- - Thursday, April 19, 2012

One of the more unpleasant tasks of my job is to be the messenger when it comes to telling a homeowner that his property appraised for less than he expected during the refinance process. In many cases, a lower appraised value will result in a higher interest rate and sometimes will kill the deal.

I’m no expert at analyzing appraisal reports, but most reports that come in with a disappointing value appear to me to be reasonable. In fact, I refinanced my home last summer, and my appraisal came in almost 30 percent lower than what I had paid for the home almost five years earlier. Luckily, I had made a large down payment, so the low appraisal didn’t affect my refinance. As disappointing as it was, I thought the report was, indeed, reasonable.

The plain fact is that property values - contrary to the predictions of the numbskulls who insisted it would never happen - have fallen significantly over the past few years.

No one knows when we will hit the bottom, but there are indications we are close. One indication is that the real estate collapse already has been pretty severe. One of my mentors in business once said to me, “Remember this, Henry, ‘The bigger the boom, the bigger the bust.’ ” He could not have been more correct.

You can search the archives of this column and find a column I wrote in 1995 describing the unprecedented behavior of home buyers in the Washington metro area. Back then, buyers were waiving very basic and standard protections such as appraisal, financing and home-inspection contingencies. Such behavior, I correctly asserted, was a sign that the pendulum was due to come swinging in the other direction. I was right.

If you are in the market for a refinance, as most homeowners should be with today’s low rates, make sure you know what value your property must appraise for in order to prevent your refinance deal from being adversely affected or even killed.

Back before the Home Value Code of Conduct (HVCC) was implemented, I could call my appraiser, and he could take a complimentary look and see what range the property might appraise for. This saved time for me and money for the homeowner.

Apparently, however, the government thinks such an interaction equates to my unethically “influencing” the appraiser. Thanks to the HVCC, the borrower now must pay for an entire report before he can get a “feel” for what is property is worth.

But that’s a whole different story. If I have a client who has no idea what his property is worth, I ask him to check with a local real estate agent who can provide data on recent sales in his neighborhood. This can give him a clue as to what his property might appraise for.

If the numbers don’t look good, he can decide whether he wants to fork out - and possibly waste - $360 for a full report that may not result in an appraised value sufficient to get the refi done.

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

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