Reader OG writes:
I just found out my house is worth what I paid for it in 1998! I paid $500K for, did a $500K renovation for an all in cost of ONE MILLION DOLLARS (added a master suite, tripled the size of the kitchen, moved some walls around, all new Marvin windows, siding, new bathrooms, etc)! Similar houses in my neighborhood have sold for $2-2.6mm range a couple of years ago (these same houses sold for $1.3mm when I bought my fixer-upper in ’98). Today I got a letter from Chase telling me that my $500K home equity line of credit has been reduced to a $232K line because my estimated home value is only $1,021,000 using a “proven valuation method”. Thankfully, I have never drawn on this line of credit, and honestly don’t even need it. But I am a bit shocked to think their appraisal is so low? They must be wrong. We are talking about 3900 sq ft in OG in a good location.
This is laughable because it was these same “proven valuation methods” that the banks used to get themselves (and us) in the mess we’re in now. I spent much of the day with a builder friend today and in our conversation I asked him how, say, 5 Meadow Wood, could have received a $5 million mortgage when it was a horrible piece of junk with the I-95 sound barrier as its backyard. “7,000 sq. ft. right?” he asked, “then easy: they appraised new construction in Greenwich at $1,000 a square foot and passed out money on that basis. So $7 million, less 20% and you’re at $5.”
This house, now in foreclosure, will never sell for more than $2 million and I’d be astonished it it fetched half that sum. But the town is littered with failed spec houses all with money loaned at a value that was achieved in only a handful of sales, ever. So now, burned, the banks are going the other way. Picture a pilot in one of those WWII movies with his engine shot up and his windshield covered with oil, blinding him as he spins to earth, doomed. The banks are those pilots.