2009 Sep 29th

Problems with Hoboken Appraisals?

Appraisals & Valuations – a Hot Topic in Real Estate Sales

There was a very interesting article on the cover of this week’s real estate section of the New York Times.  In brief, appraisals in New York city are often coming in too low because they are being done by appraisers from out of town who don’t know the local, urban markets and tend to undervalue properties; and there are not enough comps to substantiate the prices because there have been so few sales.  This is an issue in Hoboken, too.  Appraisers unfamiliar with the area may not appreciate the difference in location between Hudson Street and Jackson, or the benefits of a second bath in a two-bedroom apartment.

When an appraisal comes in too low, the buyer can always bring more money to the table – assuming they have the money.  It’s ironic that when Hoboken condo prices were rapidly appreciating at the height of the market there was a similar problem.  The comps couldn’t keep up with the sales prices.  Now a down market has caused appraisals to again be the center of many buyer’s and seller’s attention.

  1. privateyard

    How much do you think a deeded yard in Hoboken is worth? We just had our appraisal (and the total appraisal came out to our purchase price) but they only valued the yard at $3000. I thought that was low. It’s got a small deck, a paved area and a grassy area that totals 667 sq ft of private space…

  2. lori

    Generally, a balcony is worth $20,000; a large terrace or deck worth about $30,000 and a yard can be anywhere from $30,000 to $50,000 depending on the property. This, of course, is assuming they are in good condition and well maintained. That is a perfect example, to me, of a non-urban mind not realizing the value of outdoor space in a city environment. I’m glad you didn’t have a problem despite the low value.

  3. privateyard

    Yes, the appraiser was from Clifton… or something like that. My husband says not to worry so much, but obviously I would be very happy if it appraised for more!!!

  4. rob

    i am assuming you are selling yuor condo, right?

  5. privateyard

    No, we are purchasing. It doesn’t really matter since we appraised for the purchase price, but it would have been nice to see that we got a good deal… which I still think we did.

  6. rich

    private yard – on thing to realize in most cases it is not the appraisers job to determine value. With the name ‘appraiser’ you would think determining value (like someone that appraises antiques) would be the main job. In reality, it is the appraisers job to prove to the bank that they are not loaning you so much money that they wouldnt get it back if you default.

    A few things….

    If you are working directly with the bank they are unlikely to appraise for much more then your contact price. Part of the reason is they dont want to put things in a place where you could take their appraisal and go out and get a second mortgage.

    If you are working with a mortgage broker. they hirer appraisers who can get back appraisals that get their loans approved. They get no bonus for the most accurate appraisal.

    I have a friend who does appraisals, for the most part they work back from the purchase price. The goal is to see if the contract price can be supported by facts from other market sales.

    I am not saying that anyone is doing anything wrong, I am just saying that the appraisers main job is to prove to the bank that if they get stuck with your property they should be able to unload it without taking a loss.

  7. Kent

    I’ve been reading about this for a while now. My place is currently on the market and I’m terrified of the potential buyer getting a low appraisal and the deal falling through. Especially since a similar unit in my building recently sold for a lot less (two floors above me though). I sure hope the appraiser realizes in this market there’s much more value in a 3rd floor walk-up than a 5th floor walk-up. But if he / she is unfamiliar with that aspect of the Hoboken market today, I could be in big trouble.

  8. Joe Banker

    Rich, your comments about appraisers not providing a value above asking price is correct, in practice.

    However, your comments about the appraiser’s job is not to provide a value but to determine if a borrower can pay the bank back is way off base. The appraiser’s job is to provide an estimation of value. Period, the end! Federal regulations require Bank’s to have an real estate appraised by a certified appraiser. Like all things, this value can be negotiated in some cases.

    Bank underwriters determine credit worthiness. If the appraised value and loan amount produce an acceptable Loan to value, those among other consideration are what banks use to determine the credit risk associated with a particular borrower.

    In the future please be careful, when posting such statments. I would consider this complete mis-information.

  9. homeboken

    In the real esate industry the acronym MAI after an appraiser’s name has technical meaning of “Member of the Appraisal Institute”

    It also carries, a snarkier meaning…Made As Instructed.

    Look to who is paying for the appraisal and you will have a good clue as to the motivation of the appraiser.

  10. Jon

    I think Rich’s comments are right on key. (Joe Banker… you’re forgetting…this is blog!)

  11. lori

    One important change since the financial crisis – the mortgage lenders and banks don’t get to “pick” their appraiser any more. The name is drawn from a pool of appraisers and the lender has no control. That’s part of the reason for the recent problems.

  12. rich

    Joe banker – I never said the apprasiars job was to determine if the buyer had the ability to pay the. What I said was the appraisers job was to prove value more then to calculate value.

    Their job as you know is to protect the bank. If contract price is $800K they are going to look out in the market to see if they find houses to prove 800K. even if the house is worth more.

    But I am certainly more interested in finding out how appraisers are now selected under the new rules.

    I just had a loan close recently but we did the appraisals way back in April. The broker seemed to have a good relationship with the appraiser so I would be surprised if he was pulled out of a hat. but it was a few months ago, maybe April that we started things up.

    I own mostly mutltifamiles and they are a pain to appraise when not many multifamiles sell without getting converted to condos. not to many comps.. and I could certainly agree that someone that doesnt appraise many condos will have a hard time appraising in Hoboken now.

  13. Joe Banker

    I stand corrected. I misunderstood your comment. You are right on!

  14. fellowrealtor

    Hi Lori, Great blog and topic. Appraisals are always interesting. For example, an appraiser from out of town may not understand the real difference between a condo with a washer/dryer in the unit and one without. In the suburbs it is assumed that a hookup is available and a w/d is just an appliance. A condo with a w/d restriction may not be as desirable for some buyers, which could result in a lower selling price. An appraiser could pull a comp of similar SF, add or subtract 1,500 for w/d. This may not be a true reflection of value in the Hoboken market. Another problem is that Realtors are always showing and viewing properties. Appraisers pull MLS info but do not view the properties used for comps. Many times they do not factor in major issues that have affected the sales price of a comp (poor layout, poor quality workmanship, etc). The MLS is a great resource but there is a lot that can be missed without viewing a property in person. – N

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