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Appraisals are as good as a home inspection

Appraisals are just as important as a home inspection.

By Michael Mapes, The Responsible Mortgage Lender

Congress recently took up action to place a bar between lenders and appraisers. The rationale to this proposal was that on too many occasions mortgage brokers where applying pressure to appraisers to inflate the value so the deal would work. However as the recent foreclosure rate continues to rise. Fraud during the mortgage application process seems to becoming a re-occurring theme. In many cases across the country regulators are finding appraised values on properties that were for more than the house was actually worth at the time of sale.

In the past a lender would send an appraisal request to an appraiser because he was fast and fair and would work to resolve any issues quickly. Appraisers are human and do make mistakes. Lenders rely on the work of the appraiser to package and sell loans, which the appraisal serves as the underlying valuation of the collateral. When the value of a home is over inflated it hurts everyone involved including the borrower and even someone who buys the house next door.

In many cases across the country as home owners are defaulting on their loans, those who wish to refinance their existing loan are finding that the foreclosures are hurting the value of their own home. Sellers who are trying to sell their homes are also finding stiff competition with foreclosure sales at much lower prices for the same square footage and features.

An appraiser is typically not the friend of the listing agent or the home seller. After all the appraisers role is to not only look after the lender but in reality a good appraiser can save a borrower from making a poor investment, over spending on an investment or alert a home owner that your home is not actually worth what they thought. An appraiser can end up saving a consumer and lender hundreds of thousands of dollars.

Many homeowners who are currently refinancing their home have come to learn this valuable lessen. However, there are options but avoiding the realities should not be one of them.

Michael Mapes can be reached for comment at 757.599.1810 ext 225 or on the web at http://www.theresponsiblemortgagelender.com/

Posted by Michael Mapes-Suntrust Mortgage on 11/20/2007 07:44 PM

Comments (6)

appraisals can be as good as a home inspection

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6 Comments on Appraisals are as good as a home inspection

NOV

2007

Michael, Your title says an appraisal is as "good as" a home inspection. Your sub title says "as important as". IMHO, both are important for their purpose (not one over the other). I don't believe either can claim to be "as good as" the other because there purposes are different... even though they address some of the same issues. A home inspection is strictly for informational purposes and NEVER addresses $$$ value. The appraisal addresses some of the issues of a home inspection (that may be health or safety related) but cannot be as comprehensive as a home inspection regarding the overall condition of the home and components. Both are equally important in my eyes. I never recommend purchasing a home without both (even all cash sales of new construction or resales)

Appraisers should be a friend of nobody (either agent, the seller, buyer, or lender). An appraiser should determine a price based on the property and his/her data. Take it or leave. Appraisers are Licensed Professionals as well. What they sign off on it, it better be accurate.

In my experience the lender will not release the appraisel report to the borrower (or the Realtors involved). An appraisel is a tool for the lender to determine risk. A Home ispection is for the benifit of the buyer to determine risk.

I agree with Carol in the fact that both are just as important. An appraisal establishes value while an inspection seeks out problems an appraisal would never find. I would never as a responsible lender indicate that a buyer should rely upon an appraisal to suffice for an inspection. I don't think that is what you are trying to say so you may want to re-visit that.

I do disagree with you on your points of the abuse of an appraisal. Yes, loan officers will occassionally ask an appraiser to bump up the value if it is there, and it happens with both mortgage brokers and retail lenders. However, most appraisers are not willing to risk their license to accomodate this, especially if the value is a major stretch. And even if they do, most wholesale lenders do an internal review and if anything looks funny will order a second appraisal themselves. I speak that wholesale lenders do this because I do not know if the retail lenders go that far. Seems like everyone wants to blame brokers for todays issues, when the lenders are the ones that create the loan programs, underwrite the loans and then sell the loans for their profit. (I will not get too much in to that discussion here, but fraud has been a relatively small issue in this current mortgage crisis.)

Can an appraisal be "fixed?" Yes, I think they can. But with the tools lenders and underwriters have, such as desk and field reviews, and AVM's, I think it is very rare that a "fixed" appraisal would ever find basis with a lender and get to funding. At least I know this much from the wholesale side of the business.

DEC

2007

I wouldn't say that we're not the friends of the Owner's, if they've kept their property condition up. Nor the Listing agent, if they've listed their property at a reasonable price. But as your acticle notes, a good Appraiser can save a home buyer a lot of money, much more than a Home Inpector will likely be able to save them. And, we're pretty good at inspecting too.

Michael- Do appraisals have a plus or minus factor. I had a loan turned down on a $330,000 home because the appraiser only would give $325,000. That was a less than 2 tenths of 1%. Appraising isn't an exact science, but come on. The lender wrote an exception. Appraisers think that they are the lord of property values sometimes. There should be a + or -- factor. What say you?

MAY

2008

Mark - I am suprised that the appraiser held to his guns so much for less than 1%. Appraising is not an exact science and a few thousand here or there usually does make an appraiser sweat. However, if the appraiser was trying to push value in the first place, then even a 1% stretch could hurt. Sorry you had that experience.

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