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Posts Tagged ‘mortgage appraisals’

Property appraisals are on many people’s minds lately, especially with the recent revaluation for tax purposes in Iredell and Mecklenburg Counties.  They are more difficult to accomplish with good accuracy nowadays because the volume of sales is down so finding enough comparable sales is more difficult than ever.  Below is a great article provided by a service of the National Association of Realtors through their HouseLogic site.  If you’re thinking of selling a property, buying a property or just have a need to establish a value like an estate situation, the article below provides some great info and links.

What You Must Know About Home Appraisals

By: G. M. Filisko

Published: March 12, 2010

Understanding how appraisals work will help you achieve a quick and profitable refinance or sale.

1. An appraisal isn’t an exact science

When appraisers evaluate a home’s value, they’re giving their best opinion based on how the home’s features stack up against those of similar homes recently sold nearby. One appraiser may factor in a recent sale, but another may consider that sale too long ago, or the home too different, or too far away to be a fair comparison. The result can be differences in the values two separate appraisers set for your home.

2. Appraisals have different purposes

If the appraisal is being used by a lender giving a loan on the home, the appraised value will be the lower of market value (what it would sell for on the open market today) and the price you paid for the house if you recently bought it.

An appraisal being used to figure out how much to insure your home for or to determine your property taxes may rely on other factors and arrive at different values. For example, though an appraisal for a home loan evaluates today’s market value, an appraisal for insurance purposes calculates what it would cost to rebuild your home at today’s building material and labor rates, which can result in two different numbers.

Appraisals are also different from CMAs, or competitive market analyses. In a CMA, a real estate agent relies on market expertise to estimate how much your home will sell for in a specific time period. The price your home will sell for in 30 days may be different than the price your home will sell for in 120 days. Because real estate agents don’t follow the rules appraisers do, there can be variations between CMAs and appraisals on the same home.

3. An appraisal is a snapshot

Home prices shift, and appraised values will shift with those market changes. Your home may be appraised at $150,000 today, but in two months when you refinance or list it for sale, the appraised value could be lower or higher depending on how your market has performed.

4. Appraisals don’t factor in your personal issues

You may have a reason you must sell immediately, such as a job loss or transfer, which can affect the amount of money you’ll accept to complete the transaction in your time frame. An appraisal doesn’t consider those personal factors.

5. You can ask for a second opinion

If your home appraisal comes back at a value you believe is too low, you can request that a second appraisal be performed by a different appraiser. You, or potential buyers, if they’ve requested the appraisal, will have to pay for the second appraisal. But it may be worth it to keep the sale from collapsing from a faulty appraisal. On the other hand, the appraisal may be accurate, and it may be a sign that you need to adjust your pricing or the size of the loan you’re refinancing.

More from HouseLogic

How to use an appraisal to eliminate private mortgage insurance

Understanding the assessed value of your home for tax purposes

Understanding the amount at which to insure your home

Other web resources

More information on appraisals

How to improve the appraised value of your home

G.M. Filisko is an attorney and award-winning writer who’s had more than 10 appraisals performed on her properties in the past 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

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I was talking to a Realtor friend of mine the other day about what she referred to as “the closing from Hell”  that she recently survived.  Of course, from a Realtor’s standpoint, any closing is a good closing, especially now that the market is slow.  Still, I asked her what made the closing so bad.  She said that things were going along well, and the lender for the new mortgage had said that the appraisal was fine for the loan, and all was set for a successful closing.  Then, a day before the closing, the company that was to provide the PMI (Private Mortgage Insurance required if the loan is for more than 80% of the cost of the home) decided that they wanted to have their own appraisal done based on concerns about the specific market activity in the neighborhood.  Needless to say, the closing was delayed, and the buyer and seller both were stressed by this.  My friend, the agent, had never heard of it, and neither had I.  I asked a couple of experienced lender reps I happened to be talking to later if they’d seen this happen, and their weary response was that they’ve come to expect most anything from lenders lately.

I guess the lesson here is that since mortgage lending had gone way toward too loose in their underwriting requirements, it is reasonable to expect that the reaction will be too far in the other direction for awhile.  We’ll eventually come back toward a middle ground, but it will be some time before we get there.  In the meantime, home selling and mortgage lending will have to have some frustrating closings like my friend’s closing from hell.

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Here is a link to a recent column by National Association of Realtors Chief Economist, Lawrence Yun writing about further repercussions of the new Fannie Mae/Freddie Mac appraisal rules that went into effect May 1.  I’d mentioned last week about these rules slowing down the closing process.  Mr. Yun comments about the required use of Appraisal Management Companies as the current solution to keep lenders from exerting undue influence on the hired appraisers.  A result of this is the use of appraisers who are not familiar with a particular market (which are unique in very local characteristics) and the use of inappropriate comparable properties.  This causes appraisals which are inaccurately low, thus making it difficult to close a real estate transaction.  Imagine finding the perfect house, negotiating a satisfactory deal, applying for the loan, then being told by your lender that they don’t think the house is worth what you offered.  Understand that good real estate buyer’s agents will do comps on a house that is being considered for purchase by their buyer client before making the offer to help insure that the price being offered is reasonable in its market.  Understand also that houses are not commodities that are all the same, so developing an appraised value can be very difficult, particulary in a time when transaction volume is down, making available price data  pretty limited.

Check out Mr. Yun’s column for more detail.

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Yesterday I got a note from one of my recommended lenders, Neil Jackson of LKN Lending Group, who mentioned a new wrinkle in processing loans, and how that is taking longer than it had been prior to May 1.  Here’s what he said:

“I was speaking with several of account representatives from local mortgage lenders, and they were all in agreement on one subject lately- the number of days to list on a contract to close. NEVER put 30 days. Always put 45 days to allow for the new appraisal process.

With the new HVCC Appraisal Management Companies appraisal ordering system in place, it seems to be taking longer to get appraisals back and approved. Up to 3 weeks on some cases, but normally about 10-14 days. This directly affects the amount of time we can get a file underwritten and approved. This can push the approval process well over 30 days.

In the past, 30 days was plenty of time to get a loan closed, but the mortgage account reps suggested to allow yourself a more time and not lose a rate lock over a couple of days.”

I’d read a bit about this HVCC stuff, but didn’t know much about it other than it had some lenders and appraisers up in arms.  It stands for Home Valuation Code of Conduct.  HERE is a link to the Freddie Mac site that explains more about this.  This is about insuring that appraisers are not unduly influenced by lenders (who order appraisals) to overstate the value of properties involved in mortgage applications.  There has been a lot of buzz about how much or little that has gone on, but apparently there was enough evidence that this contributed to the problems in the housing market, that these controls were put in place.  What it means to Realtors and buyers is that we have to anticipate longer loan processing times, at least until the players can get up to speed on using this new appraisal ordering system.  So, if you want or need to close on a house by a certain date (like Nov. 30 for first time buyer tax credit), you’d better get going on selecting a house and getting under contract.

 

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