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Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 300
Experience:  Former IRS Revenue Agent
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I am restructuring a loan in a bankruptcy. The lender and I

Customer Question

I am restructuring a loan in a bankruptcy. The lender and I have to agree on a value.My rental house was appraised by an appraiser I hired, and by one my lender hired.Mine came in at $605,000. Theirs came in at $720,000.The main differences were in the location of comps, the price per square foot, and the amounts used for value per square foot when adjusting comps that were smaller or larger in house size and lot size. My appraiser used $30/sf and $1/sf. Theirs used $60/sf and $2/sf.Neither appraiser mentioned that my house shares a driveway with the house next door or that there are apartments to the left.Does the lender's appraisal seem inflated, or was mine "deflated"?I attached the pages of the reports with the comps, and a map showing where they were drawn from.
Submitted: 3 months ago.
Category: Finance
Expert:  DrakeLAW replied 3 months ago.

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This is such a common occurrence, I rarely have seen where the debtor and lender agree on a valuation. You can either agree on something in the middle or you have a valuation hearing before the court and the judge will decide which one of you is correct.

Customer: replied 3 months ago.
Thank you. I believe that my question would be best answered by a real estate appraiser. I already know that this happens and I know that one is expected to negotiate. I want to know what an unbiased appraiser would use for comps, and what price per sf would be used for the adjustments by an unbiased appraiser. So I would like this question release for an answer from a real estate appraiser.
Expert:  DrakeLAW replied 3 months ago.

Oh I see, then yes, legal is definitely not the right category. I will release it for re-categorization and see if there is such an expert for that.

Expert:  Dr. Fiona Chen replied 3 months ago.

Dear Appraiser,

Technically speaking, when you are in bankruptcy, your trustee should have power in the decision making and not you.

From your perspective, I would think that the higher the amount, the better it is for your loan restructure. Don't you think so?

As to you have a question, or you would like to have the value changed, I would suggest you to communicate with the Trustee to get his/her permission. Just submit your questions (or challenges) to the two appraisers you already have. They can fit the factors to their formula and model and recalculate the values easily. I am not sure anyone on line can do the calculation. Also, the authority for this new amount in court or in your proceeding is not established. The appraiser I believe has to have some type of credential in your state. And usually, they are retained by the attorneys in this type of case.

p.s. Just between you and I, consider the value between the two alternatives and lean towards the one that is beneficial to you and your plan.


Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP

Customer: replied 3 months ago.
Hi Dr. Chen, this is Chapter 11, in which the debtor remains in possession and in control of her assets. The trustee has no role unless the debtor is not handling the obligations of the bankruptcy well.Because a new balance owing will be based on the agreed-upon value, the debtor normally wants a lower value.I would like to know how appraisers decide how many dollars per square foot to ascribe to square footage when adjusting comps thy are meaningfully larger than the subject property.
Expert:  Dr. Fiona Chen replied 3 months ago.

Dear Appraiser,

The appraisers usually use the comparison method to compare to comparable sales in the neighborhood. If you read the report, the report will cite the method and compare the values of different methods used.

Ask your appraiser to criticize the bank's appraisal. You can ask him/her to do this. They may charge you extra. He probably is also be the expert witness in your hearing anyway. Then, you finally fight out in court.

It is not possible for this website or whoever reviewing the reports here to answer you whether one is inflated or deflated.

What is the original loan remaining? What is the draw back for you to lose the whole thing? Do you have any professionals who are advising you on this deal or you are only doing this on your own?

Because it is a negotiation, the final amount may not be the value of the place but your ability to pay and the rental income potentially from the property. Can you argue that because the market or the location, the potential rental income estimate is unrealistic in the bank's report? That is an easier argument to make.


Fiona Chen

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