*When a homeowner receives multiple offers, sometimes an all cash offer, even if the price is lower than another offer that requires new financing, is more desirable. Occasionally, features of the property, or the condition of the property may preclude conventional financing.