A few months ago I refinanced my home mortgage to lower the interest rate and combine my old first mortgage with my home equity credit line and lower my payments. I figured it was time to get rid of that adjustable-rate home equity credit line because it looks like interest rates are heading up.
My current mortgage lender offered a “stated income” jumbo fixed-rate loan with virtually no fees except for the lender’s title policy and an appraisal fee. It seemed like a very good deal. Incidentally, a stated-income mortgage means the lender doesn’t demand income verification, such as income-tax returns or W-2s. It’s great for self-employeds like me.
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The two most important things to the lender on such a mortgage are (1) the borrower’s FICO (Fair, Isaac and Co.) credit score, and (2) the mortgage’s loan-to-value ratio. With a FICO score around 750 and a loan-to-value ratio about 50 percent, my mortgage was an obvious “no brainer” for the lender.
But I was worried about the appraisal. The reason is I live in a town where every home is different. A “bad appraisal” can kill a home sale or mortgage refinance. I know. It happened to me in the past.
IS APPRAISAL AN ART OR A SCIENCE? In the past, I’ve written many times that real estate appraisal is an art rather than an exact science. But, thanks to computerized appraisals, I’m beginning to wonder.
After my refinanced mortgage was approved, subject to the appraisal, my lender’s loan agent (who was located in Las Vegas) asked if I knew of any good local appraisers. Even after phoning some of my Realtor friends who sell homes in my town, there was no consensus of who is the best appraiser.
So the loan agent phoned a few nearby bankers and hired a highly recommended appraiser from a nearby community.
When she arrived at my house in her sports car, with her dog in the back seat, I wasn’t sure what to think. Although my house is “average” for the area, the appraiser was neither critical nor praising. But she was very professional and extremely competent.
I was armed with some recent “comps” (sales prices of similar nearby homes) to hand to the appraiser, along with a list of my home’s features. But when I mentioned what I thought my house is worth, she replied, “You might be a bit on the low side.”
That’s when I decided to keep that information to myself and see how the appraisal turned out. Two days later, the loan agent phoned from Las Vegas to tell me the appraised value. It was about $100,000 higher than I estimated.
When I received a copy of the appraisal from the lender, it turned out the appraiser knew of several very recent comparable home sales prices within a block or two of which I was not aware. I’m sure glad I kept my mouth shut.
COMPUTERS HAVE CHANGED REAL ESTATE APPRAISALS. Wondering how I could be so wrong about undervaluing my home, I then went to several Internet Web sites. Some had outdated nearby home sales prices as much as 12 months old (most mortgage lenders will only accept comparable sales prices within the past six months).
But then I found a Web site where all I had to do was enter my address and my home’s square footage. Within a few seconds, it came back with a valuation at almost the same amount as the expert appraiser’s valuation of my home, based on four nearby recent comparable home sales prices.
This was my second personal experience with computerized appraisals. My first was a few years ago when I obtained a home equity credit line on my second-home condo in Minnesota.
A day or two after I gave the loan agent my guesstimate of the condo’s value, based on recent sales prices I knew about, she phoned to politely inform me I was about $50,000 too low, based on the lender’s computerized appraisal confirmed by a drive-by appraisal. The result was a larger credit line than I requested.
My third computerized appraisal experience occurred about six weeks after my refinanced home mortgage was recorded. I was contacted by another lender offering me a large home equity credit line with no income verification, no costs and a below-prime interest rate.
Although I didn’t need the money, remembering the old motto, “Borrow money when you don’t need it,” I accepted. This second lender used a computerized appraisal, which confirmed I had plenty of home equity.
A few days later, I received an overnight package of papers to sign in front of a notary public (which cost me $20). The “clincher” was I got 25,000 frequent flyer miles on my favorite airline (United) just for taking out the home equity credit line.
Now I’ve got a low-interest credit line, a checkbook, and even a Visa credit card just waiting for me to find a place to use that money.
ARE APPRAISERS OBSOLETE? I don’t think so. Every month I read the excellent “Appraisal Today” newsletter by Ann O’Rourke, which reports on new developments in the appraisal industry.
Appraisers are the mortgage lender’s eyes and ears to verify the property’s condition and market value. Especially with VA and FHA home loans, appraisers are required by lenders to note the need for any repairs that affect the desirability and market value of the property.
For example, I once had an FHA appraiser require the back of a house he appraised be painted (although in my opinion the front of the house also needed fresh painting).
As an outside observer, I am amazed at the never-ending changes in professional appraisal rules (called USPAP), the importance of computers to appraisers, and the need for an appraiser’s personal judgment and experience to estimate a property’s market value.
I am also surprised at the critical role a few dishonest appraisers play in the many real estate mortgage fraud cases where crooked appraisers get sent to jail. But I hasten to add those “bad appraisers” are a very small portion of all the hard-working honest appraisers.
HOW TO GET AN ACCURATE APPRAISAL. Savvy homeowners and realty agents can use the Internet to research home values within a specific area. As I recently discovered, computerized appraisals are becoming more and more accurate. But there are still a few basic rules to assure an accurate appraisal:
1. GET THE PROPERTY INTO TIP-TOP CONDITION. If you need a top-dollar appraisal of a house or condo, whether you are a buyer, seller or refinancing homeowner like me, the first step is to get it into its best “model home” condition. Experienced realty agents can provide excellent advice on how to do this, such as by cleaning, repairing and fixing up.
2. ALWAYS ACCOMPANY THE APPRAISER. Either the property owner or the realty agent involved in the property sale should always accompany the appraiser to answer any questions about the home’s benefits and features.
As I was prepared to do when my home was recently appraised, it helps to be prepared with a list of nearby recent comparable home sales prices and a list of the home’s features.
It is not unusual for a busy appraiser to inspect three or four homes per day and, after a while, even with the help of digital photos, those homes tend to blur in the appraiser’s mind so any information the appraiser has when writing the appraisal can help.
3. BE SURE THE LENDER WILL PROMPTLY PROVIDE A COPY OF THE APPRAISAL. Although the home buyer or owner often pays for the appraisal, technically the appraisal belongs to the mortgage lender who ordered the appraisal. Borrowers should be certain the lender agrees to promptly supply a copy of that appraisal so the borrower can review it and correct any mistakes the appraiser might have made. My lender (Wells Fargo) even sent me a FedEx overnight copy of the appraisal.
If you feel the appraiser has made a serious error and he or she refuses to correct it, ask the mortgage lender for a prompt “review appraisal” by another appraiser to be paid by the lender. Should you discover a violation of appraisal standards, a complaint to the state appraisal license agency will usually produce an investigation and even discipline, if warranted.
SUMMARY: Thanks to extensive use of computers, the art of residential appraisal is becoming almost an exact science. But appraisers will always be needed to verify the facts and make their judgments to arrive at a property’s appraised current valuation.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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