Myschab, Other/Just Looking in Lawncrest, PA

My house was appraised at 610,000 in 2006, i got a line of credit, now the bank is telling me my house is

Asked by Myschab, Lawncrest, PA Fri Jun 20, 2008

worth 553,000. Since the 2006 appraisal i have put about 85,000 worth of improvements in the house. How can i prove to the bank that even with the market plunge, my house is still at 610,000 because of the improvement i made?

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Don Tepper’s answer
The advice below is good. Just to add to that, the bank is saying that your house has declined in value by $57,000 since 2006. As is noted below, in many areas of the country that's really pretty modest.

You say you've put $85,000 worth of improvements in your house. You don't say what those improvements are. But almost no improvements return 100% of value. (Putting a second bathroom into a 3 bed/1 bath house comes pretty close in many areas. On the other hand, even well-thought-out and good improvements often return no more than 70% of value. And certain things, like a roof replacement or an HVAC replacement, return very little because buyers expect the roof and HVAC to be functional.)

So, if we take your $85,000 worth of improvements and assume that they all were good, solid, wise improvements (returning 70% of their cost), they may have added about $59,500 to your home's value. So, at best, just maybe, your house might still be worth $610,000.

Check with your lender and find out how you might be able to appeal their decision. Probably an appraisal. And probably paid by you, but an appraiser of their choice. Best case scenario: You get an appraisal above $553,000, and some of your credit line restored. Worst case scenario: The appraisal comes in at under $553,000, and you lose even more of your credit line and you've had the privilege of paying for the appraisal as well.

Initially, you might consult with a Realtor and have the comps pulled to see if it's even worth the battle. Then decide.

Hope that helps.
4 votes Thank Flag Link Fri Jun 20, 2008
Don Tepper, Real Estate Pro in Burke, VA
First question: Why do you need to prove value? Is the bank reducing or closing your line of credit (several lenders are doing this in troubled markets such as CA, FL, and NV)?

Second question; What kind of improvements? Many improvements are valuable for resale purposes but not for setting market value for lending purposes. Additions and pools add value. Improved fixtures, kitchens, etc don't add value for lending purposes.

Suggestion: If you are disputing the value to protect your line of credit, the bank is liekly using an AVM (Automated Value Model) to estimate your home's current market value. AVMs pull data from county sales records but aren't very accurate on a house-by-house basis. You could request the bank to prepare a traditional appraisal - an inspection on site by a local appraiser would be the most accurate way to support your value estimate. The drawbackj is the bank will require you to pay for the appraisal. Alternatively, you could ask a Realtor to prepare a BPO (Broker Price Opinion) of value which could take into account closed recorded sales as well as listing values. The drawback is the bank may not accept a BPO to defend your value position. Call your bank first to find out if they'll take a BPO (usually faster and less costly than an appraisal).
1 vote Thank Flag Link Fri Jun 20, 2008
your house is only worth what the market is willing to pay for it...the market is obviously down so is the value of your home
0 votes Thank Flag Link Sun Jul 13, 2008
I have to agree with all of my fellow Realtors in this matter. Many banks are now limiting or even closing lines of credit based upon AVM's. An appraisal from 2006 is virtually worthless at this point. An appraiser recently told me that some banks are refusing loans on condos if comparable sales data cannot be found within the last 90 days. There are numerous condo complexes which have not seen a closed sale for more than 90 days. If you are not losing your credit line, there isn't much that you can do. If you are, then another current appraisal is the only way that I know to fight it.
0 votes Thank Flag Link Fri Jun 20, 2008
From your questions it seems to me that the bank is using current market value to determine whether or not your total loan to value ratio (loan plus line of credit) is sufficient to meet their requirements.

It the total loan to value is more than 80.0% the bank will more tha likely freeze the use of your line of credit until the required ratio is met.

This is now a common occurance as lenders are making an attempt to prevent any additional loss that might occur should the property go into foreclosure.

Current market value is what the property is worth based on comparable sales of similar properties within the past 90 days. If the bank believes that market will slip futher that may look only at the past 60 days.

For new loans I have heard of banks reducing the appraisal by as much as 5.00%. This can determine whether or not the transaction will close.

These days banks are under alot of scrutiny and are offen being overly cautious to protect their stockholders interest and to avoid any issues that might raise questions from federal regulators.

All the best,
0 votes Thank Flag Link Fri Jun 20, 2008
Unfortunately, in most cases, cause does not equal value so the cost of your improvements may not translate into value on an appraisal. Take a look at the cost versus value survey in the link below. Add in the generally stagnant market or even declining markets in many areas and you'll find many more recent buyers in the same position you are.
0 votes Thank Flag Link Fri Jun 20, 2008
The best way to prove the value to a lender whould be to provide an unbiased appraisal or two. Another great indication of the real value is a real, bona fide offer; a contract for purchase and sale showing a sales price of the amount you believe the property is worth.

The true test of value is just that; What would a "Ready, Able & Willing Buyer" pay at any given point in time.

Another idea would be to compile the recent sales of similar properties in the neighborhood. This last method most likely will not be advantageous to you. These days, the short-sales and foreclosures are bringing values down drastically.

A drop of only $57K seems very modest! I've seen values drop 30-40% from 2005 til today.

Real Estate Is Local ~ Every situation is unique!
0 votes Thank Flag Link Fri Jun 20, 2008
Its doubtful you can, and you've only lost 10%, so your improvements are probably why you've only lost 10%, Florida is on the front lines of this debacle with California and Vegas, if you're loss is under 10% in these states, you're winning.
0 votes Thank Flag Link Fri Jun 20, 2008
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