The Appraisal Puzzle

Learn How Appraisals Are Causing Issues With Refinancing A Mortgage

by Tom Reddin on August 14, 2012

Many homeowners are enjoying the opportunity to refinance their mortgage to today’s historically low interest rates.   If you have not explored whether it makes sense to refinance your home, now is the time to see if you can significantly lower your monthly mortgage payment.   We are experiencing the lowest mortgage rates on record.

Although rates are very favorable today, lower than expected appraisal values are blocking many homeowners from taking advantage of the opportunity to refinance.  In some cases home values in today’s market have declined to the point where a refinance is just not possible, unless the homeowner qualifies for a HARP mortgage.  But there are other factors contributing to this dilemma in the marketplace that can be addressed if you get in front of the appraisal process.

First, overall sales velocity is down.  There are fewer homes being sold in any given neighborhood each year than there were five years ago.  This can result in situations where the appraiser can’t get tight comparable home sales as a reference within an immediate neighborhood.  So, appraisers have to turn to adjacent neighborhoods or adjacent streets for comps, which can significantly vary in terms of the nuances of home values.

Second, many lenders today are using Appraisal Management Companies to separate the interaction between their loan officers and the appraisers.  This is a new compliance process that helps mitigate the risks of a loan officer inappropriately influencing the appraiser’s assessment of a home’s value.   Instead of using a local appraiser who may have been their go-to expert for a particular neighborhood for many years, lenders are now using national Appraisal Management Companies (AMCs) with networks of appraisers across the country.

While this new process is a great compliance feature to avoid the risk of fraud or inappropriate influence in manipulating appraisal values, many loan officers are expressing frustrations that the appraisers assigned to a property are not experts on the nuances of that specific neighborhood.  For example, they may not know which are the most desirable streets within a particular neighborhood.  Many lenders and homeowners have reported examples where an appraiser who lives 45 minutes away, drives into a neighborhood for the first time to conduct an appraisal and misses several nuances.   This is different from the previous method where lenders often had long standing relationships with local appraisers who were experts in particular areas.

The third factor is that appraisers are leaning on the conservative side in their estimates, and characterized as a bit “gun shy” by lenders and homeowners.  Who can blame them after what we have experienced over the past few years with steeply declining home values?  There is no incentive for an appraiser to stick their neck out on an appraisal value.  Some of them are being called to the mat on appraisals that they performed on properties that were subsequently foreclosed.   They certainly don’t want to have a situation develop where the appraisal value is being challenged by the owner of the mortgage loan when a foreclosure occurs.

So what can the homeowner do to help solve this puzzle that is preventing them from a refinancing to today’s low rates?   The key is to get in front of the appraisal process.

If you have a copy of a previous appraisal, submit it to the appraiser when they come to your home to perform the appraisal.   While the previous dollar value may not be accurate in today’s market, the old appraisal can help avoid inaccuracies in the home’s square footage which is a common point of debate on appraisals.   Lenders cite examples where another two hundred square feet of space would have raised the property value enough to satisfy the underwriting requirements to enable the refinancing of the mortgage.

Next, consider asking your real estate agent to do a Comparative Market Analysis (CMA) for you.   This will identify what a local neighborhood expert considers as the comparable homes to your property.  You can then submit the CMA to the appraiser as another data point for them to consider, helping them determine the appropriate comparables to use in their appraisal of your home.

Finally, take this obvious, but often ignored action.   Get your home cleaned and staged for when the appraiser comes to conduct the appraisal.    The condition of your home is certainly a factor in the appraisal, and a clean and well-maintained home will get a higher appraisal value.

With these actions, you can help avoid some of the issues in the market today, and enjoy these record low mortgage rates that are not going to last for ever.

{ 3 comments… read them below or add one }

LPK August 23, 2012 at 3:26 pm

Excellent truths and good advice. It’s so important, I think, to be
there for the appraiser so that you can interject what the appraiser
doesn’t notice and with the comps from other properties, show the
appraiser what you have done that exceeds the condition of other
homes in the area. If there are not enough comps, and the appraiser
is out of the area, suggest a comparable area that could be used by
the appraiser.


Norm D August 28, 2012 at 11:07 pm

Just finished my second refi in 8 months…dropped one more per cent. And, these appraisal comments are spot on. Fortunately, we didn’t need the ‘true value’ to get the deal done, but that’s not the case for many folks. Satisfying our ego versus not getting the loan are very different. Be proactive in the process as Tom mentioned…it can only help. Our value increased 15% from 8 months ago and we attribute much of that to displaying the house better…no pictures in this appraisal with unmade beds and a messy bathroom!


Duane G October 3, 2012 at 3:06 am

I would like to thank Tom for taking the time to share with us his insight into the Mortage and Real Estate Industries. I am currently in the process of liquidating some properties I have, this is the first time I am using an agent to sell for me. With Tom’s article on Appraisals, I can attribute a substantial increase in the appraisals vs the ones I had 4 years ago. Getting all of the paper work in order before the appraiser arrived made an immidate difference in his attitude toward the process.
I look forwward to the next article…….


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