The NAHB reports that faulty undervalued appraisals are hurting the economic recovery. It seems appraisals are often being done by non-local appraisers using bad comps including foreclosed home sales and out of area appraisals.Actually, 54% of new home builders said that the appraisal amount was actually less than the cost of building the home according to the NAHB.
We are certainly in a bad economic time so focusing your home repair efforts on improvements that improve appraisal value and get you the most bang for your buck is even more essential than ever. In my tutorial series called "ROI Series Introduction: Investing in Your Home Improvement" I talk about what you can do to improve the Return On Investment (ROI) of your home improvement dollars.
Make sure to read the Appraisal Booster Projects article too.
Comments
Apart from the current economic downturn, a large part of the problem is due to appraisers having been hamstrung by the new, ill-conceived HVCC (Home Valuation Code of Conduct)national policy.
This new law has taken the option of choosing an appraiser out of the mortgage brokers’ hands, and forced them into going through an AMC (Appraisal Management Company). The AMC’s (which are owned by major lenders),then give the assignment to an appraiser who is on their roster.
A lot of times the appraiser selected for the assignment is unfamiliar with the market area of the assigned property. This results in appraisal reports that are not as good as ones prepared by an appraiser who is from the area and who has knowledge of the market.
I am not saying that all appraisers who work with AMC’s are incompetent, nor am I suggesting that all appraisers in a given market are knowledgeable of their market area. Many appraisers and mortgage brokers have spent years building good, professional working relationships, many of which have been destroyed by HVCC. A lot of good appraisers have become frustrated by HVCC and have gotten out of the business. All of us (appraisers) have seen our business shrink, due to the economy and worsened by HVCC.
Great points about the AMC and HVCC. I know of folks who had an appraisal done on a new home a few years ago and now cannot use that local appraiser again on their refinance but have to use some unfamiliar appraiser selected by the bank. The more the government “helps” the more it screws things up.
Until the federal government gets out of everyone’s business, the housing market, as well as the economy, is in for a long, rocky road to recovery.
As a Mortgage Broker I have seen the damage done by the HVCC. Six out of six appraisals have come back lower than comparables from Trend. On a seventh appraisal the home was listed for sale for one year but could not sell at an adjusted price of $ 290,000. The appraiser put the value at $ 310,000! What a fraud on the American public!
And now a word from the appraisee’s viewpoint.
When 30 year fixed rates recently dipped into the mid 4% range, we decided it was time to re-fi our 5.8% 30 year fixed mortgage. So, I contacted several mortgage brokers here in the Atlanta area, and finally settled on one that seemed to have the best combination of rates and closing costs.
The broker sent an appraiser from a town 20 miles north of Atlanta, even though my house is located in a town 35 miles southwest of the city. This appraiser definitely was not familiar with our area.
The comps that the appraiser used were all in a blighted, repo-devastated subdivision miles from our house. These “comps” were the approximate size of our house and the same approximate age, but that’s where the similarity ended. The appraiser told me that the reason he had to use those particular houses as comps was because the general slowdown in home sales has meant that normal (non-repo) house sales had not been occurring in our area. Almost all the home sales going on for the past 6-12 months were repos at fire sale prices.
The result of this was that our appraisal came in at $228k, probably $30-40k less that what it should have been. And, that meant that our new mortgage would be 62% of the new appraised value. The broker told me that since my mortgage was over the 60% threshold of appraised value, he would not be able to find a lender who would give us the best rate, even though our FICO scores were 818 and 825.
In the end we decided to forget about the re-fi, because we could not justify the $3,000 closing costs with the small savings we would get in our mortgage payment.
My recent appraisal for a refi was very poorly done. I own a split level and the appraiser, who was from a different area, said that anything below ground is considered a basement, so he didn’t count the square footage for the family room, bedrooms, etc in the lower level. He appraised it as a 1600 sq ft house, although I pay taxes based on the city’s appraisal of 2900 sq ft. The comps were based on single story houses, and none of the major remodeling seemed to count (new kitchen & baths, etc). Of course I couldn’t get the amount of loan that I desired to consolidate bills because of the appraisal, and even though I complained to the loan company in writing, they saw it as too much of a hassle to pursue and I would have lost the lock on the rate. Seems that the appraisers have their own agenda these days.
We had the same situation happened to us as Homeowner in NJ. The city appraised our home at one value which is why higher than a recent appraisal we paid ~$400 for!!! This appraisal was completely bogus, based on comps not even in our area and homes much smaller than ours with no garage! According to this appraisal, we should be paying at least $2000 less on our property taxes!
How do we get our appraisal money back for this bogus appraisal?? I feel like I’ve just been robbed in broad daylight.
My appraisal did not count my media room upstairs because it didn’t have light bulbs. It has carpet.. heat/air.. paneling.. ceiling.. believe me it’s complete.. He didn’t count the square footage which is 30 x 15.. When I called him and asked him about it he was rude.
I am totally happy with my government appraisal – fair to “enth” degree, but a friend in Montrose is appraised at $40,000 higher than his “comps”, both by county and bank! He couldn’t sell the property for the appraised value, plus is being taxed to the point he may have to sell anyway! Of course, he is near (40 miles by road) ski communities where properties are still selling HIGH! Not right either way!
I too was stung by the new appraisal nonsense. My appraiser gave me no credit for my split level house which is 100% open to grade on 3 sides and totally finished.
She took 8 comps, 5 of which were 2.5 miles away or greater (in non-comparable neigboods), despite over 6 more accurate comps in my neigborhood.
I believe without hesitation that there is an agenda by these people. There is only one answer: Get Government out of it!
appraisers are killing the housing market!! We just tried to refi our current loan. The appraisal was totally botched. wrong sq footage, amount of bedroooms wrong, comps wrong. Whata waste of $400. This is a complete racket as the lending institutions are most likely getting “kickbacks” for these services so they dont really care if it appraises out. A word to the wise…challenge any undervalued inaccurate appraisal to the hilt! Refuse to pay if it is not done in good faith by the appraisal company. If you are not certain to be at 80% ltv ,even with a low appraisal, don’t waste your time trying to refinance!
We just got burned by an incompetent idiot through the AMC system.
She was from out of town (60+ miles), her value of subject property was way over purchase price, and her comps were all over the place both geographically and in property features. She adjusted one of the comps by +37% of sale price and another -20%!
Now multiple underwriters say the comps are unnacceptable and our mortgage broker is refusing a refund for a useless report.
What happened to the days of conducting business with a person/company that maintains a good reputation and high quality standards? Eventually, the losers would have been weeeded out on their own doing.