Financing real estate almost always
requires an appraisal, an unbiased estimate of what a buyer might expect to
pay-or a seller might expect to receive-for a property. There are occasions when you receive the
appraisal and it does not meet your expectations. What do you do next?
There
are strict laws that went into effect in 2010 as a result of the housing
crisis, designed to protect appraisers from undue influence. On a purchase loan, you also encounter
another definition of market value - the price agreed to by a seller and
buyer. Add to the mix real estate agents
and loan officers with compensation riding on the close. But a lower than expected appraised value
can also work to the buyer’s advantage to renegotiate the price, or walk from
the deal, so talk with your Realtor if adding an appraisal contingency is right
for you when making an offer.
Lenders
calculate the maximum loan amount based on the lower of the appraised value or
the purchase price. If the buyer is
applying for maximum financing and an appraisal comes in below the sales price,
the buyer must decide if they are willing and able to put more money down, should
the buyer wish to continue with the original agreed upon price.
Appraisers
are not perfect and many lenders have a Reconsideration of Value (ROV) process,
which provides the lender the opportunity to point out inaccuracies and/or
suggest additional comparable sales for consideration.
Appraisers rely primarily on the sales comparison approach on
residential properties to value factors like location and amenities and will
research recent sales in the local area to find comparable properties. The
selling prices of these properties are used as a basis to figure out the value
of the property being appraised, also known as the subject property. Then the
appraiser compares and contrasts what the subject property and the comparable
properties have to offer.
The first step if you’d like your lender to file a ROV is to
review the report and research. An appraisal is based upon data so verify the
key facts in the appraisal. Is the
square footage of the subject property correct? Did the appraiser note the level of
improvements?
Appraisers
must use the most recent and most similar sales in analyzing the value of the
subject property. So look to recent sales in your neighborhood. Was there a more similar sale or a more
recent sale or a sale closer in proximity not utilized?
Remember - appraisers cannot overlook sales in the immediate neighborhood that have like-features in lieu of properties that are farther away and are more dissimilar.
The next step is for the lender
to write up the ROV request, and the homeowner and/or Realtor may assist in
providing information. The lender
cannot request or imply a target number but may ask questions regarding
findings from research. It’s best to ask good questions and present
facts without emotion. Consider tone and
language choices - we have an audience - the appraiser. And we want to invite
him or her to enter in a respectful written "dialogue" about the
property. Remember the appraiser was not out to disappoint, and confronted with
strong facts that are aligned with the above, will likely result in a careful
and thoughtful response back. Remember - appraisers cannot overlook sales in the immediate neighborhood that have like-features in lieu of properties that are farther away and are more dissimilar.
Different lenders have a variety of appraisal practices and resolution options in the event of a lower than expected appraisal. It’s key to work with an experienced lender that has a law abiding appraisal process and knows how to research and address issues to serve all parties involved.
David Colarchik
Branch Manager NMLS #300510
775.832.6522
264 Village
Boulevard, Suite 2B
Incline Village, NV 89451
TahoeLending.com
Text ‘Dave’ to 313131
to
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Disclaimer:
The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Supreme Lending, and do not necessarily represent the views and opinions of Supreme Lending. In no way do I commit Supreme Lending to any position on any matter or issue without the express prior written consent of Supreme Lending’s Human Resources Department.
Branch Manager: David Colarchik
Main: 775-833-7100 | Direct: 775-832-6522 | Fax: 775-833-7108
264 Village Blvd Suite 2B, Incline Village, NV 89451
David.Colarchik@supremelending.com
