Mortgage Refinance Appraisal

[Cross Cut Saw]

So I refinancing my mortgage to take advantage of the insanely low rates being offered right now, the closing costs are next to nothing and the only thing standing between me and closing is the appraisal.

I like to worry about things and of course I'm worried about the appraisal. I think my home is worth every penny I estimated when filling out the paperwork but there's also the part of me that knows every little problem with my home and questions what the appraiser is going to try and dig up...

Anyone like to share their experiences going through this process?

From what I've read online they make it sound more like a home inspection than an appraisal.

I plan on doing some touch up painting outside and a little spackle and touch ups inside, is this person going to be very critical or just do a walk through?

Thanks!

 

[lukem]

Depends on the appraiser. They aren't likely to knit pick....value is driven mostly on comparable sales...but you might get a wanna be inspector on a power trip.

 

[EatenByLimestone]

I wouldn't worry. Different underwriters care for different things depending on whose guidelines they are writing for... but... When I used to originate mortgages I only had one kicked back for work being done on a house. It turns out he had cut large holes in the slab the house was on. The holes were someplace obvious like in the middle of his living room. He conveniently forgot to tell me about this when we were discussing his loan.

Later, when I appraised homes for a local bank they didn't care about fire code violations and only had an issue with houses that didn't have walls on the interior. I documented safety and value issues that I saw, but the only one they didn't accept was the house where I walked in and looked at studs instead of walls. Local banks that do not sell their loans often have a bit more play in what they accept.

For a regular Fannie/Freddie loan, if you aren't missing large pieces of the house you should be ok. Now if the comps aren't there you might have issues. When the appraiser gets there find out where he is based out of. I have seen issues where they have chosen comps that fall within underwriting guidelines, but are in different neighborhoods where the value is much lower. A local appraiser will know about neighborhood the location where blocks count. One from a neighborhood city or town may not.

Appraisers are under pressure to make the value needed to do the loan. If they come up short on too many houses and the loans don't go through, they won't be asked to appraise any more homes. I used to have different appraisers that I would use for different situations. Some were rock solid and I knew I'd never have an underwriter challenge their appraisal. Others could be counted on to find the highest possible value for a house. Sometimes I'd have to go back to them and ask these appraisers for a few more comps that would support their valuation when the underwriter smelled something fishy.

Now much of this may have changed as I haven't been in the mortgage business for a few years and was away from the Fannie/Freddie thing for a few years more than that.


Matt

 

[woodgeek]

Done this three times, and all three times they breezed through counting bedrooms, baths, computing square footage with a laser rangefinder, and taking in/outdoor photos. Basically verifying the major cost/value attributes of the house in person. As for detailing, they assign every house something like a 5 point condition score, where 1 is a wreck, and 5 is better homes and gardens, I got a 3, 'average'. No bigs. I printed out a 5 line summary sheet of major work done on my house (new heater, roof, etc, with prices and dates). They always took the sheet politely, and once or twice it was reflected in the report description.

And then they go away and compute a price based upon local recent sales. With each comp, they then 'correct' the comp price using a table of attribute values, like you have a 2 car garage, they have a 1 car garage, add $5k to the comp price. The comp has 0.5 more baths, subtract $10k to estimate your price. Then they average three (corrected) comp prices and you are done.

I am convinced the process is rigged. As Matt said, if the bank wants to make the loan, the value will come in where you want/need, if not it won't. One of the three times I appraised, it was to refi with my **current** lender. Guy did the exact same process as the others, but threw out all area comps that sold above a certain price (which happened to be roughly my estimated value). Not surprisingly, throwing out the expensive half of the comps, pulled down the appraisal 100k and queered the deal. Went to a different lender (that wanted my business) shortly thereafter, got a 'good' appraisal and refi'ed.

The other two times, I was able to estimate the appraisal price myself looking at comp sales in zillow, to within 2%. Pick the closest recent sales comps in your area with the same bedroom and bath, compute their $$/sqft, average those numbers, and multiply by your square footage to estimate your price. Throw out comps next to the elementary school or on a cul de sac (unless you have those attributes).

IOW, don't sweat the small stuff. If the appraisal comes in very different from your estimate, walk away and try another lender.

 

[SIERRADMAX]

Did you talk with your current mortgage holder? Most banks today want to keep your business. I spoke with mine, told them I was shopping around for the best rate to refinance and they immediately returned with a lower rate (competitive) and told me it would only be a one time rate modification fee. No adjustment to my amortization table. Saved me $150/mo. for a $700 fee. No closing costs, no appraisal fee.

If you do refinance. Be prepared for the possibility of banks to fund 80% of the appraised value. Also, those advertised low APR rates are sometimes to get you in the door. If they find one thing wrong or they don't like, the rate is subject to change.

 

[Ehouse]

+1 on woodgeek, the game is rigged. If you're doing a refi with your currant lender, ask if you qualify for a fast track modification. Then you don't need a new appraisal. Many lenders have this as an incentive but may take it off the table at times.

 

[Highbeam]

Thing is you will pay for the appraisal. At least I always have had to. Like 500$. The last appraisal I had queered the deal and I had to eat 500$. It is rigged and pretty stupid. They find what they consider to be comparables which are really just bedroom and bathroom counts plus SF, the important stuff doesn't count like neighborhood, land size, land quality, build quality. It is pretty ridiculous.

Use your assessed value. If the assessor's value would queer the loan then don't waste your money on the appraisal.

 

[ironpony]

agree with Highbeam, I have a 28x56 building half finished in a very nice in law sweet and the other half my shop. Appraiser noted add 10,000 for out building, could not even buy the materials for that.
Appraisals really are a joke, as I was told "its not what itis worth, it is what you can sell it for" thats all that matters to them.

 

[woodgeek]

agree with HB and IP, when I ate my appraisal, I was out $300. Grrr. takes money to (save) money.

 

[EatenByLimestone]

agree with Highbeam, I have a 28x56 building half finished in a very nice in law sweet and the other half my shop. Appraiser noted add 10,000 for out building, could not even buy the materials for that.
Appraisals really are a joke, as I was told "its not what itis worth, it is what you can sell it for" thats all that matters to them.

As somebody who has been inside that industry, I don't think it is rigged. If it is, than it is rigged toward the buyer. The appraiser really wants the loan to go through so he gets future business. The loan officer wants to do the loan. He most likely lives off commission (I know I did) and really wants to feed the family. The underwriter's job is to prove that the loan is of a certain quality. I'm not certain on exactly how an underwriter is paid, as we used underwriters employed by private mortgage companies and also underwriters who worked in house of the company we planned to sell the loan to. I know the underwriters who worked for the mortgage insurance company did not get paid until a loan closes so they had motivation to get a loan closed also.

Different lenders look for certain attributes for their loan portfolio. The loan officer's job is to know which lenders will pay attention to certain details and which lenders will not. He will steer the loan toward the correct lender.

There are also different types of appraisals. Which one the appraiser must complete depends on your loan to value, the program guidelines and your strength as a borrower. Appraisals can be as simple as a dive by where they only have to make sure there is a front on the building (I've literally heard of stories where the house was in a fire and there wasn't a back on the building) to a couple different types of "full appraisals" I remember paying prices from $175 for drive by appraisals to something like $450+ for a top of the line full appraisal. There might also be additional charges for additional forms that needed to be completed. It all varies. All of the loan companies that I worked for charged something like $350 as a standard appraisal fee since we didn't know which appraisal we would need to have completed. Sometimes you made out, sometimes you had to eat a little.

Some lenders were starting to allow electronic appraisals on smaller loans when I was going out. I almost got burned on this myself on a home equity. The machine pulled in a HUD house as a comparable. I caught it and made them use a different comparable. In that case they allowed me to find it as I was an appraiser for the bank, but most of the time the underwriter would catch it and make them go find a new comparable.


As for the in law apartment and a bank only interested in what something sells for, what should they be interested in? If you default on the loan, are they going to get market value for the collateral or are they going to get what you paid for it? I used to run into this all the time with people who would take out a loan after they put in new windows or something... "I put $9K of new windows in the house. It should be worth $9K more." Well, no, because the next buyer might not care if there are new windows in it or not. The only thing a mortgage company cares about is the resale value. They need to protect themselves. This is why they mandate you have insurance. Once you own the property outright you are free to cancel all insurance. The value added for the improvement of the property must be supported by the comps.



Matt

 

[Highbeam]

As for the in law apartment and a bank only interested in what something sells for, what should they be interested in? If you default on the loan, are they going to get market value for the collateral or are they going to get what you paid for it? I used to run into this all the time with people who would take out a loan after they put in new windows or something... "I put $9K of new windows in the house. It should be worth $9K more." Well, no, because the next buyer might not care if there are new windows in it or not. The only thing a mortgage company cares about is the resale value.

Exactly right. Very few home improvements result in a 100% return towards the home value so most are losing investments financially. Do home improvements for your own enjoyment or don't do them at all.

 

[EatenByLimestone]

Doing the work yourself can make it more of an investment. Things like finishing off an attic in a cape can add a lot of square footage and bedrooms for very little cash outlay. Curb appeal stuff also can stray into this category as can paint. I'd never try to sell a house with old paint on the walls.

Matt

 

[ironpony]

Matt I agree with you on all points, but do not call it an appraisal, you are not truly appraising it, you are doing comps to see what it will bring in fair market value. I have no problem with that just do not insult me by saying the building is add 10000. Also the refi was less than 50% of market value so it did not matter, I think once the appraiser seen that he really did not do a true value.

 

[EatenByLimestone]

Since the loan to value was so low I imagine the loan officer chose the conservative appraiser whose appraisal would sail through the underwriting process without making any waves. That is quite a large out building and there may not be good comps for that. I did have a few homes that had businesses attached where I had to be tricky in my reporting. I remember one that had a commercial welding shop in the back. I was a residential appraiser and if I remember correctly we were able to put it in as a 5 car garage or something like that. I don't know if the underwriter accepted it. The bank I was working for was really picky about homes with businesses there. There are a lot of 2 family homes in my area where the ground floor was built as a business. Those were automatic denials. Other than that, since I wasn't the appraiser I can't give a better explanation. I hope the loan went through without any issues.

Matt

 

[jharkin]

I went through this process in the fall and was pleasantly surprised to get the appraisal back over 10% HIGHER than what I expected or what any of the robosites (zillow, trulia) predicted. That allowed me to drop PMI and escrows saving me a significant amount of money and hassle.

However I have done a lot or work in the last 3 years, made sure everything LOOKS good, was there when the appraiser viewed the place to point out everything I fixed, and gave him a sheet listing all the improvements made and what it cost me. You have more influence on the process than you might expect and there is no law saying you cant sweet talk the evaluator (at least here). Superficial impressions count for a lot more than they should, make that work to your advantage.

 

[Ehouse]

An independant mortgage broker recently told me that the game has changed from the banks leaning on the appraiser one way or the other, to the home owner having to take the initiative to sell a higher value.

 

[Highbeam]

Doing the work yourself can make it more of an investment. Things like finishing off an attic in a cape can add a lot of square footage and bedrooms for very little cash outlay. Curb appeal stuff also can stray into this category as can paint. I'd never try to sell a house with old paint on the walls.

Matt

It's the things like building a shop in the yard or adding a hot tub that will never pay back. DIY guys can get additional SF to pay off but to hire out the job as most do will generally be a loser. Curb appeal stuff and paint are maintenance, everybody should be maintaining the home. Mowing the lawn will make an impression too.

 

[Cross Cut Saw]

Thanks for all of the input everyone!

I'm nervous about what it will appraise at mostly do to it being one of the nicer homes in the area.

I'm going to make sure I'm there or that I at least have a list of the major projects undertaken in the past two years that have (in my opinion) added significant value to the home, my big fancy woodstove being one of them!

I'm going to spend some time doing some cosmetic touch ups and pretty much have it set up like it's an open house and I'm looking to sell, it won't take all that much work and it can't hurt, right?

Do they take into consideration things like appliances?

Thanks again!

 

[Highbeam]

You are looking to sell it. You are trying to sell it to the lender. Appliances matter if the appraisal is thorough. They will be reflected in the "condition" score.

 

[lukem]

When I bought this house the bank made me get it appraised. The appraiser called me and asked what the purchase price was and I told him $XXX,XXX. The days later the bank called and said the appraisal was received...and everything looked good. It appraised for the exact amount I told him. Rip-off.

 

[Cross Cut Saw]

Oh crap, just got the call, appraisal tomorrow!?!

Luckily we keep the house up well and it won't be that hard to get it up to speed. There are a few things I wanted to address but oh well.
I'll let everyone know how it goes...

 

[ironpony]

Oh crap, just got the call, appraisal tomorrow!?!

Luckily we keep the house up well and it won't be that hard to get it up to speed. There are a few things I wanted to address but oh well.
I'll let everyone know how it goes...

you will be fine, he will walk in look around ask a few questions, maybe a couple of measurements twenty minutes tops.
go back to office pull 3 comps compare yours to them, wallah price of yours

the last couple I had out to my place could not even figure up the square footage, they came out, went back to the office and got thier supervisor, called in another friend then they stood there looking at me with thier eyes glazed over and ask me how am I going to figure this out?

my house is shaped like the B2 bomber kinda delta over a trapezoid,30 and 60 degree corners, I just chuckle and say go for it I will tell you if your close. suprisingly they were only 700 square feet off.

 

[BrotherBart]

When I was transferred the company bought my house. They got three separate appraisals and went with the middle one. I appealed it and told them the name of the appraisal company that submitted the low one and what they missed in comps. I was told that there was no way I could know which company a particular appraisal came from since the names weren't on the copies they gave me.

I told them to pull out all three and look at how the firewood on the deck was arraigned in the pics from each appraisal.

 

[Swedishchef]

I got my house appraised last year because I wanted a HELOC. The bank requested an appraisal at their cost (I am part of a VIP package...which essentially means I owe them too much money LOL).

Unfortunately around here appraisers are rare: the nearest one lives 150 miles away. They are part of a provincially regulated body and are part of a prof. association. In Quebec, you need a DEGREE in order to perform appraisals.

The first thing he says when he is inside the house is "houses around here cost too much". I was like..great start. He ended up making errors on the report (type of flooring, type of basement insulation (I have my walls spray foamed vs foam boards)...he even said I didn't have a basement entrance yet there are pics of the entrances attached to his report!).

In the end I expected my house to be appraised about 10K more but oh well...

Keep us posted!

Andrew

 

[basod]

I'm curious to hear what the closing costs are looking like on these advertised 2.75% refi's.

When I dropped from 6.25 to 4.75 a few years ago I believe it was ~$3900 total. Lender said they were struggling to stay afloat and had to make it up somewhere - yup
Went through they same BS with the appraisal, the guy actually had the nads to ask me if I knew of any comps??? Dude I'm paying $300 for you drive out here for 20mins and I need to do your job for you to? So I gave him the 4 houses that had been on the market for ~3yrs in the 350k range. I'd toured each of them for my own personal education most needed some work and all had similar acrerage

For those with PMI I guess this new law will require them to pay it for the life of the loan(unless they achieve 20% equity and then refi AGAIN)