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How Appraisals Can Kill A Deal

Typically, I do not have any complaints about the Appraisal Process. Ultimately, the Price Listed by the appraiser is based on the sales within the neighborhood over the past 3 months to 1 year.

This week was not a great week for appraisal values in my area. In one situation, the borrower did not currently have Mortgage Insurance (required for loans over 80% of your homes value). The borrower insisted that the home was XXX amount, even though there were signs leaning towards the home being slightly less than that amount.

Well, we moved forward with the understanding that we may need to come up with other alternatives, should the appraised value become less than expected. Sure enough, the home was $20K less than the client anticipated (and even a few thousand less than what we thought the value would be).

Unfortunately, that meant that the borrower would be able to still refinance to a MUCH lower interest rate.... however, because they needed Mortgage Insurance now, much of the savings would be lost because the MI amounts have increased so much (specifically FHA MIP Premiums).

After we ran the numbers again, the overall savings to this client did not justify the interest savings.

For the second client, the home also came in low. But with this situation, we were still able to save the client a ton of money in interest. Sure, they are having to add MI, but they are also combining the 1st and 2nd mortgage, and lowering the interest.

In most cases, I only have Appraisal Issues when it comes to refinancing a home. During purchase transactions, it typically means the buyer/seller need to negotiate on the price a little biit. The other time that an appraisal could mess with a purchase transaction is usually with FHA loans. For FHA Loans, the appraiser must be a little more thorough with thier analysis to ensure the home is in livable condition.

Overall, I have had many good experiences with the new appraisal process (knock on wood). 

 

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Frisco TX Mortgage

      

 

The views expressed on this site are mine alone and do not reflect the views of my employer.

Comment balloon 9 commentsJohn Cannata • December 16 2011 06:34PM

Comments

Hey John~I read your headline and I was prepared to read another story throwing us appraisers under the bus, but thankfully not. I rarely have issues with value for sales, maybe one every 12-18 months. With refi's my clients never tell me a value so I have no idea if the appraisal works out or not. By the sounds of your post you're able make things work anyways, signs of a good loan officer.

Have an AWESOME evening!

Posted by Michael S. Bolton, MN Appraiser (Michael S. Bolton,Inc.) almost 8 years ago

My brother is in this boat.  The savings in interest isn't enough when you PMI.  I keep watching the numbers and market reports in his area to tell him when/if it's worth it for him to re-fi.  Right now I told him to just pay additional principal while also saves you money in the long run.

Posted by Tammy Lankford,, Broker GA Lake Sinclair/Eatonton/Milledgeville (Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668) almost 8 years ago

I really enjoy working with appraisers. They need to know how we think and how we price a property... 

Posted by Paul S. Henderson, REALTORĀ®, CRS, Tacoma Washington Agent/Broker & Market Authority! (RE/MAX Northwest.) almost 8 years ago

As long as the appraisal is familiar with our market place, we have had good experience so far. Believe or not, sometimes bank send appraisal that is maybe 2 hours away (no traffic) from Manhattan and that can throw things in a loop sometimes.

Posted by Eileen Hsu, LICENSED REAL ESTATE SALESPERSON (Douglas Elliman Real Estate) almost 8 years ago

Michael - It doesnt benefit me to bash on appraisers. Like in any business, there are people good at their job and there are people not so good. In most cases, the Appraiser does their job correctly.

Tammy - Once HARP 2.0 is ready (March) then he'll be able to refinance to a much lower rate even if his home is up side down.

Paul - Typically they know the area pretty well. We've had a few issues where we provided comps that could have (and should have) been used. After some discussion, had the amounts adjusted but other times they stuck by their values. They can only do so much in this market. Ultimately, its up to the sales in the area.

Eileen - We have many homes and appraisers in the area so we don't have too many issues with using outside sales (luckily).

Posted by John Cannata, Texas Home Mortgage - Purchase or Refinance (214-728-0449 http://TexasLoanGuy.com) almost 8 years ago

John, we are in the middle of refinancing our home and the appraiser arrives Monday....guess I'm cleaning this weekend LOL  I hope for the best especially since 3 homes just sold in my neighborhood in the last 60 days with high comps....we have been waiting to pull the trigger until the sales were higher until recently the comps stunk!

Posted by Marilyn Boudreaux, Lake Charles LA Century 21 Realtor (Marilyn Boudreaux, Century 21 Bono Realty) almost 8 years ago

Good luck Marilyn. And congrats on what I assume is a very low interest rate. :-)

Posted by John Cannata, Texas Home Mortgage - Purchase or Refinance (214-728-0449 http://TexasLoanGuy.com) almost 8 years ago

Thanks for sharing John! Even though appraisals are not supposed to be "subjective" I imagine they are to some degree so I encourage my clients to also consider that as well when selling.  It's a hard market out there and buyers and sellers need to come prepared when it comes to the home selling/buying process.  I can only imagine the frustration!

Posted by Karen Otto, Plano Home Staging, Dallas Home Staging, www.homes (Home Star Staging) almost 8 years ago
I think that the only real decision the appraisers have to make is which Comps to use. Everything else is mathematics, so they really do not have many choices on the appraised value.
Posted by John Cannata, Texas Home Mortgage - Purchase or Refinance (214-728-0449 http://TexasLoanGuy.com) almost 8 years ago

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