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Low Appraisal? Getting Fair Market Value

Orange County, CA – Recent reports have suggested that house values may be on the rise again. But in spite of this news it appears that many appraisal prices are coming in on the low side. Low appraisals are causing significant problems for both potential and current homeowners. It’s not just a few isolated incidents either. It appears that a considerable amount of  home loans across the US either fall through, suffer major delays or have to be renegotiated thanks to initial low appraisal figures.

In the past, appraisers could be hand selected by the lender. The Home Valuation Code of Conduct (HVCC) changed that in May, 2009. Loan originators are no longer allowed to personally select an appraiser. The intent of the law was to eliminate any undue influence on the appraiser to bring in a specific value.

AMC Versus Appraisal Panel

At present, the system works in a fairly uniform manner. The loan officer will order the appraisal from an Appraisal Management Company (AMC) or Appraisal Panel, if they have one. The AMC will then pass the order to an appraiser. This person compiles a report on the property and passes this back to the AMC. They will then pass the report on to the lender for their use.

Appraisers who receive orders from AMC’s typically get paid 50%-60% of the fee. The rest is kept by the AMC. This reduction in income to the appraiser can create considerable problems. Appraisers are left to make up lost income through more orders. They turn and burn through the appraisals. Becasue of this, quality and turn-times suffer.

Appraisal panels can be set up by individual companies, like PrimeLending. In this case a pool of appraisers is hand selected by the local branch. These are all high quality appraisers and they retain the full fee. The quality and turn-times with the appraisals is much higher. PrimeLending has an Appraisal Desk that coordinates the appraisal panels and places the orders with an appraiser in the respective pool. This is a huge benefit to our borrowers and has been instrumental in preventing disasters later in the loan process.

Appraisal Process

Naturally, when properties are being appraised, appraisers will use comparable homes (comps) to ascertain the value of the property. This will involve looking at sale prices of similar properties in similar areas in order to work out their opinion of value. Unfortunately, it’s often thought that appraisers tend to opt for the homes that have sold for the lowest prices in order to protect themselves against any backlash from the lenders. This is more fiction than fact. It is true that some appraisers are more conservative than others. However, the biggest challenges with value appear on unique properties with few comparables.

Refuting Value

So what can be done when an appraisal value comes in lower than expected? The only hope buyers and lenders have of making sure a sale can still go through is to either renegotiate the price, invest more money to make up the difference, or present new comparable evidence that supports a higher valuation. This would normally be carried out by the loan officer with the help of the borrower or real estate agent. Requesting a change in value is not something that is commonly done. But if a fair argument can be presented there’s no reason why a new valuation cannot be realized.

This can be a real problem at the moment with getting mortgages through the system. However, we’re fortunate that the market place is gradually changing. As we see property values stabilize, and even increase in areas like Orange County, it’s anticipated that there will be less need to go through this appeal process in the future. An upwardly mobile property market should mean more confident valuations without such an emphasis on protecting against a drop in value when it comes to appraisals.

Contact me if you have appraisal or valuation questions.

Scott Storace

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Comments:

    • cesar Says:
    • July 25th, 2013

    I had three buyers willing to pay $ 350.000.00 for my property, but the bank selected appraiser appraised it at $270.000.00.
    One buyer had $100.000.00 down payment.
    The other buyer wants to get a government loan.
    Since the appraised value came low the sale will not be made.
    What is the solution ?
    THanks Mr CMBC
    The prices are going up very quickly

    • Scott Storace Says:
    • July 25th, 2013

    There is no silver bullet to get a higher value. You need to scrutinize the offers that you are receiving and the quality of the borrower behind each. This could be an appraiser issue or it could be a comp issue. If you feel there is good support for the value at $350,000 then there are options.

    1. Look at the comp’s used by the appraiser. If they did not use relevant comp’s, then you should request a rebuttal and ask them to look at comp’s that you feel are better justification of your purchase price.
    2. If this is the first offer and first appraisal, then it may behoove you to let it go and begin accepting new offers once again. It may be an issue the with the appraiser.
    3. Look for stronger buyers. A strong buyer with the ability to put more cash down will help significantly. If there are multiple offers and prices are still rising rapidly then cash strong buyers are willing to add more cash to get the deal done.

    Your realtor should be able to advise you about the strengths of each offer.

    Scott