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

 

[beowulf]

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.

Puffy, what you say lines up with my thinking. We could finance without a loan but a loan made sense because of the interest rates right now, and because I am 77 and want to protect funds for my wife when I am gone, because I want our daughter and SIL to be a bit more directly involved in the finances, and finally - and this is important - we have another daughter and we have always managed things fairly between them- I told the home building daughter that whatever we 'give' them I have to find a way to impart similar value in some way to the other. They understand this. So, in a way, if we use savings for this build, it costs us twice as much as we have to give the same amount, at some time and in some way to the other daughter.

We have always been willing to help, as both daughters have turned out really well, they both worked two jobs during college, have always found jobs on their own, and mostly paid their own way. After college we told them we would pay their car insurance and cell phone bills for six months and they had to take it over then. Same with other things. It has worked out well. We also gave them each $500 into a Vanguard account at HS graduation, explained investing, and how contributing would build that up. They have contributed over the years and now, they each have over $60,000 in those accounts - part of their current savings.

 

[mx1alex]

Not sure if this would be any help to you at all but I have a coworker who just bought a house on 20 acres outside of Fresno and he got his load through National Grange (I had never heard of it). Home - The National Grange

He had to join the organization but said it was worth it compared to getting a loan through a traditional bank. They are more ag/rural based than typical lending institutions.

 

[beowulf]

Not sure if this would be any help to you at all but I have a coworker who just bought a house on 20 acres outside of Fresno and he got his load through National Grange (I had never heard of it). Home - The National Grange

He had to join the organization but said it was worth it compared to getting a loan through a traditional bank. They are more ag/rural based than typical lending institutions.

Thanks - I will check that out. A couple of lenders that could not make loans on more than 10 acres suggested something called USDA loans as they made loans on larger rural parcels. I looked into that as well, but it appeared that they only made loans to low income borrowers - though there are different programs apparently. I found a list of USDA lenders online - talked to two of them - both said they no longer made USDA loans. I should probably check into that a bit further. Anyway, about that time I decided to go with a HELOC at my local bank- I have had a HELOC with them for years - $80k - never used - and it is being phased out 8-3 (I have to draw on it before then or reapply). It was behind a first which has since been paid off. So it is a new HELOC that I am applying for - actually an increase in the HELOC to $250k - which is linked to the $2,500 appraisal cost - 10% of the loan amount.

 

[ponytug]

@beowulf Well, FWIW, we used our local credit union, twice. The first time, the appraiser took a photo of the front gate to compare it to other rural gates. The second time, recently, the appraiser wanted a photo of every room, but then did comparables to properties that left me head scratching as to why on earth the properties were related, beyond the fact that they had four walls and a roof, (different acreage / sq.f.t / bedrooms / location (suburban vs rural)), and neglected to include a similar sized property house that sold within the last three years two doors down. So, not impressed with the appraiser's talents either time (wildly different values, I might add). Our credit union didn't have trouble with the acreage, nor the fact it was rural, nor that it was ag and under an agricultural covenant (Williamson Act) when we bought it.

The thing that strikes me is that in the event of you and your wife's death, daughter #1 could find the change in title/mortgage costs challenging, and negotiating how to do right by daughter #2 at that time might get complicated, and that might bear some advance thinking now, rather than later, but I am not a lawyer.

Again, FWIW, locally, I only know of USDA loans for disadvantaged farmers, and commercial ag business.

All the best,

Peter

 

[civilian]

When we purchased our 80 acres, 3 1/2 years ago, we used savings and took some money from our investments. We sold the house 6 months later and used that to finance the home build. When we got to the garage and workshop buildings, we used Greenstone Farm Credit Services here in Michigan. They lent us money based on the township's appraiser's value we pay tax on. Greenstone never visited the property or had anyone come out. Did they look at county tax records, no idea. We tried the local bank we have used for over 30 years and their appraiser came out. He turned the loan app down because house was not finished. County building dept gave us occupancy, but trim was not done, nor all the cabinets built. The guy at the bank we were working with knew that ahead of time and didn't think that would be a problem. Well we paid for the appraisal, and maybe some other loan app fees and got nothing in return. UGH! So we found Greenstone. They even called us suggesting to refinance a year later to save us some time and dollars. My suggestion, if they are available to your area, look them up. Jon

Edit, we are zoned forest recreation or farm recreation. Big animals are aloud.

 

[plowhog]

You have mentioned "10 acres" a few times. What is the significance of that compared to your 90 acre parcel?

 

[Larry Caldwell]

My wife and I went through that back when we owed money. We refinanced to a lower interest rate, and no banks wanted to deal with us. WaMu was agreeable, but sent out appraisers straight out of Children Of The Corn who low-balled our appraisal about 50% and wanted multiple inspections. There was a mortgage broker across the street from my office, so I walked over. One credit check, one financial statement, and we had a mortgage. The funny thing was that 6 months later Wells Fargo bought the mortgage. They were one of the banks that wouldn't talk to us.

At the time, our credit union was not writing mortgages. If I were to do it again, that is the first place I would shop. I don't know about banks, because I haven't used one in 40 years. I went from a S&L to a credit union. Banks are too expensive and have horrible customer service.

 

[beowulf]

Well, FWIW, we used our local credit union, twice.

The thing that strikes me is that in the event of you and your wife's death, daughter #1 could find the change in title/mortgage costs challenging, and negotiating how to do right by daughter #2 at that time might get complicated, and that might bear some advance thinking now, rather than later, but I am not a lawyer.

Again, FWIW, locally, I only know of USDA loans for disadvantaged farmers, and commercial ag business.

All the best,

Peter

Tried the credit union as well - two issues there - first they won't loan on over 10 acres, and the second was that they are limiting their 'cash-out-refis' to $50k.

You are spot on re the challenges when my wife and I are both gone. We have some of that put together - and working to revise that a bit. Currently, to keep the property in the family, there are life estates to daughters, with property ultimately going to the grandkids, and with some insurance money and cash assets being used to even things out to any extent necessary - i.e., that can be a way for one to buy the other's half interest at a fair value if dividing and selling is not desirable. It's a work in progress and I continue to play the "what if" game, what if this, what if that. . . and trying to address any contingency fairly. There are many more considerations - it is the existing home that has all the amenities - barn, pool, pool house, tennis court, grounds and landscaping, orchard, green house, garden, orchard, tractor and tractor shed, and more. The daughter who wants to build on the property wants to do so because she enjoys the 'ranch- rural experiences, but when we are gone she will have to decide if she wants to move to our home (the ranch experience), or stay in the new home - a nice home but not much more. Just one more 'what if' to think about. The other daughter likes to visit but wants to stay in the city.

 

[kthompson]

You will find both lenders and insurance companies look at the acres and will back off of what they consider a farm as it just does not fit their business model in the ability to sell the loan or insurance risk with the reinsurance market.

However for farms, a simple "Farm Loan" search should bring up a few options. Yes the Federal Government does true farm loans. Not sure the name of they now use but Federal Land bank made the loan for our first house on our rural land in the mid 70's. Arbor One here will make farm loans but no idea where all they are. They are NOT funded by the Federal Government I understand. Call your county agent's office and ask them for the Federal Government lenders name and phone numbers. Most likely they have it.

 

[beowulf]

You have mentioned "10 acres" a few times. What is the significance of that compared to your 90 acre parcel?

plowhog, two things seem to be involved: 1) a number of the lenders (actually almost all) we have contacted will not make loans on parcels larger than 10 acres - that may have to do with selling the mortgage to Fannie or Freddie - I have heard that F or F do not always want loans with large parcels in the packages they buy - so it is a complication that lenders don't want to get into. And 2) When we have obtained appraisals in years past they have always advised that they only appraise up to 10 acres for loan purposes, i.e., the value they come up with does not consider the value of the rest of the parcel (in our case, the other 80 acres) even though all the property would remain as security for the loan. That was going to be the case now as well, as any appraisal would only be for the home and such and the surrounding 10 acres. I don't know for sure how they do that because there is no formal survey or marking off of 10 acres - I guess they only use properties of 10 acres in size as the comps.

Independent lenders - those who keep their own notes and service the loan will loan on more than ten acres - that is the case with the lender we applied with - but although they approved the loan immediately - it was subject to an appraisal which they cannot get done and so here we are.

We have no problem with them only valuing ten acres. . . if we could just get them - someone - to do the appraisal.

I did find a lender whose business model was to make loans without formal appraisals - they evaluated the property (desk appraisals) using online resources. They said they did this because it was a needed niche given that appraisals industry wide were taking months - they found that this worked well for them. I think they loaned only 50% of the desk appraisal- their safety margin. But then they withdrew from us because the zoning is AG. Anyway, I am probably going to pull the trigger this week on the HELOC and pay the $2,500 for the appraisal and be done with it - not a lot of choices.