Home Buying in 20169>Question Details

Eli_yunck, Home Buyer in Saint Joseph, MI

As a first-time home buyer, and I’m in the process of purchasing my property. The property was built in 2007 and was used as a “Model

Asked by Eli_yunck, Saint Joseph, MI Tue Nov 22, 2011

Home".l As a first-time home buyer, and I�m in the process of purchasing my property. The property was built in 2007 and was used as a �Model Home"until Oct 2011, it was listed for sale in the market. The Seller "Builder" listed the property as a new construction for a sale price of $ 124,000. I recently had an appraisal done on the property and it came back at $ 105,000. Looking at the appraisal report, it seems a lot of the comparing was done with resale and not new construction, but there is no new construction in the subdivision. This property is a 2bd/ 2bth condo in a (3) unit building. The subdivision has no new construction, all the properties where built in 2006 to 2007. I really like this condo, but I don't want to over pay for it as well. Because I know if I where to pay 124,000 for the property, most likely the price will drop to 105,000, right?

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If the property was a model home, it had an occupancy permit and was thus deeded to the builder/owner upon completion and before being used as a model home. Because title had changed once, it can no longer be considered new home construction. The fact that your property appraised for $105k is indication that the value is not there according to your lender's specifications and guidelines. If you did not have an appraisal contingency (and most builder's contracts do not unless this was a VA or FHA loan in which case there is an amendatory clause allowing you to cancel the contract without penalty if the property does not appraise), then you may have a problem getting out of the deal or reducing the price. I would recommend you seek legal counsel if you are using conventional financing. Of course, most model homes are loaded with extra options that appraisers often times neglect to give proper value to. But I seriously doubt the appraiser missed the value by $19k!!
0 votes Thank Flag Link Tue Nov 22, 2011
Eli,
It sounds like you are tighed up in knots:
First of all, please don't lose this dream home for a few thou; you are talking $10-$20 per month.
You are buying a HOME first, and an investment second: In a few years, you won't care what you paid.

If you are not in a multiple-offer situation, you may get it for $105 and you shouldn't have to worry about the Appraisal. If you offer more than that, you would have to pay the difference, and if you offer less, you may not get it.

Don't worry about New Const vs Old Const; the Appraiser allowed for this in the appraisal: He worked with what he had. Comps are Comps.

Good luck and may God bless
1 vote Thank Flag Link Tue Nov 22, 2011
I'm aware that the appraisal is simply an educated opinion. What I'm a bit confused is what the property should be classified as. My realtor is stating that the property should had appraised with new construction of 2011, instead of resales properties of the same year. The property I'm buying was built in 2007 and was used as a model home up until recently. How would a property such as this one be classified? Would it still be consider as a new construction? And if its consider to be new construction, how would some compare it to others, there is no new construction in the subdivision, the last complex built was 2007.

From my understanding, the contracted stated that if property appraised lower then sale price, then I have an option to forfeit or renegotiate the offer. I also did a Ernest escrow deposit of $ 10,000 towards sale price at end of closing. Hopefully I would get that back if I decide to withdraw from this contract. The seller did mention it will be refunded, when we where executing the contract, but who knows, I could have got played!
0 votes Thank Flag Link Tue Nov 22, 2011
When you say "you" had the property appraised it sounds like you hired the appraiser directly and paid him for an opinion of what the property is worth and did not get the appraisal as part of a purchase contract. If that is the case, and without going into all of the things that have happened in the appraisal world the last 5 years, I would give you a few things to think about. An appraisal is an opinion. There are "rules" and "methods" for appraising but it is still very subjective. The general rule of thumb is that if you got multiple appraisals, you would want to see them within 5% of each other - I'm not seeing that happen in my market. I've actually seen them $100,000 off - or more. And those are FHA appraisals on homes $300k and under. So, don't put 100% of your trust in an appraisal - it is not a hard value, just an opinion or assessment of value.

Something is only worth what someone is willing to pay for it. I would focus on the recent sales in the building and compare apples to apples - look at what other people have paid for the units in the building and that will give you the best indication of value. Try to stay within the last 6 months of recent sale.

Builder models tend to sell for a premium because of all the upgrades and decorating they put into them so consider that as well. There is value in that which may not really be accounted for in the appraisal.

Appraisers are also always behind the market. They are looking at the last six months of sales, not what current buyers are doing. This has caused some issues in markets that have turned up rapidly. I experienced it in my own market.

VA appraisals are notorious for coming in low - so much so that there is something called the Tidewater Act that allows a buyer to contest a VA appraisal by providing a justification for the sales contract price. The reason homeowners were refusing to accept offers from veterans using VA loans - which killed the whole intent of the program - so they passed the Tidewater Act. I've actually had to do entire appraisals on VA loans because the appraisal was so off. Just another story to help you digest the differences in appraisals.

Bottom line is its worth what its worth to you and what you are willing to pay for it. If you haven't made an offer yet, use the $105k appraisal to try to get the best deal you can. Use an agent if you aren't already. Buying from builders is a lot like buying a FSBO.
0 votes Thank Flag Link Tue Nov 22, 2011
Hi Eli,

I would do two things, first I would be very aware of the appraised value. Appraisers compare the home to homes that have sold recently in the neighborhood and that have similar square footage and features as the home they are appraising. If they can't find a home that is directly comparable, they will find homes that are as close as possible and then adjust their opinion up or down accordingly. Therefore, more than likely your appraiser took into consideration the new vs. lived in value of the home when making his conclusion as to value. Second, if you are using a realtor (and you should be! Typically the seller pays the realtors' fee so the service is free to you as a buyer and that's a deal you should not be passing up!) talk to them to get a second opinion as to current market value. Then make a reasonable offer and let the builder either accept it or make a counter offer.

I doubt the price is going to drop $20,000 just because the home is no longer 'new construction' but even if it did, you are BUYING new construction and not resale, so... Best advice is to make a reasonable offer and see what happens. If you don't like the response, you can always buy a different home, perhaps a resale home, and see if you can't get a better price.
0 votes Thank Flag Link Tue Nov 22, 2011
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