Why Appraising a Home For More Than Purchase Price Is So Difficult – For 12 Months

Fed Week: Corruption or Panic on the Part of the Fed?

The Fed will announce a rate cut this week, and many pundits are now predicting a 50-basis point cut again. Senator Warren is even calling for a 75 basis point cut. Many people are claiming these cuts are signs of corruption, as they believe Fed members want VP Harris to win the election. But, Danielle DiMartino Booth, who worked at the Fed and who is no wallflower when it comes to calling out corruption, says – no way; Mr. Powell is and always has been very above board. Jeff Snider and others firmly believe the Fed will cut 50 basis points because Fed members are very worried about what is happening in the labor markets with all of the layoffs. Snider also reminds us that Fed cuts do very little other than foster very short-term stock market reactions on occasion. So even if there is corruption, it won’t be very effective corruption.

Bought My First Home $40,000 Under Market

I bought my first home in the 1990s for $355,000 – about $40,000 below the market price.

I got the house under market because the seller was a high school baseball coach and my landlord – and he really liked me because we had much in common and I had a young family.

In addition, there were no commissions to be paid. Our purchase contract was a piece of paper with nothing but the basic terms – old school.

It would have been verbal if escrow, the appraiser, and the lender had not demanded something in writing.

But here’s the thing: it was very difficult to convince appraisers and lenders that I bought my house under market – when I wanted to refinance 6 months after my purchase.

Why Lenders And Appraisers Correlate To Purchase Price For The First 12 Months

Lenders and appraisers correlate to the purchase price for two reasons:

(1) The price someone paid for a property within the last 12 months is considered the best and most accurate comparable sale for that property – for obvious reasons; and

(2) There is little reason a rational seller would sell a property for less than it is worth.

Why Do People Want Their Home to Appraise For More Than They Paid for It?

Buyers want higher appraised values for several reasons: (1) to lower the loan-to-value ratio in order to garner better loan terms or to eliminate private mortgage insurance via a refinance; (2) to get cash out, which requires a loan-to-value ratio of 80% or less after the loan amount is increased to allow for cash out; and (3) to recoup the actual cost of improvements – if any were made.

How To Get A Higher Appraisal Within 12 Months

1. Actual Improvements: If buyers make actual improvements such as kitchen or bath remodels, adding a pool, etc., they can often get higher appraised values within 12 months. But, appraisers will often ask for proof in the form of receipts and/or contractor bids.
2. Adding Square Footage: This is similar to #1, and it is the easiest way to get a higher appraised value. One of our team members in fact added 500 square feet to her 1,200 square-foot home in a high-end neighborhood – and added close to $500,000 of value because it put her home in range of an entirely different set of comparable sales.
3. A Lot of Very Compelling Comps: If there are several comparable sales that are nearby, appraisers will correlate to them. But the comps need to be very strong – similar updating, similar vintage, similar size, nearby, similar external influences, and recently sold.
4. Convince Appraiser Seller Was Either Nice, Dumb, or Desperate – And That Is Why The Seller Actually Sold For Under Market: Non-arms-length sales, purchases of fixers that were not lendable, auction sales, and sellers desperate for cash (and thus willing to accept a low-ball all-cash offer with a fast close) are all reasons why sellers might accept a below market offer.
5. Make The House Look Cute: Appraisers are suckers for very cute and well-kept homes, per comments numerous appraisers have made to me over the years. They’re much more willing to correlate to the higher end of the comparable sales range if a home looks well-kept in the photos. This is why we remind borrowers who are refinancing to do as much cosmetic improvement as possible if they are looking for a higher appraised value. Power washing, landscaping, tidying up the inside, and fresh paint can do wonders.