If the house is outrageously over-indebted or the market has really just collapsed, the loan may be dismissed as too risky and acceptable. If the house is only 8 years old on its mortgage and therefore there is no way they can try to get back to more than 70% LTV, then that`s fine. But if the owner made a large down payment on the 1st mortgage and the market increased every year over the next 4 years, the appraiser still conveniently manages to provide a figure that allows the bank to charge a higher interest rate than a 70% LTV. Especially if the applicant has credit scores at 800+, the bank knows that they represent a significant credit risk, and then when the valuation comes with the purchase price plus market increases in mind, they should offer the lowest interest rate. If it comes above 70% LTV. Banking advantages. If 90% of all purchase notices “reach the sale price,” this gives ammunition to those who believe reviews are an expensive and time-consuming undertaking that can be eliminated by using statistical data to evaluate homes. What it really says is that buyers know the actual market value 90% of the time and appraisers only support buyers` opinions. Why do you need an appraisal when buyers know what the property is worth in 90% of cases? It never ceases to amaze me how sinister the wisdom of average buyers can be in determining the market value of homes.
We appraisers know that market value and selling price are not synonymous. Each individual property may have a value of X for a particular buyer, but this does not necessarily reflect the market value as defined in the appraisal report. I have also often wondered why we are required to review the purchase agreement, but we are not required to verify the seller`s disclosures. In my experience in the past, there is more information in seller disclosures that can influence the market value of a property than in the purchase agreement. Thank you Matt. This is not at all surprising to hear, and I appreciate your opinion. This may seem shady at first glance, and I think that`s why I`ve even heard some critics say that they never match the value with the exact contract price because they don`t want to give the impression that they`re trying to “hit the number.” I think I fall into the camp of reconciling the value of the treaty when it is reasonable to do so. No biggie there because I think it`s a good methodology, and I don`t worry about the appearance of “making the deal work.” Since market value is the most likely price, most properties sell close to market value (think of the normal distribution with most properties sold at the top of the curve), and most appraisers estimate close to market value, so if the appraiser doesn`t attach weight to an arm`s length contract, 50% of all valuations would be lower than the contract price.
Agents now complain that evaluators are too often low and that it`s only 10%. Imagine if the appraisers couldn`t see the contract and give it weight? The real estate market would stop or change radically. 50% of buyers would not be able to close extra money. There would be a very large number of missed sales or delayed deals without the appraisers reviewing the contract. The lesson for agents is to make sure that the appraiser knows everything about the contract so that he can analyze it properly and give weight to the analysis if necessary. The home evaluation is done after accepting an offer and usually within seven days of an inspector inspecting your home. Evaluators must be competent in the geographical area in which they work. Some examiners work in cities and counties beyond their place of residence, but are familiar with these specific areas. If you suspect that an appraiser in your area is not responsible for the appraisal, you can contact the lender, who is the appraiser`s client.
I`m not sure I understand the Diana question, but I`ll try. In my experience, the first offer and counter-offers often happen with a property, as buyers and sellers try to get the best deal for them. If the seller responds to an amount higher than what the buyer initially offered and the buyer agrees, you have a price agreed by both parties, which we consider an independent transaction. The buyer will then look at this and see how it compares to what other similar homes are being sold. If the contract falls within the range of other current sales and current active offers, it provides support to the final value opinion that the appraiser arrives at. The contract is one piece of the puzzle, but not the only one. It must be considered in the context of all value indicators. As for your second thought about two reviewers who are $50,000 apart, this is not uncommon and is usually caused by things like experience, domain knowledge, and accuracy of data sources. If evaluators use similar data sources and similar comps, the value should be closer, but sometimes evaluators don`t do a good job of choosing the right comps that reflect similar value factors such as school systems, etc. I hope this helps you answer your question. Hi Madison.
Thank you for your detailed comment. I very much appreciate your thoughts. It is understandable that the bank has a number in mind so that it can grant the loan, although appraisers do not know this number when they perform an evaluation for refinancing. More than 10 years ago, banks sometimes sent appraisers an order with a “value estimate,” and the “estimate” was actually their target number. Nowadays, since Dodd-Frank went into effect in 2010, this no longer happens (or should not happen). Appraisers also usually don`t know how much is borrowed. I heard of an appraiser being evicted from a local appraisal committee because they asked the landlord how much they would borrow. I mention this because examiners generally do not really know what happens during a refinancing, unless that information is provided voluntarily. USPAP (Uniform Standards of Appraisal Practice), the ethical standards and norms to which examiners are subject, is set out in Standard 1 (Valuation of Real Property, Development); It seems to me that any approach that involves knowing the price of the contract encourages appraisers to “reach the number” (especially if they were to receive bonuses for being close to each other).
You are hired by the lending bank that wants you to reach the contract price. Let yourself be guided by the advice of top real estate professionals and professional appraisers who have gone through hundreds of home appraisals every step of the way. Is it mandatory in some states (VA) for customers to submit contracts when they are waiting for homes when they request an appraisal? So you`re just saying that examiners only place numbers to allow closure. Either way, that`s the economist`s view on it. It`s fun to think of good plans to improve the quality of reviews – here`s a cool one: always have 5 reviews that give separate reviews and make average reviews. They can`t know anything about each other (hard to apply, but it`s fun for my idea) and give them bonuses based on their proximity to the average of the 5 numbers. .