Preconstruction Appraisal Process

[Little Fish]

Thought I'd update all with my recent experience with an appraisal on my new condo in PCB. Although the initial post on this thread led me to believe that appraisals today were coming in much lower than 2004-2005 preconstruction contract prices, my experience was the opposite.

My appraisal came in just above my contract price. My lender used an appraiser from Destin, who appeared to do a very thorough job. According to my realtor, all units had appraisals that came in at, or above, initial contract prices. The sole exception was one client who used an out-of-state lender. In this case, they contracted for a 2/2 and the appraisal came in $60K less than what they initially contracted back in 2005. The buyer contracted for their 2/2 for around $550K, meaning the appraisal came in roughly 10% lower than the contract price. The buyer switched to a local lender and then received a higher appraisal on the unit.

Since so many units received favorable appraisals, I am wondering whether or not 1) the appraisers aimed at "hitting the numbers", or 2) Values have not dropped significantly in PCB over the past two years. I wonder which is closer to the truth? Any thoughts?

Little Fish

 

[Busta Hustle]

there are 2/2 's in tidewater closing at pre con prices under $300K...
there are 1,2,3 year old condos resales dropping below $400K with nice rental history...and there are several forclosures getting $350K or so...
If you are looking at $490K to $550K and up meeting appraisals they must have something "special" in the mix...SQ footage or superior upgrades?
Island Reserve has prices you describe with over 1700 ft or so space which is 300 or 400 more than most 2/2's...

 

[jlweathers]

The sole exception was one client who used an out-of-state lender. In this case, they contracted for a 2/2 and the appraisal came in $60K less than what they initially contracted back in 2005. The buyer contracted for their 2/2 for around $550K, meaning the appraisal came in roughly 10% lower than the contract price. The buyer switched to a local lender and then received a higher appraisal on the unit.

Since so many units received favorable appraisals, I am wondering whether or not 1) the appraisers aimed at "hitting the numbers", or 2) Values have not dropped significantly in PCB over the past two years.

Little Fish

some of the local appraisers may simply not want to bite off the hand that feeds them; i.e. the local lenders, nobody makes money for a transaction not closed.

additionally, comping a pre-construction condo at the purchase price is pretty easy when you will undoubtedly have folks who will close simply b/c they can't find it in their heart to give up an emd...& voilah you have recent closed comps @ the purchase price.

also, sometimes the data omitted from an appraisal is much more relevant than that included. appraisals are certainly part science part art - so you will always have varying opinions.

i'm not familiar enough with the PCB condo market to answer your question definitively....but would be shocked if prices across the panhandle & across most property types have not fallen.

 

[SHELLY]

Thought I'd update all with my recent experience with an appraisal on my new condo in PCB. Although the initial post on this thread led me to believe that appraisals today were coming in much lower than 2004-2005 preconstruction contract prices, my experience was the opposite.

My appraisal came in just above my contract price. My lender used an appraiser from Destin, who appeared to do a very thorough job. According to my realtor, all units had appraisals that came in at, or above, initial contract prices. The sole exception was one client who used an out-of-state lender. In this case, they contracted for a 2/2 and the appraisal came in $60K less than what they initially contracted back in 2005. The buyer contracted for their 2/2 for around $550K, meaning the appraisal came in roughly 10% lower than the contract price. The buyer switched to a local lender and then received a higher appraisal on the unit.

Since so many units received favorable appraisals, I am wondering whether or not 1) the appraisers aimed at "hitting the numbers", or 2) Values have not dropped significantly in PCB over the past two years. I wonder which is closer to the truth? Any thoughts?

Little Fish

LF,

If you purchased a $0.5M condo to live in full time and enjoy for the rest of your life, and if you had no intention of making any kind of profit on the sale for years and years to come---AND have the money to comfortably pay the PITI + condo fees month after month after month...what does it matter if the appraisal is right or wrong?

However, if you feel as like these folks in this article (http://www.naplesnews.com/news/2008/feb/02/lawsuits-rising-pre-construction-buyers-want-out-d/) then you may want to dig a bit further and maybe secure a lawyer.

.

 

[Little Fish]

Shelly:

Very interesting article. I have no worries about carrying my mortgage and have no need to get out of my contract. I am closing shortly and am excited about finally owning in the area. I simply thought it was interesting that in a declining market, all units appraised for the original contract prices. If my unit appraised for much less than contract price, then I would be concerned about having to put up more cash.

All is good.

Little Fish

 

[PalmBeach]

Thought I'd update all with my recent experience with an appraisal on my new condo in PCB. Although the initial post on this thread led me to believe that appraisals today were coming in much lower than 2004-2005 preconstruction contract prices, my experience was the opposite.

My appraisal came in just above my contract price. My lender used an appraiser from Destin, who appeared to do a very thorough job. According to my realtor, all units had appraisals that came in at, or above, initial contract prices. The sole exception was one client who used an out-of-state lender. In this case, they contracted for a 2/2 and the appraisal came in $60K less than what they initially contracted back in 2005. The buyer contracted for their 2/2 for around $550K, meaning the appraisal came in roughly 10% lower than the contract price. The buyer switched to a local lender and then received a higher appraisal on the unit.

Since so many units received favorable appraisals, I am wondering whether or not 1) the appraisers aimed at "hitting the numbers", or 2) Values have not dropped significantly in PCB over the past two years. I wonder which is closer to the truth? Any thoughts?

Little Fish

I am a local appraiser and I can assure you that ALL property values in PCB have declined significantly since 2005. If the units are appraising for 2005 prices, the appraisers are definately "hitting the numbers". I see this a lot. Our firm has lost very large amount of business because we provide supportable values based on proper appraisal procedures and analysis.

Our firm does residential and commercial appraisals. I personally only do commercial work. Recently that has included several bulk appraisals of significant numbers of units that developers have been stuck with due to buyers defaulting on overpriced preconstruction contracts.

Some developers are renegotiating prices based on the new appraisals rather than loosing the buyers. Some are sueing for Specific Performance but a judge can't force you to buy a unit that you can't get financed if you do not have the cash for the value difference.

By the way, out of state lenders use local appraisers.

 

[Little Fish]

PalmBeach:

Thanks for your input. Which projects are you aware of where developers are trying to unload units due to contracts falling through? Also, from your perspective, do the developers drop the prices of existing units once folks back out, or do they hold steady? I'm wondering if new units could be purchased at a discount from list price given your comment about the developers with extra inventory on hand.

Thanks
Little Fish

 

[SHELLY]

Shelly:

Very interesting article. I have no worries about carrying my mortgage and have no need to get out of my contract. I am closing shortly and am excited about finally owning in the area. I simply thought it was interesting that in a declining market, all units appraised for the original contract prices. If my unit appraised for much less than contract price, then I would be concerned about having to put up more cash.

All is good.

Little Fish

There should be no problems as long as your lender is willing to go along with a high appraisal or if you are paying with cash. However, lenders are starting to question high appraisals now; many have identified Florida as a declining market and are questioning the numbers--others have pulled out of the Florida condo market completely.

You're obviously feeling in your gut that something may not be quite right.....you wrote, "'According to my realtor,' all units had appraisals that came in at, or above, initial contract prices."----Now, I ask you, what is wrong with that phrase?


.

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[Little Fish]

Shelly:

"You're obviously feeling in your gut that something may not be quite right.....you wrote, "'According to my realtor,' all units had appraisals that came in at, or above, initial contract prices."----Now, I ask you, what is wrong with that phrase?"

I am not worried about anything being wrong. I quoted my realtor only to show what was going on in our building in PCB. Since all buyers (less one) had appraisals that came in at (or above) 2005 contract prices, appraisers validated 2005 pricing in the current market. This fact conflicts with the first post on this thread where John Smith received an appraisal at 60% of the preconstruction value in the Origin building.

This could be good news for potential buyers in PCB since it is not as difficult as one might imagine to purchase units in this market.

Little Fish

 

[PalmBeach]

PalmBeach:

Thanks for your input. Which projects are you aware of where developers are trying to unload units due to contracts falling through? Also, from your perspective, do the developers drop the prices of existing units once folks back out, or do they hold steady? I'm wondering if new units could be purchased at a discount from list price given your comment about the developers with extra inventory on hand.

Thanks
Little Fish

I can't comment on specific projects. I do not know the developers plans. I only report to the bank the current value of the units based on actual closed sales (adjusted appropriately). I then estimate a projected sellout period based on an analysis of the current and expected absorption rate and the amount of current and expected inventory. The value is then discounted for typical holding costs, selling costs, and discounted by an appropriate rate for current value of future income from sales.

My point was that a significant amount of appraisal fraud has taken place, and continues, to close preconstruction units. It will eventually hurt the lenders, and shock the buyers when they try to resell and find that the unit is worth less than they paid. Reputable lenders are relying on the appraisers to be accurate. They have enough bad loans. Pressure usually comes from mortgage brokers and real estate agents.