“Don’t I Tell You This Every Six Months?”
Gary, I had to laugh at myself when I read that. I hadn’t thought about it before, but you are absolutely correct. And, I don’t think I’ve ever addressed the particulars of our situation, but I feel that I owe you an explanation of sorts. I mean, ever six months you give us advice, and six months latter I’m whining about it again. It hardly gives you the impression that I’m actually paying attention. Besides, I’m afraid that you’ll start thinking of me as that “special needs” houseblogger forever stuck in remedial math if I don’t.
So, the short explanation is we don’t have the 20% equity in the Devil Queen.
The longer explanation is that the peculiarities of buying a house for $1.00 and moving it when you are 25 and don’t have money makes for a very complicated transaction. To date we’ve had three loans on the Devil Queen. The first loan covered moving the house and piecing it back together. Once the Devil Queen was in one piece with a roof, we took out a second loan. This loan paid off the first loan, paid off the land the Queen was situated on, and gave us a nice (but utterly inadequate) amount to rebuild the house. Once this money ran out, we took out a supplemental (third) loan which is technically separate from the second one.
Now, it is actually a little more involved than that, but that covers all the major parts. Before we started this project, the bank had an “as-if [finished]” appraisal done on the Devil Queen. Personally, we think the appraiser’s “as-if” value was low-balled. However, even if we only meet the “as-if” value it will pay off our sundry loans and get us a real mortgage.
To achieve this minimum value, we absolutely must paint the outside of the Devil Queen (and our insurance premium will go down by 75%, another story). While you’re correct about appraisers not caring about the interior finishes (wood, paint) if all the major systems work, it will still give you a lower value than a completed house.
This brings us to yet another problem which is appraisers (at least in our part of the world) hate old homes. As a reformed real estate appraiser, I can attest from experience that old houses take more work than new houses because they are atypical.
Since the majority of the appraised value of a home is based on the "comparison approach" (i.e. finding similar homes who have sold in the last 6 months, making adjustments for minor differences, and developing a range of value), find at least three homes to your atypical freak-house is a challenge.
For example, the first appraisal I ever worked on was a two-story 1900's Carpenter Victorian farmhouse with 74 acres and a saw-mill. As you might have guessed, there are houses exactly like this everywhere. Typically, you end up using at least five or six (or more) comparables, extending the range of search in distance & time, and writing lots of addendums. It was not pretty.
We’re worried that even if the house is completed inside and out that the appraiser will arrive at a low value because they won't do what I would consider a good, thorough job on the appraisal. This gets us into another convoluted discussion which I'll pass over. The short version of the problem is this:
Is a house that was built in 1890 and moved to a new site with lots of major improvements (new foundation, new septic, new plumbing, new wiring, new AC/heat, new roof, new paint, new bathrooms & kitchen, new floors, refinished floors, new porches, with two additions, and 25% of the original siding replaced) more comparable to a house of average plus constructing that has an effective age of 5 years +/- or another old house of similar age?
What is the difference between the two houses in the hypothetical above? About a fifty percent difference in value from what I've seen. This could make a huge difference when it comes time to get the Queen a mortgage.
Anyhow, I hope this explains things. I figure that we can pull it off (in some fashion; we still have a few tricks up our sleeve), but I just don't like anything we're having to do to achieve it, boohoo. Yeah, I know, no one ever said life was easy. So, time for the stiff upper lip & muddling through or what the hell ever.
So, the short explanation is we don’t have the 20% equity in the Devil Queen.
The longer explanation is that the peculiarities of buying a house for $1.00 and moving it when you are 25 and don’t have money makes for a very complicated transaction. To date we’ve had three loans on the Devil Queen. The first loan covered moving the house and piecing it back together. Once the Devil Queen was in one piece with a roof, we took out a second loan. This loan paid off the first loan, paid off the land the Queen was situated on, and gave us a nice (but utterly inadequate) amount to rebuild the house. Once this money ran out, we took out a supplemental (third) loan which is technically separate from the second one.
Now, it is actually a little more involved than that, but that covers all the major parts. Before we started this project, the bank had an “as-if [finished]” appraisal done on the Devil Queen. Personally, we think the appraiser’s “as-if” value was low-balled. However, even if we only meet the “as-if” value it will pay off our sundry loans and get us a real mortgage.
To achieve this minimum value, we absolutely must paint the outside of the Devil Queen (and our insurance premium will go down by 75%, another story). While you’re correct about appraisers not caring about the interior finishes (wood, paint) if all the major systems work, it will still give you a lower value than a completed house.
This brings us to yet another problem which is appraisers (at least in our part of the world) hate old homes. As a reformed real estate appraiser, I can attest from experience that old houses take more work than new houses because they are atypical.
Since the majority of the appraised value of a home is based on the "comparison approach" (i.e. finding similar homes who have sold in the last 6 months, making adjustments for minor differences, and developing a range of value), find at least three homes to your atypical freak-house is a challenge.
For example, the first appraisal I ever worked on was a two-story 1900's Carpenter Victorian farmhouse with 74 acres and a saw-mill. As you might have guessed, there are houses exactly like this everywhere. Typically, you end up using at least five or six (or more) comparables, extending the range of search in distance & time, and writing lots of addendums. It was not pretty.
We’re worried that even if the house is completed inside and out that the appraiser will arrive at a low value because they won't do what I would consider a good, thorough job on the appraisal. This gets us into another convoluted discussion which I'll pass over. The short version of the problem is this:
Is a house that was built in 1890 and moved to a new site with lots of major improvements (new foundation, new septic, new plumbing, new wiring, new AC/heat, new roof, new paint, new bathrooms & kitchen, new floors, refinished floors, new porches, with two additions, and 25% of the original siding replaced) more comparable to a house of average plus constructing that has an effective age of 5 years +/- or another old house of similar age?
What is the difference between the two houses in the hypothetical above? About a fifty percent difference in value from what I've seen. This could make a huge difference when it comes time to get the Queen a mortgage.
Anyhow, I hope this explains things. I figure that we can pull it off (in some fashion; we still have a few tricks up our sleeve), but I just don't like anything we're having to do to achieve it, boohoo. Yeah, I know, no one ever said life was easy. So, time for the stiff upper lip & muddling through or what the hell ever.
posted by John | 3:37 AM
4 Comments:
None of this makes much difference here in California - you're buying the land and location, not the house. Appraisers don't care much about built-ins and moldings, just square footage and number of bedrooms and baths for comps. Banks will often accept drive-by apraisals. Insurance companies are a bit tougher.
I don't deal with banks anymore. They will always exploit a homeowner if they can. My loan broker finds the best loans and works with an appraiser to make the numbers work. Most of the time banks pay her a finders fee (her motivation), so the cost to me is low. It's a very incestuous industry.
Your complaints about the house driving all of your life decisions resonate with me. I'm totally swamped by my restoration projects. Four years now, every weekend and four nights a week. I used to travel with friends, go camping, go to the gym, sleep in on weekends. No, I had to buy 4 houses, thinking they needed me to save them. I work a day job I don't enjoy much to support them (if the Queen is your mistress, I have a harem). I've even put off having kids because of them. At least at the moment I don't have a bank breathing down my neck.
I wish you luck turning things around by Spring. If the blog has suffer, so be it. Just post occasionally so we know you aren't trapped in a crawlspace. And take lots of pictures.
This brings us to yet another problem which is appraisers (at least in our part of the world) hate old homes.
I find it unbelievable the number of people I encounter who have the same low opinion of an old house. Comments such as "What a nice starter home", or "cant you just wait to get into something newer", stream endlessly from all we meet.
The local realtors are constantly stymied by the market apathy. A great old house will enter the market, list at a competitive price and sit for months. Home inspection by prospective buyers will bring up the most inane details that break deals - "dirt floor in basement", "inadequate insulation" etc. as if the sellers weren't aware they there were some headaches with such period residences. More importantly it raises serious questions about the buyers – what the hell did you think you were getting into? If you aren’t willing to work with an old gem, then buy a new house, install the fancy plastic dental moulding, smoosh the walls and live contently in your cookie-cutter paradise.
As for us, we’ve had great support from the bank. Our nice representative sits on the heritage board…
Continued support and luck!
David,
Loan broker? I've never heard of such a thing. Are those fairly common or something you'd be more likely to find on the East or West Coast?
Wow, a harem. My manhood shrivels at the thought of it. Really, I keep forgetting that you have FOUR houses; it's too traumatic to think about and I block the whole image. Best of luck to you, I suspect that you may need it more than me.
Michael,
Thanks! That is pretty cool about your rep being on the heritage board too. Wish we were so lucky.
It must be a South thing, because appraisers here don't seem to know what to do with an old house either. Our town is so tiny it made things worse. Our comps were both 1970s ranch houses, neither of which were comparable in size, style, age, area of town, or pretty much any other factor.
I'm sorry to hear of your difficulties. I don't get to see Darwin on weekdays for two weeks out of each month (he works nights half the time), so I feel your pain. At first I'm okay, but by the end of the week, I really start missing him and then I'm desolate if he has to do something without me on the weekend. It's not a good situation, but we're stuck with it for the long haul.
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