If you need to know the value of a piece of real estate anywhere from a month ago to a decade ago, it can be done. I’ll show you how it can be done. How it can benefit you or your clients. How an appraiser arrives at value even long after you have sold and moved away. As an experienced appraiser in Southern California with over 20 years experience I would like to share my real estate experience with you.
What is a historical appraisal? Really all appraisals are just a snap-shot of time. Most appraisals are for current market value. So the very day the appraiser comes out and inspects the property the value is valid on that date only and could become no longer valid the very next day. There could be an economic or natural disaster that could change the value overnight. With a historical appraisal the effective date is what the property was worth on that required date, anywhere from last month to 10 or more years ago.
What is the purpose of a historical appraisal? Many and varied reasons. Many accountants and financial planners need to determine the value of property held in estate when the owner dies. This is known as a “Date of Death” appraisal. The IRS will want a professional appraisal in the file to document the value as of that date. Attorneys use the historical appraisal to determine what assets belong to which party. For example let’s say a single person bought a home in 1985 but met and married current spouse in 1995 and separated in 2005. It would be important to know the fair market value on those dates for fair and equitable dissolution. The same would be true of business partners in a property or even family members that pooled financial resources but need to move on.
Are there limitations to what can be done? You would think if you had sold the property years ago and moved away that it could not be done. That’s not true. I recently appraised a property 10 years back, that at the time it was only 1/2 the size, was before the swimming pool, and the owner sold and moved out long ago. In this case an exterior “drive-by” appraisal was called for and the house was valued based on the previous size, minus the pool and without bothering the new owner. In this case both opposing appraisals came in very close to each other and settlement was that much easier.
A historical appraisal sometimes involves similar principles of New Construction Appraisals where only specifications on paper exist and the appraiser determines the value as if completed to your plans and specs. This is sometimes referred to as a Feasibility Study and used to determine if what you plan on building is worth what you expect it to be worth and what adjustments in the build will increase or decrease value.
In these more complicated retro-active or historical appraisals it is important to find an appraiser with years of experience in that market area. An appraiser with sufficient experience may have insight in this area before, during and after changes that have occurred over the last 20 years in that target market. Additionally there are certain appraisal formats that are acceptable for use and others that are in direct OREA violation.
Lastly in historic appraisals, the use of comparable data must all fall before the effective date of the appraisal. If your effective date is 1-17-94 all sales comparables must fall before that date, none after. If for example you needed to know the value of a property sometime around the Northridge earthquake, using sale comps before or after would have tremendous impact on that value.
If the appraisal is for court work we may be called on the witness stand to testify to our report and defend it against the opposing attorney and his witness. There are additional fees for this type of testimony. As a professional appraiser it’s my responsibility to be the best possible resource for my client.
If I can be of help to you I can be reached at activerain.com/cdiamond .
Appraiser/Author
Clifford Diamond, CREA
What is PMI and how to get rid of it
Assuming a decent credit rating, any potential home buyer can secure a loan for a house. Why? Because these transactions are secured by a very valuable asset: the home itself. If a borrower defaults on a loan, the risk for the lender is often only the difference between the value of the home and the amount outstanding on the loan, less the amount it costs them to foreclose and resell the property. For this reason, lenders are very wary of lending more than a certain percentage of a homes value. Traditionally, this has been 80 percent. The cushion this provides the lender helps ensure that their losses from loan defaults are kept to a minimum.
In recent years, however, it has become increasingly more common to see home buyers using down payments of 10, 5 or even 0 percent. Naturally, loaning this much presents the lenders with a lot more risk. To offset this risk, these transactions often require Private Mortgage Insurance or PMI. This supplemental policy protects the lender in case a borrower defaults on the loan, and the value of the house is lower than the loan balance.
PMI has been a large money-maker for the mortgage lenders. The amount of the insurance often $ 40-$ 50 per month for a $ 100,000 house is commonly rolled into the mortgage payment. Given the size of the overall payment, this additional fee is often overlooked. Homeowners continue to pay the PMI even after their loan balance has dropped below the original 80 percent threshold. This occurs naturally, of course, as the home owner pays down the principal on the loan. On a typical 30-year loan, however, it can take many years to reach that point.
Until recently lenders were under no obligation to tell home owners when they had reached a point where the PMI can be dropped. That all changed in 1999, when the Homeowners Protection Act took effect. In most cases, this law now obligates lenders to terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Savvy homeowners can get off the hook a little earlier. The law stipulates that, upon request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent!
It is important to note that this law only applies to home loans whether first time or refinances that closed after July, 1999. Also certain other conditions must be met, such as being current on the loan payments. Buyers that purchased before July 1999 can also have their PMI removed, but they must initiate the process and though the lender is under no obligation to do so, most will.
Of course, there is another way that home owners equity can reach beyond the 80/20 percent ratio. Many areas of the United States have seen significant gains in the value of real estate over the past decade. In fact, certain areas have seen appreciation levels of 100 percent or more. Even those people living in areas with more modest gains may find that the value of their property has quickly grown to the point where the amount of principal they owe on their loan is less than 80 percent of the homes current value. Again, in these cases, the lenders are under no legal obligation to remove the PMI. In most cases, however, as long as the home owner has been prompt on their loan payments and dont represent an exceptional risk, the lenders will agree to remove the extra fees.
The hardest thing for most home owners to know is just when does their home equity rise above this magical 20 percent point? A certified, licensed real estate appraiser can certainly help. It is an appraisers job to know the market dynamics of their area. They know when property values have risen or declined. Many appraisers offer specific services to help customers find the value of their homes and remove PMI payments. Faced with this data, the mortgage company will most often eliminate the PMI with little trouble. The savings from dropping the PMI pays for the appraisal in a matter of months. At which time, the home owner can enjoy the savings from that point on.
Assessment appeal services
Most localities determine your property tax burden based on an ad valorem assessment of the property’s value. Sometimes, as a property owner, you get an unwanted surprise in the mail telling you your taxes are going up, and sometimes it may seem as though your assessment is too high.
It is common knowledge that in many areas values are in a decline. It is possible that homeowners who have recently purchased their homes are being assessed above market value due to the declining property values in some areas. Of course every case is different and it is recommended you consult an appraiser or a local real estate professional for input on current market trends in your area.
Often, matters like this can be resolved with a phone call. However, if after discussing your assessment with your local taxing authority you still feel as though your property was overvalued, a professional, independent, third-party appraiser is often your best bet in proving your case. That’s where we come in. There are as many different procedures for appealing assessments as there are property taxing districts, so it’s important to enlist the help of a professional appraisal firm that’s experienced and trained in the ins and outs of your particular jurisdiction.
Please note: It makes sense to do your own research before determining whether to go forward with a property assessment appeal, especially before you make the decision to hire a professional appraiser. However, according to the Uniform Standards of Professional Appraisal Practice (USPAP), we are not allowed to take “shortcuts” — i.e., your research — and use it on its face as part of our independent evaluation. When you hire us for an assessment appeal, you’re commissioning an independent, third-party professional appraisal report. As such we do our own evaluation, beginning to end. If you’re right that your property has been overvalued, an independent report such as ours will be even more persuasive than any other evidence you can marshal on your own. But it depends on our ability to do the work independently.
Sometimes, you will have a hearing on your assessment appeal and will need for the appraiser you’ve hired to testify on your behalf. Be assured that at INFINITY APPRAISAL GROUP, LLC, we are able to professionally testify at appeal hearings. Browse our website to learn more about our qualifications, expertise and services offered.
Pablo Soto State Certified Residential Real Estate Appraiser in Florida RD6441.
Infinity Appraisal Group, LLC.
17049 NW 23 ST
Pembroke Pines, FL 33028
http://www.infinityappraisalgroup.com
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What is a real estate appraisal you ask? When somebody gets one done they’re basically having their home or property valued at the going market rate. The appraiser will inspect the property or home and then give it a monetary value. This is done when people are planning to sell their house or property and would like to know what a fair asking price would be. However, some people also get the home valued for other things such as insurance, divorce, tax, loan, and investment purposes.
Each property is unique even though many of them will be valued at the same price. This is usually because of a place’s location and what kind of shape it’s in. In most places around the world the real estate appraisal will have to be carried out by as certified or licensed professional and it will be written on a standard form. However, each country will have its own standards and methods to follow.
Even though the appraiser will attach a market value to a home, you can still sell it for whatever you feel like. If it’s appraised at $ 300,000 there’s no reason you can’t ask for more. If you get more is another kettle of fish though. You may even get less than the so-called market value. There’s not really any connection between the actual price a property is sold for and its value.
In America, the appraisal may give you the market value along with foreclosure, fair market, distressed sale, and investment values. Of course, the value of a house can fluctuate quite a bit depending upon certain economical factors, such as mortgage and interest rates and the general state of the economy. There could be other factors too. For instance bad neighbors could cause your property value to decrease.
If your neighbors don’t take care of their dwelling and land then it will generally reflect in the worth of your unit. This is why most areas have bylaws that state what people can and cannot have located on their land or grow on it. However, the items and furniture you have in your home don’t affect the value of it. These are removable items that aren’t considered permanent fixtures.
You may also be wondering what is a real estate appraisal worth. It all depends on the region you live in and what the bylaws, rules, and regulations are. But you will have to pay to have one performed usually, unless a licensed agent offers to do it for free if you use him or her to sell your home for you. Remember, this process is different than an inspection.
Most reports include information on the property as well as similar ones. The real estate market in the area is taken into consideration as is the type of area the house is located in. There are two basic appraisal methods for residential dwellings. These are the sales comparison and cost approaches. A comparison method means the house is compared to similar ones in the region.
The cost method usually takes into consideration new places as the cost of the homes is easier to nail down. An appraiser will estimate how much it would cost to replace the home if it was destroyed. An appraisal comes in handy when you’re trying to borrow money as the property will likely be used as collateral.
Prior to look for any Whitby real estate agents, you need to do some research about the area, your finance situation, then you need to hire an experienced Ajax real estate agents broker to handle your needs.
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When applying for a mortgage loan to purchase a house among the available Flower Mound homes for sale, you need to get a real estate appraisal to determine the property’s market value. This can greatly affect the outcome of your loan application so it’s important to understand such matter.
During the loan process, your personal approval is achieved early; however, the final commitment for the loan often depends on a pleasing appraisal because the bank wants to make sure that the money it’s lending is covered if ever you fail to pay. If the appraisal is lower than the selling price, the mortgage loan may possibly be rejected, but price isn’t the only factor that can cause a problem. Other details on an appraiser’s report can negatively affect your application. Normally, lenders carefully study the appraisal before deciding whether the house is qualified to be a security for your mortgage loan or not. Some examples include the following:
- If the projected period of time to sell the home is longer than the standard in the area, the bank may not like it.
- If the appraiser takes note of the passage to the house is from an exclusive and shared road, your bank may possibly want to see to it that there’s a road maintenance contract signed by everybody who passes by the road, proving that its maintenance is distributed to all involved parties.
Residential appraisals can be done in various ways. The two commonly used methods for homes are the following:
1. Cost Approach – This appraisal method is most beneficial for new residential properties wherein the expenses to build it are already established. The appraiser simply approximates the costs to replace the house if ever it gets destroyed.
2. Sales Comparison Approach – In this method, the appraiser approximates the home’s market value by weighing it against similar houses sold in the vicinity. These houses used are known as comparables or comps. Since there are no properties that are exactly the same, the appraiser makes paperwork modifications to the comparables so that their characteristics are more aligned with the subject property’s features. The outcome is a number that explains how much each comp would sell if it had similar characteristics as the home in question.
Always remember that an appraisal is different from a home inspection. Appraisers do make notes of evident damages they see, but they don’t do any normal inspection tasks, such as testing appliances, looking at the roof, or checking the chimney. Never rely on a real estate appraisal to aid you in finding out if the property is in a good condition.
If the appraisal is low, don’t panic. There are things you can do to fix the problem. Always discuss such matters with your agent when buying a property in Flower Mound real estate.
Josh Hartman is a freelance writer who specializes in writing content about real estate, business and investment. Check out great Flower Mound homes for sale and Flower Mound real estate listings.
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An appraisal is simply an opinion of value. Some appraisals are a professional appraiser’s opinion, others are guesses. Still others are based upon the sometimes harsh reality of the marketplace. The most important factors for appraisers are figures of recent real estate sales involving comparable properties. Basically, there are only two opinions that matter.
(1) The list price is a “wishful-thinking” value, merely a hopeful estimate. It is set by the seller. The sale price is the real value. It is determined by you, the buyer. Of course, the price you finally agree to pay is partially determined by the seller through the negotiation process. But you and only you decide how much you are willing to pay.
The lender’s is the second opinion that truly matters. The bank usually employs appraisers, although sometimes it uses third party “fee” appraisers. A value of the property is determined, and the lender will then make a mortgage loan based on this figure.
If the lender’s appraisal “comes in” lower than your agreed-upon sale price, you may not be able to buy the home. The lender bases its lending decision upon this professional opinion of value. It will only loan a percentage of this figure. Therefore, if you are counting on using the lender’s funds in a certain amount to finance the purchase of your home, a low appraisal from the bank can seriously damage your first time home buying efforts.
The lender’s opinion of value can be disputed. The appraisal department at a bank will usually welcome previously overlooked comparable sales data (“comps”) and other factors which might affect their appraisal. Sometimes there were sales in the area of which the appraiser was unaware. You and/or your real estate agent often know about non-MLS sales of which the bank appraiser has no knowledge.
Perhaps you decided to buy this house because the seller spent thousands on structural and mechanical system upgrades. The lender is not to aware of these value-enhancing improvements. When you bring them to the appraiser’s attention, you quite possibly will induce the appraisal department to raise the appraisal figure. The critical point to remember about this is: If the lender produces a low appraisal, you can always contest it.
You might hear complaints when the lender’s appraisers express a low opinion of value – “Why don’t they just appraise at sales price? After all, THESE buyers are willing to pay that much. Surely others would, too.” Ah, but that’s NOT necessarily true. Some buyers (hopefully not you) do agree to pay too much. The lender needs to protect itself from these “lovestruck” buyers who must have that home. If the bank eventually has to become the owner, by having to foreclose, it must have reasonable expectations of being able to recover all or most of its investment.
When negotiating the purchase of your home, be sure you are always being prepared to “walk away” from the transaction if the seller is too unreasonable. There are plenty of other homes available. If you do this, the lender’s real estate appraisal will almost certainly come in at or above your sales price and thus cause you no problem.
Keep the Golden Rule in mind: “The banks have the gold, so they make the rules.”
Paul Anderberg
http://www.first-time-home-buying.net
Mr. Anderberg is the author of many helpful articles about home buying. Visit his website to read more. Several others are also available on this site.
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If you are planning to apply for a real estate loan to buy the property you want from the available Holly Springs homes for sale, you must get an appraisal to figure out the market value of the house. It is very important that you are aware of this matter since it can have a huge effect on the result of your application for a loan.
The personal approval is generally completed near the beginning of the process of your loan application. The final commitment, however, is often contingent on an acceptable appraisal as banks want to be certain that the loan they are making is covered if ever borrowers fail to pay. In case the appraiser’s report is lower compared to the selling price, the real estate loan may be disapproved. However, this is not the only thing that can have a negative effect on your application. There are other factors that may possibly cause some problems. In general, lenders thoroughly examine the appraisal before making a decision whether or not the house is fit to act as a guarantee for your real estate loan. Some examples of obstacles you may encounter include, but are not limited to, the following:
- If the expected time period to sell the house is much longer compared to the area standard, the lender may possibly do not like it.
- If an appraiser becomes aware that the access to a certain property is an exclusive road shared among certain people, the bank may ask to look into a signed road maintenance contract that proves that everybody who utilizes the road shares the obligation of maintaining it.
Real estate appraisals may be performed in different approaches. The two methods that are commonly used for houses are listed below:
1. Cost Approach – For newly-built houses, this method is the most favorable and helpful since the construction costs are already determined. This is simpler than other approaches because the appraiser only needs to approximately calculate the expenses of replacing the home if it gets damaged or destroyed.
2. Sales Comparison Approach – This method is done to approximately calculate the market value of the home by means of measuring it up to the same properties recently sold in the market area, which are referred to as comps or comparables. Because there are no houses that are accurately identical, appraisers make some adjustments to the paperwork of the comparables so that their qualities are more in-line with the features of the subject property. The outcome of the report is an amount that tells how much it would cost to sell each comparable if it possesses similar features as the property in question.
You should always keep in mind that a real estate appraisal is not a home inspection. Appraisers document the apparent issues they see, but unlike professional home inspectors, they do not perform inspection tasks like checking the chimney, looking at the roof, or testing the appliances. You must not depend on an appraisal to assist you in determining the condition of the house.
In case the house received a low appraisal, you should not panic. There are some ways that can help you solve this problem. Remember to talk to your agent regarding such issues when purchasing a house in Holly Springs real estate.
David Z Anderson is a freelance writer who specializes in writing content about real estate, business and investment. Check out great Holly Springs homes for sale and Holly Springs real estate listings.
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There is a type of investor fraud in which an unsuspecting Real Estate investor believes he is buying a property worth a certain amount, when in reality the property is worth much less. This places the investor in a hopelessly upside down situation, owing more money than the property will ever be worth.
The primary way that this type of scheme is enabled is by the use of a “bogus” appraisal that over-inflates the value of the property. Once the investor has closed the deal, there is virtually nothing he or she can do to avoid the consequences of having put a 300% Loan To Value mortgage on an investment property.
This basically means that the investor will owe too much to be able to cash flow the property as a rental, and there’s no possible way that he or she will ever sell the property for enough to cover the mortgage payoff. This essentially leaves one with a bankruptcy/foreclosure, “take-your-pick” financial situation.
Investors who realize they have bought a property that will never be worth what they owe on it, may continue to make payments for months or even years in order to preserve their excellent credit rating. However, once the damage is done, this is essentially throwing good money after bad. Given that this is one of the worst scenarios an investor could ever experience, it behooves each one of us to take the necessary time to carefully examine the appraisal for the property that we are about to purchase, BEFORE we purchase it.
Since this type of fraud is dependent upon an over-inflated appraised value, an appraisal with incorrect or deliberately misleading market information will be necessary to perpetrate this fraud. Therefore if a prudent investor is careful to take the time to examine the appraisal prior to closing, or better yet, have their own appraiser do an independent appraisal, one could avoid this scenario completely. In a nutshell, it is potential investing suicide to accept an appraisal at face value without verifying for yourself the information in that appraisal.
When you just don’t know the market, it would be an excellent idea to simply pay the $ 250 or $ 300 necessary to have your own independent appraisal done.You do not want to take anyone else’s word for the appraised value of a property. YOU are going to guarantee the loan, so you are the one who must make sure you are not being misled into paying too much.
The vast majority of investor fraud and loan fraud would be avoided if someone took the time to verify the information in the appraisal.
The greater part of a typical appraisal will deal with what are called “compable properties”. These properties are supposed to be very similar in style, quality, and size, to the property which is the subject of the appraisal. The concept of Compable Market Analysis” or CMA, means simply that one property in a given neighborhood should be worth approximately the same amount as other similar properties in the same neighborhood.
A valid appraisal that is a reasonable and accurate estimation of market value would only use similar properties that are within a very small radius from the subject property being evaluated. The official rule is within one mile of the subject property. But in Atlanta, one mile can be the difference between a $ 50,000 and $ 500,000 ARV. So, I prefer to see comparables that are located within the very same neighborhood. One mile can make a very big difference.
The question is, “who is responsible for generating the appraisal being provided as an estimate of value?” In typical transaction between a home seller and a home buyer it is the buyers lender who orders the appraisal as part of the process of underwriting the loan. But, in most investor type transactions, the seller may provide an appraisal. When you are the buyer, you should always plan to verify any appraisal provided to you by the seller.
Many fraudulent schemes perpetrated against innocent real estate investors involve a seller who got an appraisal that was over inflated simply by paying an appraiser and asking him to provide a specific value, in order to “make the numbers look good”. Therefore the prudent investor buyer does not want to accept the appraisal provided by the seller at face value. The appraisal should be verified or you should obtain your own independent appraisal prior to closing.
In extreme cases of well organized fraud, it is possible for the seller, the seller’s agent, the closing attorney, the appraiser and even the lender to be involved in trying to lure a buyer into a bad deal.
Usually in this type scenario, the investor buyer is offered a “full-service” type arrangement, in which everything is taken care of for them. One should always careful of any deal in which ”everything is taken care of for you”. The single most important piece of due diligence on any property is to verify the real market value before you buy. ***
Donna Robinson is a real estate investor, author, and consultant located in Atlanta Georgia. You may read more of her articles on her website at [http://www.RealEstateInvestorHelp.com] or you may contact her by email at drobinson@reihelp.com or call 404 542-9903.
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When you sell your home, appraisers use comps (comparable market sales) of local properties sold within the last six months to value your home. With today’s rapidly rising seller’s market, six-month-old information is ancient history. Appraised value does not always equal the true market value, or what the home will sell for on the open market.
Realtors will give you a comparative market analysis, an informal estimate of market value based on comparable sales. Lenders, on the other hand, will use the appraised value to determine a new mortgage amount. Some lenders require that the stated property value covers the mortgage amount plus their selling costs in case of foreclosure. For this reason, a sale may fall through if a home sells on the open market for more than the appraised value, which often happens in bidding wars over hot property.
We learned the importance of securing a sufficiently high appraisal when we sold a rental property in Lake Elsinore, California. We listed the house for $ 234,700 on Friday. By Monday morning, we had three offers: $ 245,000, $ 255,000, and $ 260,000. We accepted the one for $ 255,000 because the buyers had $ 80,000 down, reassuring us that they had sufficient funds.
As usual, the lender sent an appraiser to review the property. This busy appraiser didn’t take the time to view all the upgrades we put into the custom-built home. Even worse, he used only comps from the local one-mile radius. Because this home is close to a shopping district, there were not many homes sold in this limited area during the six-month period.
The appraiser used comps six months old; during this time housing costs in Southern California appreciated around thirty percent. Sales from six months previous should have gone up in value by $ 30,000 on a $ 200,000 home. This means that our home should have been worth $ 250,000 to $ 260,000, especially since buyers are willing to pay this price on the open market. To increase the value of this home, at the time there was not another three bedroom home listed in the area for under $ 250,000 (excluding manufactured homes). However, the appraiser valued our home for only $ 230,000 — and we would have lost the sale if the offer did not include a sufficient down payment.
Because a low appraisal can kill your sale, finding a buyer with a large down payment provides you with a safety net. You may also choose a buyer with strong credit who doesn’t have to put a large percentage down. If you think that your home’s appraisal could become a problem, make sure you don’t include a clause in your sale’s contract which states “subject to appraisal.”
How to Avoid Low Appraisals
Hire your own appraiser before the sale. Then ask your buyer’s or lender’s appraiser to review your appraisal.
Retain the option to approve your buyer’s mortgage lender. Make sure that the buyer doesn’t use a lender with a history of deliberately underestimating property values. A good real estate agent should know which lenders routinely under value homes.
Keep records of repairs and upgrades, including costs. Take “before” and “after” photographs. Create an organized journal with a listing of expenses and include pictures to show to the appraiser during the appraisal appointment. Stage your home for the appraiser like you do for buyers.
Secure your own property comparables to make sure the appraiser uses complete information. Call real estate agents with homes in escrow and get the sales prices. Make a list of these properties with the agent’s phone numbers and give it to the appraiser.
What to Do When Your Selling Appraisal Comes in Too Low:
Ask for another appraisal.
Protest the appraisal with documentation of your upgraded expenses.
Have the buyers make a larger down payment.
When you sell or buy real estate, remember that the certified appraisal is just one person’s opinion of the value of your home. The opinion that counts for you is the buyer’s: you want to be sure the buyer values your home above all others.
Copyright (c) 2005 Jeanette Fisher, All rights reserved.
Jeanette Fisher, author of Sell Your Home for Top Dollar–FAST, Staging Houses for Top-Dollar Sales, Doghouse to Dollhouse for Dollars: Using Design Psychology to Increase Real Estate Profits, and other real estate and interior design books, teaches Design Psychology and real estate investing seminars. For information on Design Psychology, visit: http://designpsych.com/. For help selling houses, articles, and home staging tips, see http://www.sellfast.info/.
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A real estate appraiser who does not adjust their numbers in favor of their lenders’ needs is considered a real estate appraiser who does not work. Mortgage loans have escalated in value with the rise in real estate prices over the last few years. The last thing that mortgage lenders want is a bad surprise during the closing process. Therefore, real estate appraisers that will not fix their numbers in favor of the lender will not get future work.
There is no way of determining exactly how much appraisers fix their numbers to meet the needs of mortgage lenders, but one can imagine that is it a lot.
It is considered fraud if an appraiser knowingly or willingly adjusts the numbers
Representatives in the mortgage industry attest that appraisal fraud is commonplace. Here is how it works. When a person approaches a lender about refinancing their home, he receives a “good faith” estimate for the loan. The value of the home is included in the estimate. This value is the minimum amount required to complete the loan process.
Real estate appraisers are then hired by mortgage lenders who need the numbers fixed. As opposed to being independent in doing their jobs, appraisers find that they are really in a situation where they work for the lender. There are other appraiser competitors to whom the lender can turn when they need to meet their requirements.
An appraisal that is estimated to be too high or too low can be frowned upon by both borrowers and lenders. For instance, let us pretend that an appraiser adjusts his numbers to show that a home with a market value of $ 100,000 is worth $ 150,000 according to the appraiser. The homeowner can then choose to pull cash out of this false equity. When it comes time to sell the property, the homeowner will only get a price that the market will pay, but will not be able to sell the property to cover the existing balance of the loan they owe on it.
From the lender’s standpoint, they can be shafted on this deal too in case they have to foreclose on the property. In this situation, the lender may not recover all the money they lent for the property.
Reform for home appraisal
It is appraisers themselves that are leading the way for reform in their industry. They put the blame on mortgage brokers and lenders for appraisal fraud. The brokers work on commission and are also pressured to close their mortgages. Appraisers are afraid that a correction to the real estate market may worsen the existing problem.
Thus far, Congress has been able to enact changes. The real estate industry will continue to lobby for change. Until then, all that is left is to try to circumvent appraisal fraud.
Tips to avoid appraisal fraud
Hire your own appraiser. You need to pay for an appraisal when buying or refinancing a home anyway. It is well worth the money to know that the risk you are taking is legal.
Use an ethical appraiser. Since the incidence of appraisal fraud is high, this is not an easy task. Ensure that the appraiser you hire is board certified by the state.
Ask for references. It is better for you, the would-be homeowner, to find an appraiser who works for banks as opposed to one who works for mortgage brokers. Banks are more likely to hire ethical and competent real estate appraisers.
Many real estate appraisers are honest, ethical people. However, when they are coerced by lenders to fix the numbers, their income is threatened making it necessary for them to do what it takes to stay in business. Unfortunately for you, there are some of those appraisers who will work hand-in-hand with lenders to bring in the numbers they need to close the deal at any price. Watch out for such people and report them to the state licencing agency that issues these appraisers their licenses or report them to your local authorities.
There are lots of consumer fraud schemes out there. It is up to you, the consumer, to educate yourself to recognize what is and is not legitimate. Hopefully our advice will help you minimize becoming a victim to the crime real estate appraisal fraud.
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One of the most important jobs for your real estate agent is to determine the value of your home by developing a Comparable Market Analysis, which will be used in pricing the home for the right amount.
If your property isn’t attracting serious shoppers, your agent may recommend that you invest in an appraiser to get a second pricing opinion, as the appraiser will come in with an independent, unbiased opinion to help ensure your price is correct for the market.
“An appraisal is important in today’s market especially, because it’s an objective and unbiased source of information,” says Michael H. Evans, president of Chico, Calif.-based Evans Appraisal Service Inc. “The appraiser is an independent professional who performs a service for a fee rather than for a commission and is therefore not as invested as others are who are making pricing decisions.”
Appraisals allow for homeowners and buyers to establish “fair market value.” In addition, an appraisal allows a lender to know how much they can safely lend.
“Credible opinions of value can help to stabilize the real estate market,” says Joseph C. Magdziarz, president of Chicago-based Appraisal Institute, a global membership association of professional real estate appraisers. “Appraisers today are doing the same thorough, fact-based research and analysis they have always done.”
A home appraiser will compare the condition of your house in relation to the comparable properties in the neighborhood and will give you a reasonably good idea where your house fits in relation to recent sales.
According to Evans, a home appraisal can range in length from two pages to more than 100. It will include details about the house, a description of the neighborhood and side-by-side comparisons of similar properties. It will also contain an evaluation of the area’s real estate market, notations of major problems with the property that will affect its value and an estimate of the expected time it will take to sell the property.
Earlier this year, the Appraisal Institute released several tips for consumers and guidance for homeowners and buyers seeking to ensure their sales are completed in a timely manner.
Make sure the lender hires a qualified appraiser (such as a designated SRA, SRPA or MAI member of the Appraisal Institute). The lowest-priced appraiser does not necessarily equate with the most qualified. This is a time to get the numbers right.Accompany the appraiser during the inspection of the property if possible. The more active of a participant you are in the process, the more you will understand it, and be able to catch any errors.Request a copy of the appraisal report from the lender. Federal law requires that you receive a copy of the appraisal within 30 days.Appeal the appraisal if appropriate. Market conditions do change, especially in these economic times. If you feel that new information may change the appraisal, be sure to speak up.Have your agent ask the lender to order a second appraisal by a qualified and designated appraiser.File legitimate complaints with appropriate state board or professional appraisal organizations.
Remember, you needn’t agree with the outcome of an appraisal. You and your agent can work with the figures and determine if you should change the sale price or not. A home appraisal, no matter how scientific, still ends up being the opinion of the appraiser and to some degree is a judgment call.
Charles F. Butler can be reached at 310-684-2505 or a breg-inc2@gmail.com Prudential California Realty – The Mulhearn Group is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential company. Equal Housing Opportunity.
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