JACKSON HEIGHTS — Frances Bolton and her husband, James Roy, were eyeing a move to Queens from Sunset Park when they found a one-bedroom co-op, listed for $319,000, at Fillmore Hall, a pre-war building in Jackson Heights’ historic district.
It was the first apartment they saw. They loved the building’s original architectural details, its well-maintained garden and the basement music studio where Roy could play guitar. Its close proximity to the 7 and other trains was also a bonus.
“We really wanted this building,” Bolton, 47, said.
Their offer of $332,000 was accepted, but they soon hit a snag when trying to secure a mortgage, and their appraiser valued the apartment at $20,000 less than what they agreed to pay.
The discrepancy between what the couple was approved to borrow from the bank and the actual price of the apartment delayed their mortgage and forced them to re-negotiate with the seller for a lower price.
When prices in many prime Manhattan and Brooklyn neighborhoods began skyrocketing a few years ago and inventory started to fall, the gap between appraisals and sales prices put a damper on many deals, experts said. But as price growth has again cooled, it’s been less of an issue in those areas. Instead, a new wave of neighborhoods, particularly in Queens and The Bronx — where prices are rapidly escalating and competition is strong — are seeing appraisals that aren’t keeping up with the market.
Bolton and Roy didn't have the additional cash to add to their down payment to make up for the low appraisal, so they worked with the seller to drop the price to $326,000 to get the deal done.
Janine Young, the couple’s broker, had seen low appraisals in neighborhoods like Williamsburg a few years back, but was surprised at the Jackson Heights appraisal, given comparable apartment sales.
Appraisers look at these “comps” — recent sales with comparable square footage — to evaluate home values.
“We really thought that the appraisal would come in within a good range because we knew even other apartments in the building were in contract for higher than what they had been listed for,” said Young, of BOND New York.
The appraiser didn’t seem to grasp how certain buildings or blocks are more coveted in parts of the neighborhood.
“Our appraiser didn’t know Jackson Heights,” Bolton said. “He didn’t take any of [the neighborhood details] into account. He looked at square footage and that it had a kitchen.”
The problem with off-base appraisals stems from federal rules were implemented after the 2008 housing collapse putting a buffer between banks and appraisers, experts said.
Many banks now use Appraisal Management Companies (AMCs) that act as middlemen, but they take a big cut and pay appraisers very low fees, experts said.
That means that many appraisers come from outside the city and lack expertise in the nuances of a market where not only are there value differences between an elevator building versus walk-up, for instance, but even distinctions within a building, floor-by-floor, explained appraiser Jonathan Miller, of Miller Samuel Real Estate Appraisers.
“It’s a quality problem,” Miller said. “Appraisers are coming from Albany cranking out 12 reports in 12 hours. How much local knowledge do you think they have? It works fine when the market is flat, but not when markets change, when they're rapidly rising or rapidly falling.”
Relying on regional lenders more than national banks can sometimes help because even though local banks might use AMCs, they tend to be “more invested” in the location, he said. “Any expert you hire has to have local market knowledge."
When a three-family house in the Van Nest section of the borough that went into contract for $620,000 after a bidding war was appraised for about $515,000, broker Manny Pantiga of the Bronx-based Pantiga Group appealed the decision.
The appraisal edged up to $550,000. Then the buyer went to a lender that had more experience in The Bronx and got a new appraisal, matching the sales price.
“It was a long saga. It took four months,” Pantiga said. “If lenders are not familiar with the dynamics of the city, specifically in The Bronx, where block-by-block, everything can change. You have to know how to compare.”
As the borough has become hotter and bidding wars are now commonplace, toward the end of 2016, almost every deal had a problem with low appraisals, he said.
“We’ve seen families coming from all over the city — folks from Brooklyn, Queens and Manhattan coming — so the pool of buyers has increased in a market with tight inventory, which creates bidding wars,” Pantiga said. “Almost every property we put out there gets multiple offers.”
Now, when his firm gets a listing, his team sits down with the seller and explains what’s been happening with appraisals. They find a lender that knows The Bronx or a buyer, who will show they’re prepared to pay regardless of the appraisal, which means they sometimes try to negotiate to remove appraisal contingencies from the contract.
He already knows that a new property he’s about to list in Kingsbridge Heights, overlooking Manhattan, will go for more than what the area has been commanding.
“I’ve already discussed with my clients different negotiating strategies and pricing strategies,” Pantiga said. “We’re trying to take preemptive measures.”