Posted by: Daryl & Wendy Ashby | July 23, 2012

Two Steps Forward – Three Steps Back

Record-low interest rates are a boon for homebuyers and homeowners seeking to refinance. But low appraisals are making it difficult or even impossible for some borrowers to take advantage. While you may take two steps forward in caring for your largest financial asset, you may end up taking three steps back as the system does you no favours.

Shirley Goodman and her husband knew their ranch house had fallen in value. But they were surprised by a recent appraisal valuing the four-bedroom home at $485,000, down from the $604,000 they paid in 2008. The appraisal put the couple underwater on their $302,000 mortgage — and threatened to sink their plans to refinance.

When they examined the appraisal, they saw it was based on older homes a few blocks away that weren’t directly comparable, says Goodman. They got a second appraisal a few weeks later that placed a $560,000 value on the property. That number was higher but still offered them no guarantee they would get the financing they needed.

After years of falling home prices, such experiences are not uncommon. Low appraisals can often result in the cancellation, delay or the renegotiation of a purchase.

While not many of our sales run into appraisal problems. There are times when an “overly pessimistic appraisals caused by appraisers using distressed sales as ‘comparables'” are a key reason why deals fall through.

Part of the problem is that home prices have softened further than many home owners would like to believe. “Everybody thinks the value of their house hasn’t fallen nearly as much as every other house in their neighborhood. But foreclosures in the neighborhood are relevant to the current market price of a neighbouring home, like it or not.”

Regretfully some home owners and developers have put pressure on appraisers and this has often led to inflated valuations during the past housing boom. This can also be the result of using appraisers with little knowledge of local market conditions. Most of the larger agencies have staff who specialize in a district and therefore become proficient in what changing aspects of the area affect home values.

With a slower market, accurate valuations can also be difficult to come by when sales are thin and prices are just beginning to edge upward after prolonged declines. Many borrowers are “in a holding pattern for extended periods” because it’s difficult to find comparable sales to support the appraisal value.

Be aware that you can take steps to improve your odds of getting a deal done. Take the initiative to look at comparable sales from the past three to six months before seeking a mortgage. Most of this information is now on-line. Whether it’s a purchase or a refinance, you want to know what the range of values is and don’t hesitate to share your findings with the Appraiser of your choice. They may just thank you for making their job easier.

Often times borrowers can’t pick their appraiser, but they can accompany the appraiser during the inspection, pointing out improvements that add to the home’s value. They also can provide the appraiser with comparable sales they have found on their own that can be used to support the valuation.

It’s perfectly acceptable to have a list prepared for the appraiser of improvements that might not be obvious. Data is “the lifeblood of the profession.”

Sometimes it makes sense to start over by submitting the loan application to a different lender a few months after the original refinancing fell apart because of the low valuation. Don’t be to quick with this tactic because the number of enquiry flags registered on your credit report can work against you.

Borrowers can request that the lender review the appraiser’s findings, though the chances of success are slim. If you think the value is unreasonably low, look first for factual errors, such as an erroneous number of bedrooms or miscalculated square footage.

To improve your odds of getting the appraisal overturned, you will need examples of recent comparable sales that weren’t considered by the appraiser, hence the need to do your own research in advance. You also can ask the lender to order a second appraisal, which you might have to pay for.

Regardless of the outcome, don’t give up. As my father use to say, “Try, try and try again.”

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: