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Mortgage Q&A: Appraisals can defy good sense
I have quite a bit of sympathy for home appraisers. Their job has become much harder since the mortgage meltdown and housing collapse. But I'm afraid appraisers hate me. Or they're just really defensive. Or both.
Last week, I shared a story about a purchase that's on the brink of falling apart because the appraisal report came in $18,000 under the contract price of $268,000. Even if the seller were willing to renegotiate and drop the price to the appraisal amount of $250,000, he can't because his mortgage balance is $255,000 and he doesn't have the money he would be required to bring to the settlement table. Likewise, my buyer doesn't have the money for an increased down payment.
The real estate agents involved in the transaction provided me with the comparables they used in coming up with the contract price. The appraiser used lower-priced homes in his report, and the agents objected. The report is under appeal.
I wrote in last week's column that I don't blame appraisers for being conservative these days because the industry has been accused of contributing to the mortgage mess by inflating home values. But I also questioned why some appraisers ignore the concept that a good indication of a home's value is what a third party is prepared to pay.
That's all I said in the column. One appraiser e-mailed me and accused me of "lambasting appraisers for doing their work." "Lambaste" means to "violently attack." Come on, now. Any reasonable person who read last week's column would agree that I did not "lambaste" appraisers.
The email continued by accusing me personally of causing the mortgage meltdown by "creating all the junk loans and [forcing] those on buyers who could not afford them." My company has not originated a single subprime loan in 20 years. He also said "bad people" in my industry forced the government regulation we have now.
I'm not one to back down in a fight, so I made two points in my reply. First, I described the situation facing next-door neighbors whom I currently am refinancing. They live in a subdivision in Alexandria, and their homes are virtually identical in type, size and condition.
Because their loans will be sold to the government-owned mortgage giant Fannie Mae, the lender requires that the appraisals be assigned independently. The first appraiser valued one house at $720,000. The other appraiser valued the second house at $565,000.
With the exception of the comparables used in the reports, the data about each home was virtually identical. Unfortunately, the homeowner whose house appraised for $565,000 will have to pay a higher interest rate.
What does this suggest? It suggests to me that appraising a property is not an exact science. You would think the conservative appraiser could have been a bit more flexible in choosing comparables that would suggest the property is worth more than $565,000. After all, Zillow.com values the property at $660,000 and the city tax assessment values the house at $640,000. Assessed values are almost always lower than the true market value.
Both borrowers are simply seeking a lower rate and payment, which would help our ailing economy.
This situation suggests something else, and I'll get blasted for saying it. It suggests that many appraisers don't have a clue what properties are truly worth these days. As I said earlier, an appraiser's job is tough.
The second point I made to this angry appraiser? In rebuttal to his accusation that "bad people" in my industry caused the mess, I pointed out that the loan originator didn't sign his name on the bottom of an inflated appraisal report. An appraiser did.
Henry Savage is president of PMC Mortgage in Alexandria. Send email to firstname.lastname@example.org.
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