Square footage and bank apprasials

14 years ago

I have my house listed almost 2 months. I'm confused about comps vs. price per sq. footage. The way I understand it, houses are listed by price for sq ft. If a house sells for a higher amount, it raises the price per sq. ft. Bank appraisals are based on that price. If an accepted offer is for a higher amount, the bank may not appraise at that amount.

My confusion is, what is the point of a listing price if it is above the current price per sq ft? It appears that you must price your house accordingly or your house won't appraise.

There is a large volume of homes for sale. Sellers are dropping their prices as many are desperate to sell. Those houses are selling but houses in the higher bracket are selling more slowly. The sale of the lower priced homes are dictating the price per sq ft.

The price per sq. ft is based on an average of houses sold. Lower priced houses are selling faster. They are lowering the price per sq. ft. So, it seems it doesn't matter how good your house it, a buyer can only get a mortgage based on appraisal which is based on price per sq. ft.

This seems unfair to me as a seller.

Jane

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Comments (9)

brickeyee
14 years ago
Price per square foot is used to adjust between comps, not as the sole basis of an appraisal.

It is more like a small adjustment, 10% more square feet could justify a price adjustment (often less than 10%).

It also gives some confidence to an appraisal if the per square foot price is in line with recent sales in the same area.

Commercial work lives and dies by the square foot.
jane__ny
Original Author
14 years ago
I guess I need Real Estate education. I just don't understand it. If everything is priced per square foot, why aren't houses just priced that way?? No negotiation, as there is no point if the bank only appraises that way.
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Thanks everyone for your posts. Big thanks for dreamhome for his detailed post. Our lot is in old, mixed neighborhood. We have a 400k property adjacent to ours, we also have 150-200k properties next to us. Overall, we think of our neighborhood as "nice", not upscale by any means, but not ghetto either. However I don't really understand what does neighborhood has to do with cost of construction. The construction process and cost of materials should be the same for any neighborhood, right? (we do own the land already) Our first house was fully custom - everything in it was custom, floor to ceiling windows,open staircase, heated floors etc... Unfortunately, in my town everybody was just scratching their heads when I showed them elements of the house I wanted to build, and they said "uhhhhhmmm, never done this before, don't know how much it will cost, need one month to research". I forgot I don't live in major metrolpolitan area where people are used to something more than Walmart. I looked over at least 50 000 stock house plans, every single house plan site on the first 100 pages of google, exclusive plans and so on... I checked local construction firms plans, we found one plan that was very pretty outside, while offering all the space we need in a small square footage package, and we fell in love with it (we're very picky) and we want to stick with it. It's a pretty stock plan that doesn't require anything fancy, and we don't want hardwood floors, carpet is fine with us. Two-three years ago my cousin built their own house (2300sq ft) for 120k. Now they were fighting for every dollar of course, getting competitive quotes for everything, really getting the best deal for every single service and material... and in the end they built their house (pretty decent house dare I say) dirt cheap. Which makes us wonder if we should just forgo hiring greedy contractors altogether and just... do it ourselves. I have the winter coming, good time to read construction books and educate myself... I will of course have my select contractors bid against each other, but if they don't go down in their quotes much...
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brickeyee, ANSI is not required by USPAP; but the appraiser may be required to use it as an assignment condition. Be that as it may, most reputable appraisers do use the ANSI method, as it is a proven standard, and therefore defensible, and avoids the problem experienced by jane ny...as well as the myriad of complaints that home buyers have regarding SF differences on MLS listings, tax assessments and appraisals. There really is no good reason to NOT follow a standard....other than perhaps an inability to learn. That said, excerpt from link below: ".....Appraisers are not required by USPAP to comply with ANSI Z765, which is a voluntary Standard. However, use of the ANSI Standards may be an assignment condition in some assignments. Although appraisers are not required by USPAP to adhere to a specific standard of square footage measurement, appraisers are required by Standards Rule 1-1(b) to not commit a substantial error of omission or commission that significantly affects an appraisal. This rule requires the appraiser to gather factual information in a manner that is sufficiently diligent. Standards Rule 1-1(c) requires appraisers to not render appraisal services in a careless or negligent manner. Appraisers must use due diligence and due care in performing appraisal services, including gathering factual data such as square footage." That said, jane, I would question both appraisers. If one used ANSI..and the other did not, chances are that is the correct SF. Here is a link that might be useful: Uniform Standards of Professional Appraisal Practice 2008-2009
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Is it possible the house was always 1729 but when things went computerized someone punched in the wrong last numbers? Think about it, you have someone inputting data, after a while stuff happens. I've punched in wrong numbers / letters before working on something in word or my medical data base, people are human. Unless you have old tax bills or surveys, hard to pin-point the exact year it happened. This happened to my dad on his 2 family house. We found out when he went to sell it. We were told not to worry about it since he was paying taxes on the smaller 40 x 100 lot instead of the larger 80 x 100 lot. They said it would get fixed during the sale. I used to argue with my dad. He swore his taxes wouldn't change (higher) if we went and fixed it at the tax office. I told him it most certainly would, but since he was sick, would give up. Why would the town tax him on a 40 width, when they could make more cash on 80? When you have the 2nd appraisal done take both to the tax office and show them. They may have to eventually look in the paper file if one exists. With my dad's house he'd saved everything since buying the house in 1967 so we were able to see where the error was entered. IIRC it was the late 90's / early 2000. No, chances are you won't see the excess money.
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terezosa / terriks
14 years ago
Not all square footage is created equal. Obviously a 2000 square foot custom built home with 10 foot ceilings, hardwood and stone floors, granite counters, cherry cabinets and high end appliances, etc.is going to cost more than a 2000 square foot tract home with builder grade carpet, vinyl and laminate counters.
cordovamom
14 years ago
The land the home sits on is also a thrown into the equation. A 2000 sq ft home on a 1/4 acre lot will probably appraise for less then a 2000 sq ft home on a wooded acre lot in some instances. Also age of the home has a part in the appraisal process. There are so many variables that a straight square footage price just isn't feasible in a lot of areas.
brickeyee
14 years ago
"If everything is priced per square foot, why aren't houses just priced that way?? No negotiation, as there is no point if the bank only appraises that way."

Have you ever actually read an appraisal?

They are NOT based just on square feet.
kgsd
14 years ago
If pricing was as simple as $ per sq foot, homes would never increase or decrease in value. There are always homes that set a record for highest selling price in their neighborhood. In fact, my neighbor's house recently did that. I don't know for a fact that the buyer had a bank appraisal but it's pretty likely they would've.
eandhl
14 years ago
Sq. footage is the starting point. Then they add this and that subtract for this or that etc. # of baths, FP or 2, garage, finished lower level, solid surface counters, tile, hardwood floors, type of construction, plaster walls. Decks porches & views.
Billl
14 years ago
An appraisal doesn't set the selling price either. Most banks will only lend up for some percentage of the appraised value. As an example, assume a house appraised at 100k. A particular bank might only lend up to 90k for that house. Lets say the negotiated price is 102k. The buyer would have to come up with 102k-90k = 12k (plus all the fees etc) to complete the purchase.

Of course, many buyers might back out of a deal if the house doesn't appraise for the purchase price.
sweet_tea
14 years ago
appraisals also differ by location.

For example, a new home builder could have several subdivisions located all over a large metro area..with some of the subdivisions being maybe 75-100 miles apart. Maybe some of the subdivisions have the exact same model/floorplan with the exact sq footage. Maybe by chance, the homes are the same age and have the same options.

But the same model in town A could appraise for $50k more than the exact model in town B, which are 75 miles apart. Why? Maybe town A has better schools and/or is a more expensive town that has a better location due to proximity to certain things, maybe closer to the mountains or sea or something.

Square footage and bank apprasials

Comments (9)

brickeyee

jane__ny
Original Author

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Square footage and bank apprasials

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jane__nyOriginal Author

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jane__ny
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