redrockglass

I am sorry for posting such an off topic question but I don't know where else to post it.

I am relocating to San Jose and I was told that the appraisals that are done on the house are not what the houses sell for.

In other words, a house can appraise for 800K and it will sell for 1.6 million. Is this true?

I don't understand how people would get loans if the house appraisal is so off from the asking price.

Can someone tell me if this is true? How hot is the housing market in the area? Are they thinking it will be slowing down soon?

Thanks for reading my post.

nytraveler

Don;t know how this works in San Jose. But a friend of mine who bought an apartment about a year ago paid a much higher price than the apapraisal. This is esy since the appraisal has nothing to do with what you pay - only with how much of a mortgage you can get. So - if that's how the system works you need to be ready to make aver substantial downpayment. (In his case he paid 50% down - not that much more than the 33% the co-op required anyway.)

As for the appraisal and what he paid - IMHO he paid way too far above market value - but it had certin amenities he really wanted (terrace and fireplaces) and was willing to overpay for them.

redrockglass

That's what I am talking about. I mean I know you can sell your home for anything but I was talking about how do people get loans when you pay 2 X over the appraised amount.

It just amazes me that some of these old, small homes are going for such high prices.

The kitchens have painted cabinets, and fake wood floors. UGH. I guess it is all about the location but geeze we aren't talking Hawaii here. You know? LOL

trippinkpj

In the Cambrian area of San Jose, you can find older but well kept track homes (circa 58/62 ish) for sale, in the upper 600Ks, lower 700K's.Nice modest middle class area with easy access to freeways, Los Gatos and only a 1/2 hour drive to Santa Cruz (not in rush hour.

J_Correa

The market has cooled down somewhat. Prices haven't really gone down, but we aren't seeing the same intensity in the market as in the past. We bought our house 2 years ago, so we got to see the madness up close and personal - LOL. These days, the inventory of houses for sale is higher so we don't have the same shortage of supply driving up offers. There are still some bidding wars going on, but for the most part, any craziness is isolated to highly sought-after areas where homes don't come up for sale very often.

JoyceL

This situation is not unique to San Jose. It happens all over the USA. Appraisals are usually done only once a year, in some cities even less often. During the year or more between appraisals, the market value of houses often increases.

Barbara

The asking price in San Dieg, and possibly other places in California, isn't usually based on an appraisal, but on the selling price of similar properties in the neighborhood. The appraisal is done for potential buyers because their lender requires it. Usually there isn't such an enormous difference between the appraisal and the selling price. Appraisals are not done annually, only when the owner refinances or for a new buyer. Property tax is based on the selling price.

Barbara

Sorry, San Diego.

saps

I home a home in the SF Bay Area (Livermore).

The appraisal is based on what the house is worth as compared to the other homes in the neighborhood or city.

Appraiser look at the home, size, shape, condition, comparable homes and the recent market. In some cases they "know" what the house needs to appraise for because they have had some conversations with the mortgage broker.

In a very hot market homes can sell for way over the asking price (a few years ago in the SF Bay Area). If the selling price is over the appraised value then usually that difference has to be paid directly by the buyer. Most banks will not loan money over the appraised value.

I find it hard to believe that a home appraised for 800K could sell for 1.6M. But then again I don't have 1.6M.

redrockglass

SAPS I agree with you. I also find it hard to believe. I also don't have the extra 800K to put down on it. This is what I am being told and it is scaring me. I might have to rent but that is probably no better.

Friends of mine bought their "starter home" for 750K in OC and it was just a tiny condo. YIKES

So here are two professionals scrimping to make ends meet because of their mortgage.

Thanks for all your reponses. I guess it is just the San Jose must just be a hot market.

Have a good day!

Barbara

redrockglass, have you looked at www.realtor.com? You will get an idea of prices there. You should talk to a realtor in San Jose who specializes in relocation. Was that a specific property, or just a much-exaggerated generalization?

J_Correa

I remember some properties in Palo Alto with absolutely crazy selling prices - twice the asking and things like that. I don't think I have heard of any specific properties going for anywhere near that much over asking since the dot com bust though.

Definitely check out realtor.com to get an idea of what housing prices are like.

trippin gave you some good estimates for what normal houses cost around here.

I don't know what your friends' condo in OC looks like, but for $750K here, you can get a very nice condo/townhouse in an upscale building or a modest single family home in good condition in a nice neighborhood.

Our house in San Jose is a 3 bedroom townhouse and others just like it are selling for just over $500K. We bought it 2 years ago for just over $400K.

The housing market is expensive here, but doable.

cabovacation

I have been a Realtor in the area for almost 30 years - a busy, active, informed expert - not bragging - just the fact. I think you are a bit misinformed as to what is going on. Yet I certainly understand where that comes from, as the goings on here have been legendary!
The appraisal is done after the sale has been made. First the price is set by the agents and sellers together, based on what comparable sales have been. The prices won't be jumping much higher than the asking price anymore (with some exceptions). So then the appraisal is done by the lender to be sure they are lending on a property that is worth what the buyer paid. Only very rarely will you find yourself in a situation where the appraisal would not match the price paid. Your agent should have enough experience to guide you safely through the process such that you pay what you can afford and get the best value for your money.

Feel free to post more questions, and I'll respond. It isn't as bad as you have heard. However, the houses are not generally nearly as nice or as big as they are in almost every other inch of this country. We live modestly and enjoy the outdoors and the wonderful weather and all the many amenities of the Bay Area!

Dukey

I think you are mixing up two different things here: a lender's appraisal and a local authority's tax assessment the latter of which is used to calculate real estate taxes.

Not uncommonly, the tax assessment is below, sometimes WAY below the market or selling price.

OTOH the lender's appraisal is done because the lender "requires it"...because they want to know whether or not the property is worth the loan's value, i.e., if the borrower dishonors the note the lending institution wants an idea of whether or not it can get its money back after foreclosure and re-sale.

As to how people buy properties that sell for more than the appraisal..simple: the seller makes up the difference between the loan amount and the actual selling price with cash.

Dukey

OOOpss..should have said the buyer makes up the difference in cash.

gail

Dukey has it right - do not mix up terms appraisal and assessment.

Assessment is easily available public information done by city/town to compare your house to others so they can know how much to charge you in property taxes. It can have little to do with actual price of property. This is often done based on square footage, number of bedrooms, rooms, etc. and often does not even invole looking at the property.

Appraisal is something that someone pays for on a specific property, usually involving sale - either before to determine price or related to getting financing. Appraisals information on a property are not something you can easily get - that information is released to whoever pays for the appraisal and is not generally public information.

Often when a bank does an appraisal of a property they are asked to finance, that number will come in a little lower than the selling price - the bank does not want to get stuck financing a piece of property worth less than they could sell it for if lendee defaults.

redrockglass

Hi,

I am not mixing up the two terms. The house I am thinking of the owner had it appraised for a refinance.

That was how I was first made aware that there are a big difference in the appraised price VS the asking price.

I just wasn't aware that there was such a demand for houses in San Jose that would drive the prices up like that.

Thanks for all your responses.

A_Traveller

This is a very interesting discussion. Having an Asking Price and or Selling Price higher than the Appraised Value (for lending purposes) is not unique to San Jose. It's happening where I live (Texas) but perhaps not to the same extent as in some of the cited examples. I think it may be partly do to a shortage of quality properties (except the recent housing glut may belie that statement a bit) and since appraiser use "comps" when making appraisals it's quite possible "past" sales are not truly treflective of the current market. Of course there are always some people who are willing to pay a premium to obtain a certain preferred property.

One phenomonon that is prevellent in our area is buyers paying market price for an existing home only to bulldoze it away and build a completely new home. That is something I've never quite understood - the ones I'm talking about are not smaller homes that have been neglected but rather older homes in upscale areas selling anywhere from $750K to well over $1 million. The way I see it when a buyer does this all he/she is doing is increasing the cost of dirt. So my question is if a house sells for say $1 million doesn't an appraiser have to figure a portion of the value is the land (say 25% - $250,000) and the remainder (75% - $750,000) is the value of the structure. If the house is torn down does that automatically increase the land value to $1 million? I would think not - land is land and an empty lot in a certain area has a value that is less than a similar lot in the same area that has a house on it. By the same token you can't roll the value of the old structure into the value of the replacement structure. Where does this "lost" value go?

cabovacation

Yup... land and location location location... essentially the house structure itself has no value to the people tearing it down.

The endless money supply is astonishing, and I don't mean loans but the cash that all these people have to buy, tear down and rebuild.

Barbara

gail and Dukey, I live in California and here, property tax is based on the market value of the property, i.e. the selling price. It is not based on the square footage, the number of rooms or anything else othere than how they and the location affect the market value and it is very striclty controlled via Proposition 13 from 1978. I'm sure cabovacation will correct me if I'm wrong.

redrockglass, having your home appraised to refinance is a different situation which has nothing at all to do with asking prices or selling prices. I'm not sure which number is which now. Was the $1.6m the actual selling price? Was the $800K the actual appraisal value for a refinance?