Your home loan approval depends upon many issues, such as your credit worthiness, interest rates and the amount for which your new home may be appraised. If the seller has accepted your offer, you have reason to be thrilled, but unfortunately in today's home buying atmosphere, your loan is far from a given. Credit hurdles and interest rates notwithstanding, if your potential new home appraises for below the agreed upon purchase price, you may be in for a huge disappointment. Banks simply won't lend for more than the appraised price, since the home is the potential collateral for the mortgage. If you are dealing with an unexpectedly low appraisal, read on for more information about why this is happening more and more and what to do about it.
Why so many low appraisals?
Since the housing financing fiasco in 2008, not only has the bank industry undergone a complete overhaul, but the appraisal industry has as well. One of the major contributing factors to the housing bubble burst was the unhealthy relationship between lenders and appraisers, leading to over-inflated home prices and thus over-inflated loans. During this time period, lenders and appraisals conspired to inflate home values and the corresponding loans, causing regrettable damage to the industry at large and home owners in particular.
New regulations now require that there be a firewall between lenders and appraisers and that appraisers be kept in the dark about the amount of the pending home loan to prevent bias. This firewall is presented in the form of appraisal management companies, who act as the middleman. Unfortunately, appraisal management companies charge fees for their service, and the professional appraisers are seeing their fees plummet as a result. Inexperienced appraisers willing to work for less and sometimes traveling from a distance to work have led to a tendency for properties to be undervalued. Experience and local knowledge are valuable traits in a home appraiser.
How you can fight back.
1. You have the option to hire an independent appraiser yourself to complement the bank-hired appraiser. The bank should be made aware of significant differences in the appraised values of a given home.
2. If you challenge the data of an appraiser, be prepared to produce your own counter-data.
3. File a formal protest for the low appraisal with the lending institution.
4. Ask the bank to conduct a new appraisal with a different appraiser or appraisal management company.
5. Ask that the appraisal include "for sale by owner" homes, which may not be included in the Multiple Listing Service database that appraisers use for "comps" (comparable home sales in the same neighborhood).
6. Alert the appraiser to improvements that could raise the appraised value that could be overlooked, such as particular types of flooring or windows with higher insulation values.
7. If none of these tips work, you can try appealing to the seller to lower the purchase price or offer a larger down payment to bring down the financed amount.
Throughout the home-buying process, your experienced, local real estate agent should be the go-to person for help and information about all aspects of completing a successful purchase of your dream home.
For more information, contact Haring Realty or a similar company.