We recently decided to refinance our mortgage. This is not due to any financial hardship, but instead is due to the artificially low mortgage interest rates now available. It also made sense to us to turn our 30 year mortgage into a 15 year mortgage, lowering the interest rates even further.
Comparative Market Analysis
I completed numerous CMA's using different sold comparables to make sure we would not have any value issues as we did not want to have to pay any PMI. We bought our home several years ago with 40% down and I just wanted to make sure that we would have at least 20% equity at today's values. No matter which comparables I used we would easily qualify.
Oh No - A Low Appraisal
We applied for our refinance with our bank which had an excellent rate and they sent the appraisal request to the Appraisal Management Company. About a week later the appraisal was done. Another week passed by and the lender told us the appraisal came in too low to refinance. I could not see that possibly happening.
Appraisal Received With Lots Of Errors Found
The lender forwarded the appraisal to me and I went over it. I found numerous errors on it and could not believe the comps that were used.
First, the appraiser stated there are 16 current listings in our subdivision along with 13 sales in the past year. However there were actually only 5 current listings and 20 sales in the past year. His market statistics such as months of inventory also used the erroneous figures so instead of 3 months of inventory he showed more than a year. I found that with the current listings he was using not only our subdivision, but also two townhouse communities located outside of our subdivision. Beside that townhouses are not comparable with single family homes.
When I looked at the comps the appraiser used, I found that one was 19.5% larger than our home, one was 22.7% smaller than our home, with the third the same size home but with one extra garage bay.
Of course I understand that sometimes due to market conditions less than ideal comps must be used. However, this was not the case in this subdivision as six comps were more recent and with no more than 8% difference in square footage.
The appraiser stated that he used one short sale and two normal sales; however two of the homes he used were actually short sales which were plainly shown in the MLS.
In fact the comp that is the same exact size as our home was sold 11 months ago, yet another home the same size sold just 4 months ago. So what is the difference between the two? The comp he used was a short sale requiring TLC, where the one from 4 months ago is a normal sale using a conventional loan that happened to sell for 14.4% more than the older short sale.
One of the comps that the appraiser used had a pool like our home, but the home is 19.5% larger. It also is a short sale that sold for a very low price. This home sold over 4 months ago. The most recent sale in this subdivision was a similar home and sold just 17 days before the appraisal. The difference between the two was this one is not a short sale and sold for 33% more.
The final comp is 22.7% smaller than our home and was the only normal sale that he used. The lot was 29% smaller and would not even accommodate a pool.
Ultimately, there were at least six comps that were more recent and of more similar size to our home. It appeared that this appraiser was purposefully choosing short sale comps or comps that sold for the lowest prices.
Three Possible Options
- Accept the Appraisal - we then could not refinance
- Request a review of the Appraisal - Rarely Successful
- Move the loan to a new lender - Usually Successful
Rather than just accept the appraisal and give up I compiled all the facts, errors, market statistics and comps and asked the lender to order a review which they did ask the Appraisal Management Company to do. More than two weeks later I got an updated appraisal. The AMC had the same appraiser review what I had sent. He agreed that he had made errors in the number of current listings, he never mentioned the errors on the number of sold listings and did not change his months of inventory or other errors and in regard to the comps he stated that he could have used the comps I listed but that he still felt his were the best. The result was that the file was closed with no change. We could still not refinance.
Again rather than give up, since I had total confidence in my CMA, I immediately moved to another lender. I often give this as an option to my customers when appraisals come in way below the CMA value. By moving the refinance loan application to another lender it automatically triggers a new appraisal. Of course the problem is that you now have to pay for two appraisals.
The result of moving the loan application to a new lender was that the value now came in fine and we closed on our refinance. The difference in value between the first and second appraisal was 13.2%.
So have any of you reading this had a low appraisal reviewed or has a new lender been chosen and what was the result?
I will be writing an article in the future about discussions I have with my buyers or sellers when appraisals come in way below my CMA value. When loan applications have been moved to a different lender due to low appraisals, I have found the difference between the two appraisals is between 13.2% and 24.9% which definitely makes it well worth considering a move to a new lender.
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