Ronda Kaysen in Co-op/Condo Buyers on July 10, 2012
Low Bidder, Low Appraiser
Under the agreement, lenders must now use an independent vendor who selects an appraiser for the bank. And one unintended consequence was that vendors chose the cheapest bidder. And the cheapest bidder generally didn't have an office in Manhattan.
Instead, appraisers from far-flung corners of New York State who were cheaper than their urban counterparts began appraising properties in the city. Frequently, they were unfamiliar with the local terrain and discounted neighborhood nuances such as the difference between Washington Heights and Inwood.
"Initially, it was a shock to the system," says Michael Vargas, owner of Vanderbilt Appraisal Company. In one case, an appraiser who lived two hours outside Manhattan appraised an East Village two-bedroom co-op, which would have been fine had he looked at the correct unit. Instead, he looked at a different apartment and compared it to a one-bedroom. The final report had the wrong floor plan and the wrong photos. But the bank stood behind the appraisal and denied the buyer a loan.
"Logic doesn't apply. It's an unreal, dysfunctional situation," says Jonathan Miller, president of the appraisal company Miller Samuel. In the case of the East Village property, the realtor called Miller asking him advice on how to handle the inaccurate appraisal. Miller's suggestion: Go to another bank and start over. But going to another bank means the buyer foots the bill for a new appraisal, which costs between $350 and $550.
Although vendors are now choosing appraisers with a better knowledge of the local market, appraisals are still low since, un a recovering market, an appraisal is a backward look. As well, appraisers are skittish about repeating the mistakes of the real estate boom. So, they tend to skew conservative.
Bottom line: Use an appraiser who knows New York City. The extra couple of hundred dollars they cost can mean a realistic value thousands of dollars higher than otherwise.
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