2011 May 12th

Hoboken Property Values – What if the Appraisal Comes in Low???

A Common Problem in Hoboken Real Estate Sales

Here is a situation that has been popping up recently.  A Hoboken property gets listed for a certain price, let’s say $700,000 for the sake of simplicity.  It’s a really nice condo in a great location with 3 big bedrooms, some wonderful features, maybe a yard or nice terrace or a view of the city.  Buyer comes along, then another, finally several buyers make offers (it happens more than you realize, even today).  The price goes over asking – a buyer wins the bid and $730,000 is the purchase price.  The buyer plans to put down 20% and finance the balance of the purchase price.  We get through attorney review with no issues and the buyer applies for his mortgage.apple

The bank orders an appraisal.  The appraiser has very specific rules about what can be considered in determining value.  The comparable sales do not support the purchase price. The appraisal comes in at only $650,000.   Now what???  This if the fun part – not.

In the past few months I had one deal where I was the listing agent and the property did not appraise.  The buyer and seller renegotiated.  (The sellers had little choice as they were in contract to buy a new home themselves and didn’t want to lose that property).  This was one of those multiple-offer situations.  I honestly believe that the buyer bid high knowing in the back of his head that if the appraisal came in low, he would back off his offered price.  It was not a pretty scene.

I recently was involved in another deal where I was working with a buyer interested in a high-end property.  Again, there were multiple offers.  My buyer made a full-price offer even though we all knew that the appraisal was going to be an issue from the start.  The buyer wanted the deal to be contingent on the appraisal.  The seller wouldn’t hear of it.  The deal fell apart.  Of course, any other buyer who is interested in that property is going to have the same concern and the seller is going to be right back in the same situation.  I guess there may be buyers out there who don’t care that the appraisal is low.  Maybe they are paying all cash and never plan to sell or think the market will recover sufficiently before they do sell so that it won’t matter.  Most buyers are going to be very nervous and have second thoughts when they are setting prices at the upper limit and then get that low appraisal.

Finally, there is the complication of short sales, foreclosures, desperate sellers and seller’s concessions.  All of these cause low sales prices.  Those closed sales become the comps that will be used in appraisals of similar properties.  If you are buying (or selling) in a building like the SkyClub, where there have been a number of short sales, it’s difficult to support a high price with the comps.  For an interesting debate on the subject of whom is to blame – the realtors who pushed for high prices during the boom, or the appraisers who now take the blame for low appraisals that keep sales prices down, you might enjoy this thread. Even with all the new regulations, the problem is not going away any time soon.

  1. Coco31

    As a recent buyer, I feel fortunate that the property we bought appraised. But it appraised at the exact amount of the purchase price, which was not a round number. I can’t help but think that the bank’s appraiser did everything it could possibly do to “backed into” this purchase price. I suppose part of me was hoping that the appraisal would come in a bit more. Is it common that appraisals match up to the exact agreed purchase price?

  2. rich

    In my experience(10 mortgages) the properties never appraise over purchase price. My understanding is this is so you can’t use this appraisal to get a 2nd increasing the banks risk.

  3. Aaron

    I heard about the deal you speak of. If buyers are not aware of basic market economics, they should brush up before they venture into real estate. The price of a place is what is determined by the market – what the buyer and seller agree and contract to. That is the price. The appraisal is nothing more than a third party (often who does not know the market and who, unlike everyone else, is incentivized from a legal perspective to “undervalue” the property) assessing the quantity of the sale from a financing perspective. The market, not a third party “expert” determines what something should sell for. It is not dissimilar to the government forcing a company to sell its goods for a certain price…what if the government told apple that the iPhone was worth $10 and it had to sell for that price. Doesn’t make much sense does it. Buyers need to understand that prices in this market are already low and sellers are suffering significantly as a result -they should not then also employ this regulation-induced nonsense as an additional way to steal value.

  4. JD


    Sounds like someone jumped into the RE game in 2007 and is now holding the bag.

    Probably should get familiar with the phrase “He Who Has The Gold Makes The Rules”. And that would be the lender and their appraiser. Since someone would like to borrow their money to buy your place, they make the rules and set the value. It’s up to you to tell the buyer and lender that you are “suffering significantly” and your “value is being stolen”.

    If nobody likes that situation and, as you say, “The market, not a third party expert determines what something should sell for”, you are correct. If your place is priced correctly, there are PLENTY of cash strong buyers out there with no need for a loan or appraiser, and yes, we are buying properties. Free market at its best. If you got no bites, guess what? You’re overpriced.

    Properties in North Jersey are still (avg) 60% above their 1999 prices. What other normal investment has returned 60% since 1999. Nothing. If you got caught holding the 2005-2007 bag, wait it out the next 10-15 years to get back to those levels. Otherwise take your HUGE profits while you can and stop complaining that “buyers are not aware of basic market economics, they should brush up before they venture into real estate”.

    Guess what, we were aware of the run-up, we’ve been venturing and are having a great time catching the falling knife back to 1999 prices. And every REO that will be purchased in the next few years will be included in the comps that “undervalue” your property. It’s your “free market” choice what to do next…..

  5. Mark

    The problem is that most appraisers don’t know the HBK market well enough. On a map 0.25 miles might be insignificant, but if that’s the difference between living on Park or Jefferson; that’s huge.

  6. Craig

    “Buyers need to understand that prices in this market are already low and sellers are suffering significantly as a result -they should not then also employ this regulation-induced nonsense as an additional way to steal value.” – Aaron

    Sellers need to understand that no one cares how much they’re suffering. If you overpayed for your property during the absurd run-up in prices mid-decade, that’s your problem – not the buyer’s or the bank’s. Regulation has nothing to do with bank appraisals. The home is the bank’s collateral and the banks have the right to know what their collateral is worth – just as you would if you were lending someone hundreds of thousands of dollars of your money.

    My appraisal came in at the exact purchase price too. I have to wonder if that’s common. I was actually hoping it came in under, because I know the seller was desperate and would have caved as I certainly wasn’t going to bring another dime to the table.

  7. Tiger

    Mark, that’s why, just like Lori advocates getting a good Hoboken RE agent, I recommend that you also get a Hoboken mortgage broker. I personally used a Hoboken broker for both buying and refinancing and not only did the process go very smoothly, they also sent appraisers and inspectors who knew the Hoboken market. I was quite impressed actually with the thorough details of the refinance inspector. Not only did he detail things in my home, he brought several comps from my building and nearby buildings to support his claims of value.

  8. Lori

    It’s the listing agent’s job to bring comps to the appraiser and attend the appraisal. But Tiger is correct – the buyers and sellers who use local agents, local lawyers and local lenders have their deals close more often than those who do not.

  9. Lorilol

    I have to comment on the rediculous (no less) notion that in the RE market the price IS, what Buyer agrees to pay to the Seller. How deluded we all become over the years to belive such nonsense? This Price-formation would be true in a case of all-cash purchase, but in the market where a buyer does not have the money to pay for his purchase the only Price/Value-estimate that matters is that of a party that HAS the money = a Bank! Otherwise, it becomes an infantile Monopoly game where I will buy your ‘hotels’ with my imaginary money no matter what the price is, cause I simply Waa-a-a-ant your ‘hotels’.

  10. Lori Turoff

    How do you know the buyer didn’t make an all cash offer? In a negotiated price environment, if the market price isn’t set by what a buyer will pay, regardless of where the funds come from, what is it set by?

  11. JC

    If I borrow a quarter to buy a pack of gum does that devalue the pack of gum by a quarter to the next consumer? Real estate market price is worth what someone will pay for it.

  12. Lorilol

    Not someone, but someone who has all the cash. In your mind it is ‘someone’ with a dream or access to fradulent financing. In current reality it is ‘someone’ who puts up the cash for the putrchase. You need to shake off the stupor of the 90s and join us in 21 century.

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