Dear Dr. Don,
I decided to build a vacation house 18 months ago. The project was appraised at $490,000. I got a construction-to-permanent loan. I borrowed $388,000 and built the house.
Along the way, the first builder went bankrupt, delaying the project and requiring me to get an extension, which my bank kindly granted without increasing my interest rates. But the bank required that I re-close, which meant getting a new appraisal. That was last month. The same appraiser who did the original appraisal valued the house at $310,000 this time around, meaning I have to come up with over $100,000 in cash.
The appraisal looks very challengeable. They selected terrible comparables when there were legitimate comparables that would have dramatically changed the valuation in my favor. It's like they were trying to value the property as low as they could. The bank is on my side. Nobody doubts my ability to make payments on a $388,000 loan. But the appraiser has refused to reconsider the appraisal. What can I do?
-- Ted Turbid
Dear Ted,
If you go toe-to-toe with the appraiser on the comparables, it isn't likely to end in a win-win scenario. A reappraisal by the same appraiser or a new appraisal from a different appraiser, requested by the lender, is more likely to work. It's up to you to convince the lender that the comparables are bad, along with other issues in the appraisal. Be aware that in either situation, you (as the borrower) will have to foot the bill for the new appraisal.
You would think the lender would be highly motivated to get this loan to close. They need to convert the construction loan to permanent financing just as much as you do. Because they require a second closing, you do have the ability to shop this loan with another lender.
There have been a lot of changes this year surrounding the appraisal process. The Home Valuation Code of Conduct became effective May 2009 and has been adopted by Fannie Mae and Freddie Mac in their lending practices. The basic premise of the code is to keep the appraisal process as independent as possible from the influence of the loan underwriting team.
It's possible that your appraisal got caught in the vortex of the new rules. The Bankrate feature "Homeowners can have a say in appraisals" puts a positive spin on how a homeowner can appeal an appraisal.
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