You enjoy the comforts, perform the chores and pay the costs. Who knows more about your home than you, the owner?
Sorry to say, but when it comes to how much your home is worth, you’re not the ultimate authority — a licensed or certified appraiser is.
Everyone’s heard about the housing crisis, but an owner can be surprised when an appraisal reveals just how much the home’s value has been affected, says Pat Vlasis, owner of American Way Financial, a mortgage brokerage in Oak Lawn, Ill.
Vlasis relates this typical scenario: “A woman wanted to refinance her mortgage, taken out when her home was appraised at $360,000. She asked to refinance just her original mortgage amount, and I didn’t see any problem because she had taken a loan that was less than 80 percent (of the $360,000 value). But then she decided she wanted a bigger loan with some cash out. I told her she couldn’t because the (new) appraisal came in at $295,000.”
Informing, not influencing
Appraisers have the last word, but they will consider input from homeowners who are refinancing or from real estate agents when a home is being sold.
In fact, new appraisal rules should make it easier for homeowners who are refinancing to see exactly how the appraiser arrived at the appraised value, says T.J. McCarthy, who serves on the Illinois Real Estate Appraisal Licensing Board. These new rules stipulate that mortgage borrowers be able to see the appraisal report at least three days before they’re scheduled to close on the loan.
“An appraiser can reconsider a value conclusion if they learn they had an omission, like they missed reporting an extra bathroom,” he says.
Owners can also provide information on homes used as “comparables,” pointing out, for instance, that the home is slightly bigger than others in the neighborhood.
Valuing a home isn’t an exact science, but appraisers try to make it as objective as possible by carefully plotting the prices of similar, nearby homes.
These days, a scarcity of sales, as well as more low-priced, foreclosure-related sales, make finding comparable values especially challenging, says McCarthy.
The new set of appraisal rules, known as the Home Valuation Code of Conduct, applies to all mortgages that will be owned or guaranteed by Fannie Mae or Freddie Mac, and aims to limit influence on appraisers from lenders and other parties who would profit if a transaction at a certain price point proceeded.
But appraisers, who gather sales data from public records and other sources, should be willing to talk with homeowners who are intimately connected to the neighborhood.
“Any competent appraiser is open to considering additional data,” says Jim Amorin, current president of the Appraisal Institute, a global membership association of professional real estate appraisers.
The key for appraisers is knowing the difference between influence and accepting legitimate, additional information about properties — like a lender saying, “I really need this to appraise at X amount,” he says.
Ironically, while giving mortgage borrowers more access to appraisals, the new appraisal code may make it more difficult to communicate with an appraiser, McCarthy says.
Indeed, Vlasis says that as a mortgage broker, the new rules no longer allow her to see the actual appraisal report or talk with the appraiser. Only lending companies actually funding the mortgage have that privilege.
McCarthy is expecting to hear directly from many borrowers who disagree with their appraised valuations — but he won’t immediately talk with them. “Even though the borrower is paying for the appraisal, it’s the lending company, which is my client,” says McCarthy. “I’ll urge (homeowners) to get permission from the company to speak to me.”
When a home is being sold, appraisers say they generally don’t hear complaints as often as in refinance transactions. For one thing, if a homebuyer wants to purchase at a certain price and then finds that the appraised value comes in lower, the buyer often renegotiates the price. But in cases where the buyer wants to proceed, McCarthy says it’s usually the seller’s or buyer’s real estate agent who submits data in support of a certain value.
Winning your appeal
Yes, mistakes happen, appraisers say. But it will take some homework to bolster your case that your home is worth a certain amount. And even then, you can’t necessarily expect the appraiser to agree with your argument.
Appraisers say any professional will turn a deaf ear to impassioned pleas such as, “Are you crazy? My house is the best one on the block.”
What could work is: “You didn’t describe my house correctly — it has four bedrooms, not three.” What could work even better is gathering paperwork with descriptions and pictures to bolster your case, says Ron Phipps, owner of Phipps Realty based in Warwick, R.I.
Such careful documentation could prompt an appraiser to re-evaluate his or her conclusion.
However, the nuances of appraisal rules sometimes negate a homeowner’s argument, says McCarthy. “They may say, ‘You made a mistake, I have four bedrooms.’ But if it turns out that fourth bedroom is located in a basement, it’s not (going to change the valuation),” he says.
Factoring in foreclosures
To be sure, housing markets today are affected by an unprecedented number of foreclosures.
Should that empty home two blocks away with the overgrown lawn that the bank sold at a fire-sale price really be considered a comparable value to your pristine home?
That’s a difficult call, says McCarthy. If it’s the only distressed sale in the neighborhood, it can probably be eliminated. But if other foreclosed sales are nearby, they count.
Moreover, many new lending rules, like those for loans backed by the Federal Housing Administration, require appraisers in markets where prices have been declining to not only consider values of recently sold properties, but listing prices on homes currently for sale. For instance, if a bank is having difficulty selling a foreclosed home and reduces the price every three weeks, that lower listing might be used in the comparison.
Getting the loan
Finally, even if you do document that your home is worth a certain amount and the appraiser ultimately agrees, you still may not qualify for a loan based on that value. It’s ultimately up to the underwriting staff of the loan company to accept the revised valuation, says Amorin.
“I have rarely heard that banks will not consider (the new value),” he says. “But I’m not suggesting it never happens.”