What’s in an appraisal form? Evidence the real estate industry hasn’t caught onto the demand for walkable, bikeable placesby Emilie Bahr
When my husband and I set out to buy our first home together last year, we were pretty shocked to find out just how little we could afford in our rapidly-gentrifying city.
Gone are the days in New Orleans where you could find a peeling shotgun for a steal. Despite sluggish economic times elsewhere in the state, the real estate market here is going gangbusters, to the point where my husband and I started to worry that the only places we would be able to afford would be found out in the suburbs. This, however, wasn’t an option for us.
As fairly typical members of our generation, we have long been enchanted by the trappings of city life and more than willing to sacrifice square footage and a big yard (who has time for maintaining a yard anyway?) for architectural character, lots of places within walking and biking distance, and colorful streets populated by people from all walks of life. And after spending the previous year in an apartment fronting Bayou St. John, we were pretty well set on staying in our neighborhood, with its ample recreational and social opportunities, warm, bohemian vibe, and which plays host each spring to the New Orleans Jazz and Heritage Festival.
Among its most alluring attributes for my husband and me is the fact that it is crisscrossed by sidewalks, surrounded by bike lanes, and just a short trip by foot to the city’s first greenway. It also lies in close proximity to lots of places to walk and bike to: restaurants, bars, and grocery stores, the French Quarter, both of our jobs, and one of the largest urban parks in the country.
Just when we started to think sky-high real estates prices would render us eternal renters, we stumbled with the help of a Realtor friend onto a broken down craftsman cottage right on the edge of our neighborhood of choice. It oozed character, with its soaring, 12-foot ceilings and beautiful hardwood floors, transoms above all the doors, abundant windows that bathed the inside in light, and a sprawling front porch on which we envisioned spending languid evenings chatting with neighbors and passersby. As a bonus, the house was a few minutes’ walk to our favorite brunch spot.
Given all its positives, we were willing to overlook some of the less savory aspects of our future home: the back addition on which generations of termites had feasted; crumbling piers and joists that left the house listing ten inches from front to back and that would require some serious foundation work; the creepy blighted house next door. The house was a gut job, and soon, sales documents and architectural plans in hand, we found ourselves in the midst of a major renovation project.
This being my first home and first renovation, I knew nothing about financing going into this deal. We were fortunate to have the help of a savvy banker friend to navigate a rather convoluted system. We would take out a temporary construction loan to buy the house based on the future estimated value of the renovated property. Upon completion of the project, we would convert our loan to a standard, 30-year mortgage.
This scheme carried some risk. After all, home values are susceptible to fluctuation, as we all learned with the global financial collapse of 2008. Our plan counted on the market not diving into a tailspin before we finished work on our home. It also assumed the final appraisal would be in line with the first.
But when the initial appraisal came back, we had plenty of reason for confidence. The projected future value was well above the money we expected to spend on our renovations, so much so that we even threw a few extras into our plans.
Several months and plenty of construction-induced frustration later, it was time for the final step in our financing plan: conversion to a standard mortgage. Everything we needed was in place, with the exception of a second appraisal to verify that we’d done the work we’d promised. It seemed a mere formality, and we set up a time to sign the final documents with our lender.
So it was quite the shock when a couple days later, we received the second appraisal. It was more than $100,000 shy of the original and totaled less than what we’d already invested in our home. If the appraisal stuck, we were poised to be underwater before we even moved in.
Fortunately, the appraiser’s report was riddled with glaring omissions and oversights. She hadn’t even gotten the size of our home right. But as striking were the metrics used to assess our home’s worth.
None of the attributes that had so appealed to my husband and me – from the architectural details to the ample options for getting around by means other than driving – were accounted for in the report. Instead, it was counted against us that we had merely a single-car driveway, even though a driveway at all is a rarity in our part of town, largely built out before the rise of the automobile. As a selling point, the appraiser noted our house was “a ten-minute drive to the interstate.” Our property value, it was clear, was being measured against “amenities” found in the suburbs. As such, it didn’t measure up very well.
It turns out the “uniform residential appraisal form” doesn’t just lend itself to a remarkably high degree of subjectivity; it also doesn’t necessarily account for many of the things that people of my generation (not to mention those who belong to the rapidly-aging Baby Boomer contingent) are looking for when deciding where to live.
Fortunately, for another $500 fee and a new mortgage broker, we were able to secure a third appraisal. This time, I held my breath before opening the report. I had reason for optimism as the new appraiser had during his visit rattled off many of the attributes we’d fallen in love with in our home and neighborhood and pointed to strong comparable sales nearby.
When I read the appraisal figure in my office, my scream prompted a coworker to pop her head in the door. It was $150,000 higher than the previous appraisal, higher even than the original.
“Prices in your neighborhood,” the appraiser told my husband, “are going up.” And I have to think that this is in part thanks to the growing demand for walkable, bikeable places, which in this country at least are in short supply. Even if the industry hasn’t fully embraced the trend, the market, it seems, has.
Emilie Bahr is a writer and urban planner who lives in New Orleans. She is the author of the book Urban Revolutions: A womans guide to two-wheeled transportation. Follow her on Twitter @EmilieBahr.