What can be done about an incorrect appraisal? FHA regulations won't allow financing based on the results from the appraiser.

Asked by Pibs, 03054 Tue Apr 3, 2012

We are buying a home using FHA financing and I have my in-laws as co-borrowers. The appraiser appraised the home as a two family because that is what it said on the tax card. For FHA you have to have 25% down in order to have co- borrowers on a two family home. However, home is a single family with an in-law and we will be using the home that way. The underwriter had already stated an in-law would be fine- a two family -not fine. The in-law section of the house does not currently have a stove or refrig- kitchen is basically like a wet bar with a sink. The owner went to the town. Because the land was subdivided about ten years ago, it is no longer a legal two family according to town laws. The town very happily switched the tax card to read single fam residence with in-law. The new tax card was sent to the appraiser. However, he stated on an addendum that he thinks the home appraises more correctly as a two family and won't change his appraisal results. Value not an issue. Suggestions?

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Joseph Scroc…, Agent, Wildwood, NJ
Wed Jun 12, 2013
if the first appraisal was done incorrectly (as it seems it may have been due to the reluctance of the appraiser to make the corrections the bank is requestins) you should insist on another appraisal at the bank's expense. If the in law portion of the home has a separate kitchen ask the sellers to remove the stove and put it in a garage or shed covered by a sheet before the new appraiser inspects the property. as long as the in law unit does not have a stove the appraiser can not call it a multi unit property.
1 vote
, ,
Mon Apr 8, 2013
Good morning Pibs,

I think it unlikely that you can either get a new appraisal or change the current appraisal. From your description of the home the property presents itself as a TWO family, even without the full kitchen in the second unit. Further, since it's being taxed as a TWO the appraiser is correct in his assertion (someone from the Town thinks it's a TWO!) The Appraiser is following the dictate of "highest and best use."

The fact there are two meters, combined with the fact there are clearly TWO residential units, followed with the property being taxed as a TWO family all point to this home actually being a two. Just because there's no kitchen doesn't make it a ONE family home. Many people remove second kitchens and use two family homes as single family homes.

SO, if the property is appraised as a TWO Family home, then why can't the Lender give you credit for rental income you'll receive from the second unit? The Seller of the property would probably have to install a kitchen prior to closing and that would have to be inspected by the appraiser. With that rental income you might qualify without the Co-Borrowers.

Let me make several observations about your process of purchasing this home so far:

-The Loan Officer is an IDIOT. The 25% rule is NOT new. Your L.O. should have known about this.

-The Loan Officer should be working on resolving this problem, NOT YOU.

-The Homeowner and his/her agent should have known this would be a potential problem. What single family house has TWO meters? Ridiculous.

-You may consider getting yourself some new professionals to work with you if you want to move forward on this transaction: new Attorney, new Loan Officer/Lender. Because so far your professionals aren't helping.

-If I were the Appraiser, I'd stand my ground on this issue also. No kitchen in the second unit and the "switching" the tax card to read single family ALL sound like interested parties working together to "make" this home a Single Family. That kinda sorta looks like potential fraud. I know that's NOT what you're doing, but that's how it looks to the Appraiser.

-You might have to extricate yourself from this deal and move on to a different property.

Trevor Curran
NMLS #40140
1 vote
Ellen Friedm…, Agent, Cambridge, MA
Tue Apr 3, 2012
Ask for a new appraisal. The appraiser is not God--just thinks he is. Good luck.

Ellen g. Friedman, Keller Williams Realty, ellengfriedman@comcast.net
1 vote
Joseph Fassa…, Other Pro, Mountain Top, PA
Mon Nov 10, 2014
The answer from an appraiser. Highest and best use comes into question. Hypothetical reasoning can conflict with actual use. Not known is whether there is interior access. If not the cost to cure by conversion to a single family unit and creating interior access. Occupancy issues to current zoning will come into question with single family use. Some municipalities allow accessory kitchens for an in law apartment or other family use with a second kitchen and still be called a one family dwelling. Zoning just does not want homes chopped up into smaller sections unless allowed for the fear of occupancy issues. In my area of expertise I often find that two family dwellings are often not cared for and suffer obsolescence from deferred maintenance thus lower values than single family homes. Since most multi family homes are located in higher density areas external obsolescence must be considered. I would seek a real estate agent to comp out the home as a single family dwelling. If better comps are available seek a reconsideration of value based on a hypothetical assumption. And by all means create interior access so there is no cost to cure. A privacy door can utilized. The look and feel of a one family dwelling will come into question and its actual cost to cure to make it comparable to other single family homes similar to its original style.
0 votes
Joseph Fassa…, Other Pro, Mountain Top, PA
Mon Nov 10, 2014
The answer from an appraiser. Highest and best use comes into question. Hypothetical reasoning can conflict with actual use. Not known is whether there is interior access. If not the cost to cure by conversion to a single family unit and creating interior access. Occupancy issues to current zoning will come into question with single family use. Some municipalities allow accessory kitchens for an in law apartment or other family use with a second kitchen and still be called a one family dwelling. Zoning just does not want homes chopped up into smaller sections unless allowed for the fear of occupancy issues. In my area of expertise I often find that two family dwellings are often not cared for and suffer obsolescence from deferred maintenance thus lower values than single family homes. Since most multi family homes are located in higher density areas external obsolescence must be considered. I would seek a real estate agent to comp out the home as a single family dwelling. If better comps are available seek a reconsideration of value based on a hypothetical assumption. And by all means create interior access so there is no cost to cure. A privacy door can utilized. The look and feel of a one family dwelling will come into question and its actual cost to cure to make it comparable to other single family homes similar to its original style.
0 votes
mpoire, , Lexington, MA
Wed Jun 12, 2013
The appraiser has to appraise the property as what the town calls it. If the town says it is a two family, the appraiser MUST appraise it as a two family.
0 votes
Zelda Kohn, Agent, Pleasanton, CA
Mon Apr 8, 2013
Your mortgage broker should request another appraisal at no additional cost to you.

The mortgage brokers I work with will not have you loose sleep over it and go out in search for answers. They will get answers for you.

Now, considering where you are in the process, here are your options:
1. If you go to another mortgage broker, you loose 1 extra month and it'll cost you 1 more application fee, which is your cost for an appraisal, so ultimately you will pay for an appraisal again and 4-5 weeks till closing.
2. If you wait for your mortgage broker to resolve this and he cannot, for some reason, you will be in limbo indefinitely and that could put the whole deal in jeopardy.
3. If you go to your mortgage broker and request another appraisal (even if you end up paying for it yourself), you'll close in about a week. Yes, it may not be fair for you to pay extra for someone's mistake, but that will solve the problem and get you to move.

Hope it helps.
0 votes
Kevin Vitali, Agent, Tewksbury, MA
Sat Mar 30, 2013
An appraisal can be contested by the parties. If it is not a multi family on the tax families you would not appraise it as a multi family. it is that simple.
0 votes
Janine Elkho…, Agent, Woburn, MA
Tue Mar 19, 2013
Talk to your mortgage broker first if not I would recommend you change mortgage brokers. Local community banks can do miracles.

If you need recommendations please let me know.


Please note: when you choose an answer as a Best Answer, or at least give a thumbs up, it helps those who answer questions here.)
0 votes
Yuan Li, Agent, Carlisle, MA
Wed May 9, 2012
Hi there,

Not sure whether it is too late to answer this question... The mortgage brokers I work with will definitely order another appraisal for you without charge... Even the first appraisal fee will be covered as long as the whole transaction closes successfully.

You should have the mortgage broker and your real estate agent help take care of this for you.

Yuan's Team Realty
0 votes
Louis Wolfs…, Agent, Needham, MA
Sat Apr 7, 2012
The bank should not require you to pay for another appraisal. Provide your lender and the bank the information you "The town requires you to apply for a special exception to become a legal two unit home. Another previous owner years ago had tried to have a special exception granted on the home to make it a legal two unit home, but it was not granted. That was when the home had over four acres. In this area, you must have a min of 4 acres to be a legal, rentable two unit home. The house only has 3.33ac now so the special exception cannot even be granted at this point. " once informed of the information the bank owes you an explanation. I would also contact the Appraisers company and the licencing board as he has USPAP guidelines that must be adhered to, which based on your information have not been met.


It may be simplist and cheapest to have another appraisal done, if the bank will honor it.
0 votes
Hi i am interested in buying a multifamily home the 2nd floor is finished but the 1st floor is missing the kitchen, (stove, faucet, cabinets, etc") what can i do for the bank approve me the loan?
Flag Sun Nov 6, 2016
Laura Feghali, Agent, Stamford, CT
Fri Apr 6, 2012
Hello Pibs,
I suggest that you have the bank perform another appraisal but using single-famly homes as comparables and using a different appraiser since the current one appears to be unwilling to do it. The bank must have other approved FHA appraisers that they work with.

Even if you must order and pay for another appraisal to submit to your lender; at least you may increase the change of getting your loan approved. You did state that the town has changed the tax card to reflect a single-family property which should be helpful.

Best of luck to you!

Laura Feghali
Prudential Connecticut Realty
0 votes
Hi i am interested in buying a multifamily home the 2nd floor is finished but the 1st floor is missing the kitchen, (stove, faucet, cabinets, etc") what can i do for the bank approve me the loan?
Flag Sun Nov 6, 2016
Pibs, Home Buyer, 03054
Fri Apr 6, 2012
UPDATE- Thank you for the input. I figured I would update. The home is zoned Village Residential. The town requires you to apply for a special exception to become a legal two unit home. Another previous owner years ago had tried to have a special exception granted on the home to make it a legal two unit home, but it was not granted. That was when the home had over four acres. In this area, you must have a min of 4 acres to be a legal, rentable two unit home. The house only has 3.33ac now so the special exception cannot even be granted at this point. The house is all attached under one roof. The only reason existent right now that makes it seems like a two family is the systems are separate. There is an old section of the home built in the 1800s that has one electric meter and heat system, and a new section built six yrs ago with its own meter and a different heat system (They put in a more efficient system on the new section). Having said that, the barn has separate heat and electric system! I really feel this should not matter. We will still be using it as a single family residence. I will be occupying the whole home.

The appraiser has been asked by the bank to redo his appraisal without using two family comps. He responded today that is is not willing to do that. Now my loan officer is not sure what to do next. All of my other commitments have been met for the loan to be approved. We were supposed to close last Thurs March 29 - now yesterday April 6, and now we have no closing date! The bad part is that when the appraiser was first out there, he asked if he should appraise it as a two family. My loan officer said that was fine- not knowing about the new FHA rule of 25% with non-occupying co-borrower. It was underwriting that saw and it and said no way. If I demand a new appraisal, will I have to pay for it? I already bought one!

How can we prove this home is a single family residence? How can I get past this to be able to close on this home?
0 votes
Heidi Zizza, Agent, Framingham, MA
Wed Apr 4, 2012
Definitely talk to your mortgage broker and demand another appraisal.
0 votes
, ,
Wed Apr 4, 2012
I would contact HUD and see what they say.
0 votes
Louis Wolfs…, Agent, Needham, MA
Wed Apr 4, 2012
STOP RIGHT THERE!!!!!!!!!!

ASSESSORS CARDS HAVE NOTHING I REPEAT NOTHING TO DO WITH THE LEGALITY OF THE HOME.... Tax cards are only for tax purposes.

BUILDING DEPARTMENT RULES - PERIOD

unless your building card states it a legal or a pre-existing (prior to zoning) non-conforming use as a two family it is whatever the building card says.

The appraiser should be pulling the building card and review the zoning compliance.

It is not up to the appraiser to determine if it is more accurate or not. He could if the home is zoned as a two family, state that a higher and better use is as a two family, but he was hired to appraise the home as a single family and must do so, and this assumes that the in-law is allowed and legal as you state.

You can request a review and the lender will as stated below as the appraiser to address your concerns.

I am not only a Real Estate Broker - but also a Certified Appraiser - FHA approved.
0 votes
, ,
Wed Apr 4, 2012
I would have them order another appraisal, or fight the appraisal with the appraisal management company stating there are gross material errors in the report. They are correct in the guidelines however. Here it is right from HUD

The purpose of this provision is to enable a family member to have a joint interest in a property that would enable another family member to attain principle residence homeownership.
All borrowers regardless of occupancy status must sign all documents relating to the purchase of the property. This provision is not intended to circumvent FHA?s ban on loans to private investors. Mortgages with non-occupying co-borrowers are limited to one-unit properties if the LTV will exceed 75%. If a parent is selling to a child, the parent cannot be the co-borrower with that child on the new mortgage, unless the LTV is 75% on less.

For maximum financing the non-occupant borrower must be related by blood, marriage, law or be an unrelated individual that can document evidence of a family-type, longstanding, and substantial relationship?not arising out of the loan transaction.
 
Non-occupying co-borrowers must have a principal residence in the U.S. unless exempted due to military service with overseas assignments, or a U.S. citizens living abroad.
0 votes
Seth Captain, Agent, Chicago, IL
Tue Apr 3, 2012
Wow. I just want to vent some absurdity at your bank's reasoning. I work a lot with multi-units here in Chicago, and we are constantly getting screwed on two flats or three flats that have in law apartments. FHA guidelines are very strict about 'illegal' units and will not allow you to claim a unit if there is a full ktichen. Exactly what you DON"T have. If a unit doesn't have appliances, and it's really the stove, not the fridge, and is without a kitchen sink, then the appraisal can not show it's a unit and in your case, that should mean you have a single family with a finished basement.

Start the appeal process like the other poster mentioned. You should have no problem winning, especially due to the town's current zoning along with the lagging kitchen.
0 votes
Hi Seth i am interested in buying a multifamily home the 2nd floor is finished but the 1st floor is missing the kitchen, (stove, faucet, cabinets, etc") what can i do for the bank approve me the loan?
Flag Sun Nov 6, 2016
Hi Seth i am interested in buying a multifamily home the 2nd floor is finished but the 1st floor is missing the kitchen, (stove, faucet, cabinets, etc") what can i do for the bank approve me the loan?
Flag Sun Nov 6, 2016
Laura Feghali, Agent, Stamford, CT
Tue Apr 3, 2012
Hi Pibs,
I'm in agreement with Ellen in that you should order another appraisal. Below, is a clip from a blog I posted regarding FHA appraisals:

"Get your own, independent appraisal. If you order your own appraisal and your loan is an FHA loan, ask the lender for a list of approved appraisers. Usually the bank will review your appraisal and ask the previous appraiser if they agree or disagree with the newly submitted one.

If the first appraiser disputes your appraisal, the bank may request a third appraisal done by another appraiser, or they may just reject your appraisal.

However, if the first appraiser agrees with the disputes you present, they may adjust their original appraisal and you may get a better price."

Good luck to you!

Laura Feghali
Prudential Connecticut Realty
0 votes
Hi i am interested in buying a multifamily home the 2nd floor is finished but the 1st floor is missing the kitchen, (stove, faucet, cabinets, etc") what can i do for the bank approve me the loan?
Flag Sun Nov 6, 2016
Mathew Ames, Agent, Duxbury, MA
Tue Apr 3, 2012
Sounds like the underwriter and appraiser aren't helping very much. Beyond that, your mortgage broker and real estate broker should be assisting you with this so you don't have to ask Trulia for advice.

My suggestion would be to call Mr. Erickson.
0 votes
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