In July, The Grandmont Rosedale Development Corporation listed a magnificent stone home for $135 K. Within a week, there were five offers placed, and GRDC began pursuing one for more than the ask—$150 K! Sounds great right? It should have been, but the home is still for sale and the deal is dead. What happened? It's a typical Detroit story: an appraiser gave the house a very low estimated value that killed the deal. If you've never been through a home appraisal before, you may not realize the power that one person can have to make or break a deal. In this case, an appraiser based in Canton was assigned to put a value on the Detroit home. The owners were using a traditional mortgage to fund the $150 K purchase, so they needed the appraisal to agree on value. Banks won't lend out more money for a purchase than an appraiser says a home is worth.
In this case, the appraisal on the recently renovated home was most unkind. The appraiser put the value at only $80 K. This meant the would-be buyers couldn't be loaned the amount they needed to buy. GRDC asked for a second opinion from an appraiser but it was denied. The estimated value of the home stayed stuck at $80 K even though another buyer had put an offer in at $140 K and two had been willing to pay $135 K. We called Tom Goddeeris, Executive Director of the GRDC to ask about why the appraisers opinion of value was so different from what buyers were willing to pay.
Tom thinks that three factors contributed to the low opinion of value. For one, the appraiser noted in the write-up that homes in the surrounding area had been declining in value over the last six months. Tom argues that this is not true. However, once that opinion was being used as fact, this allowed the appraiser to consider a house that sold six months ago as worth even less now. Usually, appraisers use comparable sales to show that recent sales of a similar size and character carry the same value. In this case, stronger recent sales didn't help at all. Secondly, Tom explains that the comparables used were not even homes of a similar size: they were much smaller. So this also led to a lower value being placed on this house. Lastly, the appraiser used the proximity of a highway to argue that the area was not worth much. While the home is one block over from the Southfield Freeway, it does not face it. More importantly, Tom says it is unusual for an appraiser in this neighborhood to put so much weight on that factor; other recent sales have not been affected by it.
Then there are the general post-foreclosure crisis trends at work. Crain's recently wrote about the trouble of finding comparable sales at all in Detroit's slow sales market. There's also pressure for appraisers to be conservative in values given the over-lending of the early 2000s.
When we spoke earlier today, Tom sais that GRDC is following up with the other first-round offers, but as of this post the home is on the market for others to place offers. GRDC does not want to sell it for a value that will hurt the comparable values in the area, so they may take it off the market if they cannot secure something for close to $135 K. The problem with pursing other buyers that need mortgages is that there are no guarantees on how the next appraisal will go. Of course, a cash offer which did not need a bank to sign off on the home's value would certainly solve some problems. To recap, this is a four-bedroom 2,482 square-foot house with an extra large living room, a paneled library, a remodeled kitchen, and a basement with a fireplace and bar. So if you have that $135 K sum laying around, GRDC would really like to hear from you. STAT.
· Magnificently Renovated Stone House For $135 K [Curbed Detroit]