I closed on a regular sale last week. Yes a good old regular deal, no short sale or REO, but I learned something that everyone should be aware of. Apparently, we now need to let our buyers know that not only will the porperty get appraised, but it will most likely get appraised twice.Since the appriaser gets chosen randomly and is not necessarily someone who knows the area, the appraisal may be inaccurate. The house was selling for 749K and got appraised for 649K. The appraiser did not use good comps and was not willing to add notes or use better comps. Sure, he doesn't have to, but what ensued was horrifying.The bank decided that the appraisal was too low and ordered an automatic appraisal where the numerical information just gets plugged in. It's called a Lara Appraisal. My mortgage person said that these appraisals are known to be inaccurate. Banks don't usually go by them.Well, the second appriasal came in at 549K. Now keep in mind that the buyer was only borrowing around 450K. You would think that this is not a problem if the buyer wants to move forward. Well now the buyer's LTV changed and the bank wants to charge points or raise the interest rate. Neither was acceptable to the buyer. (Keep in mind that at this point the buyer is wondering whether or not he should be paying $200K more than the bank is saying the home is worth.) In order not to lose the deal, the buyer's agent agreed to pay their .25pt.Now we are at the closing table.The buyer is going over their HUD and notices that they were charged for a second appraisal. They were charge much less than the original appraisal, but this was a difficult deal and they were not in the mood of paying another $150. That started a whole debate at the closing table.A second appraisal is now going to be very common. The banks are using them to verify the 1st appraisal in case something was amiss with the appriaser. Go figure. Appraisers are chosen randomly and now that is still not good enough. I now warn all my buyers to be prepared to pay for 2 appraisals.
I had a transaction fall out of escrow when the appraisal review decided it wasnt up to the appraised value.
We got the appraisal thru on the first go around, but during the long escrow period, a lender, bank, servicer, whatever you want to call them dumped several condos on the market for thousands below any of the current sales, the appraisal review decided that since these homes would sell for less, they would not do the loan.
You are all correct. As Maureen wrote, the only thing I know of to do, is to meet the appraiser (don't give them blind lockbox access - remove it!) and it's a good idea to show him/her the comps used on the pre-listing BPO and make sure he/she has a copy of the ratified contract. That's when I'm on the listing side. That's how I represent my seller clients' best interests . . . support the contract price. If it's not a corporate owned listing, tell the owners to dissapear. If the appraiser calls them directly (taking the phone number out of MLS is a better safeguard), the owners should just be unavailable; have the appraiser call you, and immediately call the appraiser to set up an appointment. I always make sure the loan officer knows to give the appraiser "my" phone number to schedule the inspection.
But when I'm representing the buyer and the listing agent is too lazy to meet the appraiser and support the contract price, it is usually good for my client, the buyer. If the appraisal comes in low, so be it. Let the seller and the listing agent deal with the Pockupine sitting in their laps. That's a listing agent that's well on their way to "DNU" status.
In most cases where the new loan is FHA (at least in my neck of the woods), two appraisals are being done by the lenders and many others are following suit, but I have not seen the buyer ever charged for the second appraisal.
The other rough-patch can come if the underwriter, unilateraly knocks an otherwise valid appraisal down to some lower value that makes the underwriter feel better. This is a real problem with then dealing with any appraisal contingencies. It appraised, but the underwriter knocks it down. I don't know of any case law yet, but this can present a big problem for the buyer who no longer has the safety of the appraisal contingency, but can't get the loan because the LTV was trashed.
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This is a real big problem; the big banks are making it very hard to close a transaction. This has been the norm for about 6-8 months, it is much worse than the last two years. A bigger part of the problem is that the banks all have diffident rules that the appraiser must follow, like what comps to use, reducing the value for a declining market when the market is not declining or declining less than other markets. I had one appraiser tell me that he had to reduce his value by 10% and that it was standard on every value he is doing now for this bank.
The banks now have general rules that there are applying to stable markets or markets that have not declined as much as others. The appraisers do not want to change their values after the have turned the value in, it is too much work. So when you add an appraiser that does not understand or know an area with all the rules it makes for a very bad value in most cases. We are also seeing appraisers not calling the agents to setup the appointment but the owner or if it is vacant just going.
We now instruct our sellers to have the appraiser call us to set up the appointment and we take the lockbox off (if we can) when we put the property into escrow. It is also very hard to close a transaction in 45 days; the normal in my market is now 60 days are more.
Just think we only have about a year or so more to deal with this, unless the 700 million dollar commercial markets pours over into the residential markets like many fear.
You're right Dominique. We know that in real estate being in the next town or the next county can make all the difference in the work in terms of values. The appraiser may be local in the eyes of the bank and may only be an hour away, which is acceptable to many banks. In this case, the buyer's agent ended up getting a local appraiser to reappraise (this became a third appraisal and the agent paid for it) in order to calm the buyers down and not lose the deal.
I do not understand if the banks want a local agent to sell their property why would they not want to make sure they had a local appraiser. I understand that they can no longer choose the appraiser but there needs to be a way to confirm their distance from the property.
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We got the appraisal thru on the first go around, but during the long escrow period, a lender, bank, servicer, whatever you want to call them dumped several condos on the market for thousands below any of the current sales, the appraisal review decided that since these homes would sell for less, they would not do the loan.
But when I'm representing the buyer and the listing agent is too lazy to meet the appraiser and support the contract price, it is usually good for my client, the buyer. If the appraisal comes in low, so be it. Let the seller and the listing agent deal with the Pockupine sitting in their laps. That's a listing agent that's well on their way to "DNU" status.
In most cases where the new loan is FHA (at least in my neck of the woods), two appraisals are being done by the lenders and many others are following suit, but I have not seen the buyer ever charged for the second appraisal.
The other rough-patch can come if the underwriter, unilateraly knocks an otherwise valid appraisal down to some lower value that makes the underwriter feel better. This is a real problem with then dealing with any appraisal contingencies. It appraised, but the underwriter knocks it down. I don't know of any case law yet, but this can present a big problem for the buyer who no longer has the safety of the appraisal contingency, but can't get the loan because the LTV was trashed.
The banks now have general rules that there are applying to stable markets or markets that have not declined as much as others. The appraisers do not want to change their values after the have turned the value in, it is too much work. So when you add an appraiser that does not understand or know an area with all the rules it makes for a very bad value in most cases. We are also seeing appraisers not calling the agents to setup the appointment but the owner or if it is vacant just going.
We now instruct our sellers to have the appraiser call us to set up the appointment and we take the lockbox off (if we can) when we put the property into escrow. It is also very hard to close a transaction in 45 days; the normal in my market is now 60 days are more.
Just think we only have about a year or so more to deal with this, unless the 700 million dollar commercial markets pours over into the residential markets like many fear.