Question: When I refinanced my mortgage six years ago, my lender appraised my home at $274,000 but I borrowed only $220,000. I have made several improvements since then and have paid that loan down to $203,000.
Now I want to refinance to lower my interest rate (not take any cash out of the property) and the lender says the appraiser now values my home at $186,000, so my application is being denied. I think they are just trying to keep me at the higher interest rate. Is there an agency to report these companies to? A.H.
Answer: The short answer is no, at least not that I know of. But you can appeal to the lender for another valuation. After all, even though values are not rising in some markets and declining in others, a slide of almost $90,000 in six years seems way out of line.
The art of appraising is just that, an art, not an exact science. And even though those who practice it hold the fate of sellers, buyers and refinancers in their hands, they are not gods. Indeed, they are fallible, just like everyone else. And if you honestly believe yours has made a mistake, you can ask for a second opinion.
Start your quest by finding out whether yours is a full blown appraisal or an electronic one. Automated valuations are being used by more and more lenders, particularly in the home-equity sector where you are treading, to speed up the process and cut costs. But they are notoriously inaccurate.
AVMs, or automated valuation models, are good enough to give lenders a 30,000-ft. view of local housing values, especially when they are lending only 75% or so what they house is really worth. But they just won’t do on a house-by-house basis when lenders are putting up 95% or more of the home’s value.
Whether or not you are seeking a home-equity loan or a primary mortgage, if your lender is relying on an AVM, ask to have your place valued by a human being who actually looks at your specific house, compares it to others in the neighborhood, checks out the community and does all the things an appraiser is supposed to do. In most cases, lenders will bow to your wishes, especially if you are willing to write the check to cover the several hundred dollars a full appraisal will cost.
If a real, live appraiser is responsible for a valuation you think has come in too low, your appeal becomes a little more problematic — if only because you are dealing with human beings who, unlike machines, have feelings. So to keep your appeal from becoming an exercise in futility do it with as much finesse as possible.
“When a lender reassigns the appraiser to take another look at a house,” a real estate broker whose name is long forgotten once told me, “it’s like telling him he screwed up the first time. How many people are going to admit that?”
Of course, you can always ask for a second opinion from another appraiser. But you’ll have to pay the freight a second time, too. Moreover, to stand any chance of winning your point, the second valuation must be more than 5% higher than the first. In the appraisal game, anything less is considered an acceptable difference.
Besides, even if the second appraisal is far above the first, it’s the lender, not you, who gets to pick the appraisal on which the loan is based.
While this may seem as if the cards are stacked against you, you can even the playing field a bit by suggesting, firmly but nicely, that the appraiser assigned by the lender erred and asking, again nicely, that he be asked to take a second look. And you can grease the wheel a bit further by doing some of the appraisal spade work on your own. It may take time and effort, but it could pay off in the long run.
Your job is to search out “comparables” the appraiser may have missed the first time around. A comparable is a property of the same size and style in the same location and with the same features as the one being appraised. To determine a fair market value for the subject property, an appraiser looks for recent sales of several comparable properties.
Normally, however, they limit their search for “comps” to the multiple-listing service operated by the local real estate association. And when they do that, they may not be looking at the entire market.
Even though enough sales pass through the typical MLS that an appraiser has no trouble finding comparables, not every deal goes through the system. Many are made by independent brokers who are not MLS members and some are made without the help of an agent, MLS member or not. Then, too, some MLS members don’t put all their listings into the system.
As a result, as many as half of all transactions in some major markets occur outside the MLS. Your job is to find them. And to do that, you’ll have to comb the land records at the local courthouse.
Remember, though, that you are not just looking for sales in the same general neighborhood. You want at least two, but preferably three, of the same style — ranch to ranch, for example, not ranch to two-story Colonial — size and features. Also, sales should be no more than six months old, and the more recent the better.
If your search bears no fruit, turn your attention to the comps sited by the appraiser. Sometimes they are not really comparable.
While the appraiser is required to go inside the subject property and measure every room, he does not have to do the same with the comps upon which he bases his valuation. He may have been inside one or even two, if has appraised those properties in the past. But more often then not, his knowledge of them is based entirely on their description in the multiple-listing system or the public land records.
Often, those narratives are far from accurate. Sometimes they’re incomplete; other times, they’re nothing more than blatant advertisements. A “large, wooded lot” may have but one tree, for example. And wallboard is hardly a fair comparison to your lovely wood-paneled rec room with its wet bar and fireplace.
The trick here is to find as many differences as possible in your favor, differences the appraiser may not have known about or failed to consider. One item that is often overlooked is the age of the comparable house. Another is the size of the lot and a third is room sizes.
Of course, this kind of detective work requires that you visit comparable properties with pad, pencil, tape measure and a sharp eye for detail. It also helps that they have cooperative occupants who will let you snoop around. But if you tell them what you’re about, they should be more than willing to cooperate.
Most appraisers are aware enough of their shortcomings so that if your pilgrimage turns up major differences, they should be willing to re-evaluate their original valuation.
“We’re not arbitrary,” says one expert who claims he has no problems changing his opinion based on new findings. “We’re open-minded within reason. After all, we’re only as good as the data that’s available to us.”
Q: Not only did my lender’s appraiser come in with a lowball figure, he got my address wrong. My condo does not have a unit number — it never has in 30 years. But this inept appraiser put “Unit 1″ in the address. Then, after I had signed all the documents, the lender added “Unit 1″ to the address on all the deeds, docs, everything. It wasn’t until after I asked for finished copies that I realized what had been done.
The lender has since changed the documents to reflect the proper address, but I was told the address couldn’t be changed in the official records. Is that correct? I haven’t been able to get any help on this from anyone in government. Lisa Schafer. LaVerne Calif.
A: I’m certain the address can be corrected but you may have to hire an attorney to do so. First, though, I’d take my complaint to the head of the recorders’ office in your county. Don’t deal with clerks because, for the most part, they are not equipped or interested in doing anything out of the ordinary.
Go right to the boss. Make an appointment so you can see him face to face. Bring in all your evidence, and smile, laugh and be nice. Your approach: “Can you help me correct this silly little mistake that I helped create because I wasn’t paying attention to what I was signing. Hey, who does, right?”
If that doesn’t work, seek the advice of a competent real estate attorney. Putting a unit number on a heretofore “unitless” apartment — if there is more than one apartment, how come they are not numbered or otherwise differentiated in one fashion or another? — may or may not matter. But if it does, you may have to pay to set the record straight.
Found here.
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