Tim’s Two Cents: My Appraisal Did Not Come In at Value!  What’s Next?

I hope everyone had an enjoyable Thanksgiving.  We spent time with my brother, Doug, who visited for a few days from LA, some close friends and Kristine’s parents.  We had a lot of time with the kids and Kristine did a fantastic job with some great meals, aside from just our Thanksgiving dinner! We recognize that we have a lot to be thankful for.  We appreciate your support and interest in us and our business, and we value the relationships and trust that we have built with so many clients over the years. 


This month I would like to address the topic of appraisals.  When a bank is called upon to provide financing for a property, whether it be for a purchase loan or a refinance of an existing loan, they will rely on the guidance and opinion of a certified, licensed appraiser. An appraiser can also be used during the due diligence time period of a cash purchase by the buyer to provide a second opinion of value, and the appraiser is the best source of determining a home’s square footage.  Contrary to popular opinion, the tax assessor’s record is not the best source of your square footage as no one visits and measures your home from the County Tax Assessor’s Office.


Most home owners get anxious before the appraisal appointment as they feel as though the home needs to be cleaned and in top showing condition. A clean well-staged home is always positive, but will not make a distinct difference in the final value given to the home in the appraisal report.  The appraiser is looking to add value for lot size compared to other homes in the area, views, location on the street (a cul de sac would add value, for instance, because of reduced traffic and road noise), light in the home, remodeled areas, landscape, parking and some consideration is given for upgrades.  The appraiser will be detracting value for road noise, powerlines, airplane noise, commercial use areas in close proximity, lot location by busy intersections or a high traffic area, major differed maintenance neglect, lack of upgrades and landscape/hardscape that is below the norm in the surrounding neighborhood. 


The appraiser will measure the structure to gain an accurate, within 100 sft, account of the property’s size.  A surveyor would measure and mark the lot size and boundaries, not an appraiser.  The appraiser will shoot photos of the interior and exterior, note that the property is equipped with smoke detectors, has water heater earthquake straps and verify that the home has Carbon Monoxide Detectors, if required be local law.  He/she will then look at the same data that I would look at to assist with pricing your property for sale, the last 3-6 months of related properties in as close proximity to the subject property. No two properties are identical, even in master planned communities. So, there is an element of opinion involved in determining the final current fair market value in the final appraisal report.


As many of you know, I came from a financial services background prior to launching my real estate career in San Diego in 1995.  It made perfect sense for me to not only assist home buyer’s with their home search, but also help them to procure mortgage financing. The mortgage business has gone through drastic changes during the last 21 years.  We used to develop relationships and actually call upon appraisers that we worked with regularly to provide the reports for the banks.  This had its benefits as the appraisers gained a better sense of what the pulse of the market was in our areas of focus just like we do on the sales side even today. 


Today the appraiser is assigned to do the report from an approved list from the bank that is providing the loan.  Often times we get out of area appraisers who are completely unfamiliar with the area.  This is why I am always at the appraisal appointments, in person, with a comparable sales package with notes and details that I share with the appraiser. As stated earlier, the final value is still a personal opinion.


If the appraisal comes in at or above the real estate contract price or at, or above the necessary value to meet the bank’s loan to value providing a refinance, we are typically fine to move forward with the loan. However, if we miss the mark on a purchase we typically have a contingency for that circumstance.  Sellers and buyers have to negotiate a remedy which can entail reducing the purchase price to the appraised value, the buyer bringing in cash over the appraised value up to the original purchase price at close, or the seller and buyer finding a compromise between agreeing to a lower sales price and brining in cash over the appraised value.   The mortgage lender can also work with the brokers to submit a reconsideration of value.  This does not often change the original opinion of value unless there are obvious mistakes in the report or comparable sales that were available and just missed.


Should your appraisal not come in at the value needed for a refinance you can bring cash in at the close to reduce your total loan amount needed, or you could always hire and pay for an additional appraisal and take the chance that the new appraiser sees value at the level needed to complete the refinance.  If the first report is close to the value needed this is an option.  A consumer’s cost to have an appraisal completed typically ranges from $400-$650 on a single family residence, townhome or condo.  


The bottom line, the best determination of current fair market value is what a buyer is willing to pay right now and what a seller will agree to sell a property for at this moment to a buyer.  If I have a ton of interest, showings and multiple offers then the appraiser should be aware of this information.  I would not be living up to my client’s expectations and to my professional responsibilities if I was not a part of the appraisal process, especially if the sales price is at or above the most recent sales!


Please email me with any questions regarding this subject.  If you would like to be introduced to a fantastic, experienced mortgage loan professional to evaluate whether or not you should refinance, please let me know.  It is also never too early to begin to prepare for a home purchase.  I am happy to meet with you in person to get organized and plot the steps to success with your new home search!

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