Banks Are Low Balling Appraisals
Tips on What You Can Do
What is upsetting to hear is how the banks are exacerbating this real estate crisis buy "killing" the deals that qualified buyers and motivated sellers have already agreed upon. Banks are so scared that a bust in real estate is ultimately coming that they will make a buyer and seller renegotiate the contract to a lower price.
In the past, I have talked to many appraisers. They have always told me that as long as you have a contract and it is within a reasonable price range they would give that price to you in the appraisal because in their minds the contract is a comparable.
Banks are factoring in a foreclosure potential for properties. Typically banks lose about sixty per cent of a mortgage amount in addition to recovery costs for a foreclosure procedure. They have to write down the amounts to keep the loan going until they have no alternative but to go through foreclosure proceedings. They do not want to be property owners. Most properties have already seen 20-30% discounts from the 2005 highs. The banks are adding a "discount" surcharge to this by demanding these low ball appraisals.
Buyers of course can put more money down and that would help the transaction to go through because it would mean a lower mortgage amount. However, today, we do not have too many people that can put eighty per cent down or more including paying for closing costs.
So what else can a buyer or seller do if you get one of these low ball appraisals? Here are some tips on how to begin to challenge your bank.
1. Whoever pays for the appraisal whether it is the buyer or the homeowner, they are entitled to receive a full copy of the appraisal. Request the copy to be faxed to you immediately. Then look for errors in the comparables. For example: if you have a home similar in square footage and other amenities to a home that sold within a 6 month period down the street for a acceptable price to you, then that home should be in their market evaluation as one of their comparables. If not, then that is a red flag!
2. Obtain three comparable sales within the last 6 months within your neighborhood. If there are no comparable sales, then you would need to go out to a one mile radius from your neighborhood, but the closer to your home the better. You can call a Realtor for this information or go online to your county's property tax rolls where you can do your own searching. However, not all counties in every state are online.
3. Despite the fact we are hearing that the banks are not looking at independent appraisals, you should still invest the money in one. It will help your case if you have to go to step 4 and 5.
4. It is always best to put things in writing. Write to the financial institution you are working with, and state you are appealing and the reasons why. Send it registered mail with a return receipt so you have documented the letter.
5. Each state has a financial regulatory department that governs the banking industry. You can search online for your state "Division of Finance". Make a complaint to them in writing also sending it registered mail with a return receipt.
The saying goes "an appraisal is an art not a science". However, the banks are manipulating this art and I question this as an acceptable process in the appraisal profession.
Published by Sea Shepherd
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- Obtain three comparable sales within the last 6 months within your neighborhood.
- It is always best to put things in writing.
27 Comments
Post a CommentCHASE just appraised a home I'm buying after my loan locked in.
They pulled 5 comparables 4 of which were within .5 miles of my home and in the same development. All were for more money than my price.
They skipped other comparables that were also within the .5 miles and picked a home 2 miles away in a lesser development with a price of $75,000 less than the others just to "legitimize" a lowballed appraisal.
Somehow magically their appraisal amount is EXACTLY the same as the price I am paying for the home.
There is nothing you can do about it. They won't take your own appraisal. Only their "appraisal" This is what happens when you have no regulation.
The banks have been skewing prices up, and now they are skewing prices down. Maybe if they stopped manipulating the market it might have a chance of becoming stable.
My wife and I are in this situation right now. I am putting 20% down on a 760,000 house I have great credit etc. The banks appraiser that I had to pay 325 dollars for came in at 650,000!! and now they will only lend 90% of that value which is 25,000 less than we need and had agreed on. It is garbage and we even submitted other comps that they wont look at plus they wont let me see the appraisal!. I had deja vu when I read this article and on top of it all there is another couple willing to pay 10,000 more than us waiting for us to fall through so I cant negotiate the price. The bank will get my money with absolutely no risk on their part.
Actually I beleive that this is informative, however is mis-leading. Federally regulated banks are not allowed to choose their appraisers. Many large banks have to rely on vendors to coordinate their appraisal. These vendors are shared with other major and minor banks. Any appraiser can be on this list of referrals, however appraisers can also be removed, (due to data integrity issues and unethical behaviors). Lenders do not want appraisals to come in low. They want to borrow you as much money as you are qualified for. Unlike real estate agents, appraisers must use factual data to appraise a property, this protects the lender.
A couple points to take away:
The appraisal ordered by the lender is not to be used for any other purpose then providing loan funding. If you question the value, you should order your own appraisal. (Please note that most lenders will not allow the use of a second appraisal, however data from your private appraisal can be used to help challenge the value) The
Well done -- another article that just leaves me shaking my head.
I had no idea about this! Thanks for the information. My husband and I bought our newly constructed house 14 months ago when the market was really good. Now we see foreclosures on just about every street around here. In fact, there is one just a few doors down from us. It makes you wonder what the houses around here are selling for these days.
Sophie
Credit Unions require appraisals..they are all in the same boat...
Great article, and I agree with Mr. Pennington. Can you say "credit union"?
Great article, I do not understand real estate all that well, however I am trying to learn, so i know what is going on come time to purchase my first home. Thankyou for the info.
Very important information. I remember years ago when appraisals seemed too high. The appraisers could magically make those numbers work to obtain a loan.
Very informative and well written piece. We are staying put for now, even though we are struggling. Who isn't ? :(