FHA Appraisal..what if there are errors?

[Anonymous]

Alright, well a couple of months ago I posted a few questions on here just when my fiance' and I were starting the process of looking for a home and a FHA lender. 

Fast-forward to now and well everything seemed to be moving way too smoothly. We found a house we both loved and were able to negotiate a purchase price that was $18,000 less than asking. We have a closing date of October 9. My lender said we could close early, but in the midst of the negotiating,  my mother passed away, so I didn't want to move up the closing date since I had so much other personal stuff to deal with.

Inspection came back with just a few safety issues, and the sellers agreed to fix everything. We actually heard back from the underwriter today and were approved with just a few conditions (silly stuff like wanting to know why we had pay raises from 2007 to 2008).  So then the big BOMB dropped on us today, also. The appraisal came back $21,000 less than the agreed purchase price. 

Here is where things get really confusing. The home was actually sold three years ago and the sq footage for the listing was based on that appraisal. Well, our appraisal came back with exactly 100 less sq feet.  The seller's real estate agent is going remeasure the property tomorrow. Another thing is the appraisal says that the appraiser did not find any record of the property being sold or transferred in the past 36 months. Well the current owners purchased the house in October 2006. I know that's cutting it close, but that is still 36 months. And actually I found out this info just by doing a google search and looking at the public records for the parish. 

So here is the question I have...since its an FHA appraisal, what rights to do we have to ask for another one if want? We would only want this if we feel like errors were made on the first one, especially with the square footage. That 100 sq feet makes about a $10,000 difference. Can we ask that the original appraiser verify their information? Or are we just stuck with the first one and that's it? I hope I am making myself clear enough.

[ShanetheMortgageMan]

The FHA appraisal is "married" to the property for 6 months, so can't get a new one, however if there is material fact difference in the report then the appraiser should make the correction.  The seller's real estate agent should communicate with the appraiser how the property square footage is being measured, so they are both on the same page.  Are you sure the activity in 10/06 was an actual sale, and not just transfer of title?  A lot of times in the public records it lists transfers of title too, I've seen tons of activity on a particular home and it was just being transferred around the family... husband to wife, wife to son, etc... fishy but it happens.  How do you figure the 100 sq ft makes a $10k difference though?  It's not as simple as taking the price per square foot and multiplying it by the missed square footage difference.  Best way to approach this is gather the data and make sure you have really verified, then have your loan officer approach the appraiser (appraiser works for the one who ordered the appraisal, which on a mortgage transaction is the broker or lender) with the information and have the appraiser take a 2nd look/reconsider.

[Anonymous]

Okay, so first...our appraisal was right the property is 2160 sq feet living. The sellers agent had it measured this morning. So now not only did the sellers get the shock of finding out that the house appraised for $39,000 less than their original asking price, but three years ago they actually paid for 100 sq feet that didn't exist. I do know that the 10/06 was an actual purchase, however does it matter that the seller purchased it from the trust that was setup after his mother died? It was her house, and he bought it after his house flooded in Katrina. I can verify it was a purchase b/c it was bought with an SBA loan. 

Also, I meant to say $5,000 not $10,000 difference. I was looking at the wrong number.  

What has happened since last night is the sellers agent pulled another comp that he thought should have been used, and it has been presented to the appraiser. The sellers agent was meeting with the sellers this afternoon to go over the appraisal, and we should hear something back by tomorrow afternoon. I am really really praying that some kind of agreement can be made.

Is it stupid to buy a home for more than the appraised value? We aren't willing to go over much, probably just $2,500 at max. They aren't paying any of our closing costs already.  The only reason we would consider paying a small amount over appraisal price is that we aren't planning on selling the house for a very long time, if ever. We are purchasing a large home now, because we want something that we can grow into and keep for many years. Therefore, we aren't worried about trying to turn and sell this house in a few years and having it be worth less than we paid for it. It's also in really good condition. All the appliances, roof, countertops, heating, and  ac have all been replaced within the past 5 years. We don't have to make any upgrades or changes. 

[Anonymous]

Paying more than appraisal for a house (with cash out of pocket) is never something to be recommended.  It is the type of decision that one had to fully make for themselves and be very comfortable with.  With the market still up and down, and you paying over appraisal for the property, you will be stuck in the home for along time more than likely when you factor realtors fees to sell (unless you pay some extra down on it). 

Anyways, I would wait and see what the appraisal says.  If it is only a few thousand off, I would try to push the sellers to cover it before paying it myself.  It is unreasonable for them to expect anyone to pay more than the appraisal and with an FHA appraisal on file, they will not be able to sell it to anyone for th enext 6 months who uses FHA for more than the appriasal.  Of course, they may not be able to drop that low and still pay off the old mortgage and the realtors.  Just see what they say. 

One thing, I would not even for a minute consider stripping all your reserves or hitting a 401K to fund the overage.  If you really like the house and have the available funds to pay the difference with little long term damage, then it might be a good decision for you.

[Jazzzy]

---

@Anonymous wrote:

Okay, so first...our appraisal was right the property is 2160 sq feet living. The sellers agent had it measured this morning. So now not only did the sellers get the shock of finding out that the house appraised for $39,000 less than their original asking price, but three years ago they actually paid for 100 sq feet that didn't exist. I do know that the 10/06 was an actual purchase, however does it matter that the seller purchased it from the trust that was setup after his mother died? It was her house, and he bought it after his house flooded in Katrina. I can verify it was a purchase b/c it was bought with an SBA loan. 

Also, I meant to say $5,000 not $10,000 difference. I was looking at the wrong number.  

What has happened since last night is the sellers agent pulled another comp that he thought should have been used, and it has been presented to the appraiser. The sellers agent was meeting with the sellers this afternoon to go over the appraisal, and we should hear something back by tomorrow afternoon. I am really really praying that some kind of agreement can be made.

Is it stupid to buy a home for more than the appraised value? We aren't willing to go over much, probably just $2,500 at max. They aren't paying any of our closing costs already.  The only reason we would consider paying a small amount over appraisal price is that we aren't planning on selling the house for a very long time, if ever. We are purchasing a large home now, because we want something that we can grow into and keep for many years. Therefore, we aren't worried about trying to turn and sell this house in a few years and having it be worth less than we paid for it. It's also in really good condition. All the appliances, roof, countertops, heating, and  ac have all been replaced within the past 5 years. We don't have to make any upgrades or changes. 

---

Hi...hope you get good news this afternoon about your house. Just wanted to point out that the above 10/06 sale would not be considered to be an arms-length transaction. It was not a sale in the open market since it was within family. That is why the appraiser cannot count is as a sale.

Also, you haven't said what price range home this is. With the difference in appraisal vs. agreed-upon price, I assume it is high value property. If I were you...and if I wanted the home...I wouldn't hesitate to pay $2,500 over appraisal. My husband is an appraiser, and appraisal is part science and part art. If you have three different appraisers do a property, you will likely get three different values. They should be close, but they will be different. There actually is no one magic number.

Let us know how this turns out.

[Jazzzy]

---

@ShanetheMortgageMan wrote:
The FHA appraisal is "married" to the property for 6 months, so can't get a new one, however if there is material fact difference in the report then the appraiser should make the correction.  The seller's real estate agent should communicate with the appraiser how the property square footage is being measured, so they are both on the same page.  Are you sure the activity in 10/06 was an actual sale, and not just transfer of title?  A lot of times in the public records it lists transfers of title too, I've seen tons of activity on a particular home and it was just being transferred around the family... husband to wife, wife to son, etc... fishy but it happens.  How do you figure the 100 sq ft makes a $10k difference though?  It's not as simple as taking the price per square foot and multiplying it by the missed square footage difference.  Best way to approach this is gather the data and make sure you have really verified, then have your loan officer approach the appraiser (appraiser works for the one who ordered the appraisal, which on a mortgage transaction is the broker or lender) with the information and have the appraiser take a 2nd look/reconsider.

---

Hi Shane,

In our neck of the woods, mortgage brokers have backed off of personally contacting appraisers. This is in anticipation of the new rules that will be coming into effect. No one who will make commission based on making the loan can contact and put pressure on the appraiser any longer.

Our lenders have been gradually putting firewalls into place to shield appraisers from influence.

Isn't there a mechansim for reconsideration of an FHA appraisal that goes through a different channel?

[mkdelight]

We had a similar situation. Our appraisal came in $25,000 below the agreed price. We were ready to walk away but seller's attorney and agent wanted time to talk to the bank to change the appraisal. We gave them almost two weeks, finally they reduced the price to the appraisal. We are just waiting for clearance to close.

Good Luck

[ShanetheMortgageMan]

I agree with mickie, the first thing I'd try is to get the seller to meet the appraised value.  If you really, really want the home still, and don't mind paying the $2,500... then it's not really that big of deal IMO.  Plenty of buyers have still elected to go through with the purchase of a home that doesn't appraise as much as the sales price, they come in with the difference between the two figures, and then the down payment amount on the appraised value figure.  Since you are expecting to live in the home for a long time, the slight difference in value now won't be to much of a concern down the road either.  Value is very finicky too, as soon as the same model match sells for more/less than yours sales price... that new value becomes one of the best indicators of your homes value.

[ShanetheMortgageMan]

Hi Lynette, right now loan officers (broker & lender LO's) can still order FHA & USDA appraisals directly from the appraiser.  Earlier this year, HVCC went into effect, where no one who has a financial interest seeing the transaction close can play a part in ordering the appraisal, but that only affects conventional mortgages (Fannie & Freddie stuff)... but FHA just announced that as of 1/1/10 they'll adopt similar practice to the HVCC.  Those details can be found at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-28ml.doc.  The only way to dispute value on an appraisal is through the lender to my knowledge, FHA never sees the appraisal until it's being reviewed by them for insurability purposes (well after the loan is made in most situations).

[Anonymous]

Here is the breakdown of the property and the process we have gone through:

• 4bd/2ba, 2260 sq ft house in really good condition. The home is already vacant, because they purchased and renovated another home.
• Originally listed at $259,500 in June 2009
• In August, we made an offer of $233,500 based on the comps. We finally settled at a price of $241,750.  
• Everything was going really smoothly, even came out of UW with just a few paperwork issues. Then this big bomb.
• Home appraised at $220,000 and it is actually only 2160 sq ft. 
• The sq ft was verified to be correct. When they had the home appraised three years ago, the sq footage was measured wrong. Basically the sellers bought 100 sq ft that never existed. 
• As of this past Saturday (9/19), the sellers were only willing to go down to $233,000. Their agent and our agent found errors in the appraisal and     other comps that should have been used. Our agent asked us if we wanted to continue to fight for the property, and we said yes but we weren't       paying over appraisal. 
• On Monday, all the info the two agents gathered was submitted to my lender to be submitted to the appraiser. We were told that the whole process would take about 4 days. 
• So as of today, our lender said we are just waiting to hear from the UW as to whether changes were made to the appraisal. In the meantime,           another home on the same street also appraised really low. The buyers of that home happen to be using the same lender we are, so they are           now fighting to raise the appraisal prices on two homes.  

So right now we are at a standstill waiting to hear back about the appraisal. We really have no idea what we are going to do if this doesn't work out. There isn't one other house in our desired area, and I am not going to buy a house just because. We are just praying that this works out.  

Message Edited by jmela1 on 09-23-2009 08:09 PM