“I just bought the property for $800,000 but it is worth $1,000,000 now, and I would like to refi using the higher appraised value…”
We get emails like the above all the time, and sometimes we can garner the higher appraised value.
But often we can’t. This is why.
APPRAISERS CORRELATE TO PURCHASE PRICE
This is a major reason why we can’t just assume we can get a higher value.
Appraisers are very reluctant to correlate to anything other than the purchase price for at least six months unless there is some very compelling evidence that the market has appreciated significantly.
And unfortunately, the “evidence” that us laypeople may consider compelling often does not impress “grizzled” appraisers, who are all about the data and are very suspicious whenever anyone claims to have bought a home “under market value.”
Because why would a seller sell for under market when there are so many buyers out there looking for properties?
LENDERS HAVE REQUIRED SEASONING PERIODS
While we have two jumbo investors that will take higher appraised values within 12 months after a purchase, our best jumbo investors with the lowest rates require a full twelve months of seasoning before they will accept a value that is higher than the purchase price.
Fannie Mae and Freddie Mac (conforming loans) are much more flexible, as they will accept unseasoned higher appraised values most anytime after a purchase, as long as the appraisal is well-documented and the appraiser is willing to come in higher (see above).
FHA AND VA
FHA and VA have twelve-month seasoning requirements too.
DOCUMENTING IMPROVEMENTS
Another way to garner a higher appraised value soon after a purchase is to document “substantial” improvements that may increase the value of the home.
Such improvements might include a new kitchen, pool, hardwood floors or an addition, but appraisers will want to see permits for any additions and will review the prior MLS listing to compare what the home looked like previously.
Our Appraisal Manager encourages clients to share a comprehensive list of improvements with the appraiser whenever clients are hoping for a higher value, as such lists give appraisers some data to hang their hat on when justifying any increase in value.
MY BROTHER-IN-LAW PAINTED THE LIVING ROOM FOR A TWELVE-PACK
What usually doesn’t work is cosmetic improvements like painting the living room (especially by an inebriated in-law), or repair work that is largely invisible – such as new plumbing pipes, new wiring, new sprinkler systems, or new caulking.
New appliances, lighting and plumbing fixtures and minor landscaping improvements also do not usually help.
The quantity of labor is also sometimes not a factor.
We have had borrowers who have spent hundreds of hours on “do it yourself” repairs like those listed above – only to be sorely disappointed when their appraisals did not come in higher.
BEWARE OF FUNCTIONAL OBSOLESCENCE TOO
I have blogged a few times about some homeowners in the Bay Area who spent $200,000 on bronze metallic wall coverings (like wallpaper).
They were livid when the appraiser did not increase the value of the home by the same amount.
But the wall coverings not only did not add value, they decreased value because they were so unsightly.
Homeowners are always wise to remember to spend money on improvements that the market will appreciate too.
