- - Thursday, June 30, 2011

Q. I recently made an application to refinance my $265,000 mortgage and convert a 6 percent rate to 4.50 percent and take out $25,000 to pay off consumer debt and replace the roof.

When I met the appraiser, I showed him around the house. He took pictures and was very pleasant. I was floored when my loan officer called to tell me the value came in at just $340,000. I thought it would appraise for at least $400,000.

Now I’m out the $380 appraisal fee, and I can’t refinance. Is there a process to appeal the appraisal?

A. Yes, and a successful appeal will depend entirely upon information you provide. Most lenders have some sort of appeal process if an applicant objects to an appraiser’s estimate of value.

The Home Value Code of Conduct (HVCC) rules enacted a couple of years ago prohibit any kind of close communication between the loan originator and the appraiser, based on the assumption that the originator is out to unduly influence the appraiser. This may have been a problem to some degree, but from my 20 years of experience, I know a good appraiser understands that any opinion of value must be supported by the facts and comparables in the report.

For an appeal to be successful, the homeowner must provide information that directly supports a higher value. Typically, the homeowner will point out factual errors in the report. It’s not uncommon for an appraiser to make an honest mistake, such as omitting a bathroom.

It’s also not uncommon for an appraiser to omit a particular comparable home the homeowner would deem appropriate. In most cases, an appraiser has a reason for choosing certain comparables over others, but I have seen instances in which an appraiser has overlooked a good comparable and then has amended the report accordingly.

My advice is to call the appraiser and ask some questions. If there are factual errors in the report, point them out. If you know of similar properties that have sold recently and may support a higher value, ask the appraiser why they weren’t used.

Unfortunately, the majority of “low” appraisal reports are reasonable. The fact is, property values have fallen by 30 percent or more over the past few years — a fact homeowners often have a hard time swallowing.

Assuming you are unsuccessful in your appeal, you still should be able to refinance. With today’s low rates, you should be able to lower your 6 percent mortgage to the mid-4 percent range if you lower your new loan amount to 80 percent of the home’s value. This would enable you to borrow $272,000, reduce the rate on your existing mortgage balance and take out $7,000 to pay off some debt or replace your roof.

It’s not everything you wanted, but it still improves your financial situation.

Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.

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