Appraisals - the dilemma.

[beowulf]

I have mentioned that my daughter and son-in-law are building a 'second' home on our property. We have 90 acres and they love it here, and we are getting older and slower, so it all makes sense. We discussed borrowing $200k to supplement their savings and a bit of help from us. That would be a loan they would be paying on, but as the property is in our names (wife and me) we have to be the borrowers. The cost of the project including well, septic, pad, etc. will be in the $350k range. Anyway, we owe nothing on the property which is worth at least $600k - and I would not sell for less than $900k. It appraised for $450,000 in 2010 or so, and we have since added solar and made other improvements and our particular location is a preferred location in the area.

Our first problem was finding lenders who would lend on more than 10 acres - finally did that - there are very few. So we applied - great net income, 800+ FICOS, no debt, great ratio of loan to value - so we selected a lender who immediately approved the loan - subject, of course to the appraisal.

Well we applied March 4th, had all documents in by March 6th, and since then have been waiting for the appraisal. They kept saying that there were "delays in finding an appraiser in our area" - over and over and over this is the message. In the meantime the construction costs for the home went up by $22,000 due to lumber price increases. I finally pulled the plug on the application with that lender after being told no appraisal was scheduled and they did not know when or if it could be scheduled. I did confirm - by calls to local appraisers - that there is a backlog of appraisal requests. Then I contacted other lenders but none would commit to a reasonable time line for an appraisal. I offered to pay double any appraiser's fee.

I did find one lender who was willing to do a no-appraisal loan (because of the value they saw plus fact that the new home would also be additional security) but they backed out when they saw that the zoning was AG.

Finally, I contacted our own bank (they do HELOCS but do not do conventional loans) and applied for a HELOC - higher interest rate, but interest is only accruing from the draw dates and we intend to pay it off quickly anyway. Last week they called and advised that the first six appraisers they contacted turned the job down but they found one who was willing to do it for $2,500 (the going rate has been about $400-$500), and he could not do it until September (that date is okay).

At this point, we are either going to finance the project ourselves (we can manage that but would prefer not to go that route), or just bite the distasteful bullet and pay the $2,500 appraisal fee. Likely that is what we will do.

Anyway, is this a widespread issue due to hot housing market or a California issue, or a rural property issue? Just wondering. Getting into a first home is an exciting time but it is very frustrating to see our daughter and SIL see the costs go up like this for their first home.

 

[oosik]

I have 80 acres here. We used the profits from the sale of our house in AK to build our home here. Never even considered a loan. Come to find out - later - our bank would not have loaned us money anyhow. Too much land and the zoning is Ag or open range or something like that. Fortunately, we owned this land, free/clear and the profits covered all the costs of a new home here.

We sold in '82 in AK and made an UNBELIEVABLE profit on the sale.

And this all happened forty years ago. With the way the tight ASS*D bankers are now - we probably wouldn't even be invited in the bank.

 

[MoKelly]

My goodness. I feel your pain from your post. It shouldn’t be that hard.

I don’t have lots of answers, and I’m sure post-COVID and California create problems I can’t even imagine.

But:

- we bought our 80 acres in 2008. We paid cash for the land.

- in 2010 we built the house. Our land is zoned as Agricultural. We were able to get a loan normally thru our city banker. Subject to appraisals.

The first appraiser was clueless. Couldn’t use MLS or “nearby sales” to get a value. Was stumped. No imagination whatsoever. They basically told the bank they were unable to value either the house or land.

That was on the bank. They sent their normal appraiser folks out and they were not familiar with anything but subdivisions. We never paid for that fiasco.

Bank wasn’t able to find an appraiser who would do “agricultural” property. Not sure how hard they tried.

So, we asked some neighboring land owners and got a few names. Gave the names to the bank who hired one.

After that, it went great. The land appraised more than the loan - not including the house. Bank approved and the rest is history.

This is in Missouri.

My only idea (which I’m sure you know) is to use a rural bank (familiar with rural real estate) v. a city bank who can be clueless.

A $2500 appraisal is just plain greed and opportunism.

Good luck.

MoKelly

 

[PuffyC]

I would guess it's a little of both. Finding someone who will write a loan on land anywhere can be tough and with the market like it is I'm sure that just compounds the problem. Doing a cash deal is the easiest by far but with interest rates as low as they are now the last thing you want is a bunch of equity if you can avoid it. An extra couple thousand for an appraisal is insulting but in the long run financially irrelevant so that's what I'd do. There's no way I'd finance it myself unless I just had way more money than I ever needed, plus loaning money to friends or family is usually a quick way to make either hate you even though everyone always thinks they'll be the exception.

 

[plowhog]

We discussed borrowing $200k to supplement their savings and a bit of help from us. That would be a loan they would be paying on, but as the property is in our names (wife and me) we have to be the borrowers.

I don't understand this at all. Borrowing to supplement savings? I'm guessing this is a loan you will take out, and be responsible to repay, but you will give them the proceeds and they will repay an equal amount to your payments?

Our first problem was finding lenders who would lend on more than 10 acres

Seems very odd-- such appraisals are very common.

we intend to pay it off quickly anyway.

If the lender knows this you went to the lowest of their priorities-- they want borrowers whose vision is to pay the loan (and interest) over the full entire term.

six appraisers they contacted turned the job down but they found one who was willing to do it for $2,500

Again, very odd. Appraisers are in the business of ... appraising ... and that is how they earn their income. Something about your circumstances has spooked them-- find why so many turned down the job and you have your answer.

Q- are you asking the appraiser to determine a value of your property as it exists today, or a value *after* the theoretical second home is constructed (which doesn't exist yet)?

 

[Sigarms]

I have mentioned that my daughter and son-in-law are building a 'second' home on our property.

Getting into a first home is an exciting time but it is very frustrating to see our daughter and SIL see the costs go up like this for their first home.

Does you Daughter and SIL own a home now?

What I've quoted are conflicting statements. How can this be their first home when they are building a "second" home?

When you were planning on subdividing the land for the house, whose name would it be in, yours or your daughter and SIL?

Land, houses and subdividing can be headache which I've learned first hand.

 

[beowulf]

Does you Daughter and SIL own a home now?

What I've quoted are conflicting statements. How can this be their first home when they are building a "second" home?

When you were planning on subdividing the land for the house, whose name would it be in, yours or your daughter and SIL?

Land, houses and subdividing can be headache which I've learned first hand.

They do not own a home now. What I meant by second home on the property is that we live here now - have our home here - and that the home they intend on building would be the second home on the property.

No subdividing now - we looked into creating two separate parcels but for now just want to build a second home here - their first home.

 

[beowulf]

I don't understand this at all. Borrowing to supplement savings? I'm guessing this is a loan you will take out, and be responsible to repay, but you will give them the proceeds and they will repay an equal amount to your payments?


Seems very odd-- such appraisals are very common.


If the lender knows this you went to the lowest of their priorities-- they want borrowers whose vision is to pay the loan (and interest) over the full entire term.


Again, very odd. Appraisers are in the business of ... appraising ... and that is how they earn their income. Something about your circumstances has spooked them-- find why so many turned down the job and you have your answer.

Q- are you asking the appraiser to determine a value of your property as it exists today, or a value *after* the theoretical second home is constructed (which doesn't exist yet)?

They have some savings and the loan would supplement their savings and they would be paying the debt service on the loan, i.e., we pay the loan, they pay us.

None of the lenders was ever told anything about how soon we planned on paying off the loan.

It appears it is not our circumstances that has caused the issue (other than being in a rural area) - everyone I have talked to says the same thing - appraisals are way backed up. Still, I figured we could get someone out here if we paid twice the fee. In 2010 the appraisal by our bank was done within about two weeks.

Only asking for current value. And then only for the value of 10 acres as that is what they lenders say would be appraised - even though the entire property would be security.

 

[NoTrespassing]

I borrowed from a bank that specialized in land loans and keep loans "in-house". I went with a 10 year balloon payment loan and used land as collateral. I think you just need to find the right bank. A handful of states have banned consumer balloon payment mortgages.

Kevin

 

[Sigarms]

No subdividing now - we looked into creating two separate parcels but for now just want to build a second home here - their first home.

We looked at putting a small home on our property for my MIL after my FIL passed away earlier this year.

I thought it would be a simple process.

It's not, became a major headache on playing "what if down the road" scenarios, and we all (MIL included) decided against it because the property would go in her name.

Long story and personal experience, how much land was going with the house? I know I qualified for 500k on my first home when looking for our first home with my new wife, but once I threw land into the deal, I had to go with the farm credit bureau because the credit union wouldn't touch it even though it was a bigger nicer house, but with more land the credit union didn't want to touch it.

I think the issue may be there may be more variables in your process than people are use to dealing with. Keep in mind, I don't know what I'm talking about, but it's free advice

If you have the money and capital, there has to be a way.

Heck, just add an "addition" and have them move in. We even thought about that with our MIL.

Next question would be what if you just sold them a small piece of property at a family special rate and have it subdivided in their name and let them build and loan them the money from the land sale? Hey, don't know what I'm talking about, just thinking out loud