Credit Denial...Because your Appraisal was too HIGH!!

By
Real Estate Broker/Owner with ADT Real Estate

Yes, you read that right. I was turned down on a recent refi because the appraisal came back too high. I never imagined that I'd see the day when that happened, but maybe it's an effect of a mortgage industry running scared amidst accusations of fraud. Personally, I'm more than a little bit upset over the whole deal.

You see, last year I ran across a property that had some great potential. It was a foreclosure 2BR/1BA raised ranch with a full concrete basement and a 1 car garage, situated on 1/3 of an acre. It was a small house, smaller than my normal investors' requirements of 1300SF and it was a 2BR property, so it didn't fit for my investor clients and none of them wanted to make a move on it. I still thought it had some potential, so I kept an eye on it. I knew it didn't fit the profile of most investors, so it was a safe bet to wait it out for a while and it was on the market for only $24,900 after all.

A couple of months later, as we neared the end of the year, the price took a steep cut to $17500, so I made an offer of $15000. I guess someone else was watching it too, because I ended up in a bidding war. I finally ended up making a full price offer and the house was mine. This purchase didn't come without risks. The house was a foreclosure and had been vacant for over a year. I had no idea what worked and what didn't, so started turning utilities on and checking things out.

It turned out that the systems were in fine working order, actually much better than I could have hoped for. Not a leak in the house. The furnace and water heater were in great shape. The electrical was upgraded and the windows all worked as well. I was as happy as I could be with my purchase. After changing the flooring out and painting, I put some appliances in and was ready to rent.

It didn't take long to find a tenant and I had all the pieces of the puzzle complete. I was content with my purchase and went about my business. This year, my wife and I saw another house we liked and decided to cash out the value in our investment property in order to use that money to buy this property. We made application through a mortgage broker in our area who had worked well for my clients in the recent past.

Things were going well until we got to the appraisal. It seems that my property is worth too much money now. My appraisal came back at $39000, which thrilled me when I got it back. It would be enough to pay back my investment and give me enough cash to buy the property I wanted. Then the bank sent it back to the appraiser. The value was too high, they said. Find cheaper comps, bring the price down.

The appraiser pushed back. Those were the best comps and the value was good. The bank pushed back. Redo it so you can reflect a cheaper value or they wouldn't accept it. The appraiser refused to change it yet again. The bank, true to their word, dropped me like a hot rock. It seems that my property is worth too much for the bank to refi. So...here I am, with my over-valued investment property that I can't get refinanced because my appraisal came back too high. Maybe I should have tried to influence the appraiser to fudge on the numbers to bring the price down? Hey, Mr Appraiser, I need that value to come in lower...think you can hook me up? I don't think I'll be having a conversation like that with an appraiser any time...ever!

I got a letter from the bank. It says I have been denied credit due to an "Unacceptable Appraisal". It's laughable really. I mean, I paid for an appraisal. The appraisal was done. The bank didn't like it. Now, I'm back to square one. Well, I guess that's not altogether true. I do have this nifty appraisal that the bank won't accept. Maybe I should get a nice frame. 

 

Until next time...

 

 

My name is Andrew Trevino. I am a Realtor, working in the Wilkes-Barre, PA area, and I'm affiliated with TradeMark Realtors Group. Thanks for investing your time in reading my blog. If you're interested in contacting me, please visit my website at http://www.wilkesbarrehomesales.com/

                                                                      TradeMark Realtors Group

Comments (64)

Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

It's absolutely amazing.....that you can buy a house on a third of an acre for $17,500!

Jan 17, 2010 07:46 AM
Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

I would have a conversation with the loan officer and remind him that I send him a lot of business....it might be in his company's interest to use some common sense.

Jan 17, 2010 08:41 AM
Iryna Sysenko
Realty One Group - Las Vegas, NV
Las Vegas and Henderson Real Estate

Here is Vegas it is practically impossible to get a loan below 50,000.

You should offer cash in such a price range.

I agree with Jay #25 - maybe the appraisal was not a real reason.

 

Jan 17, 2010 08:43 AM
Darla Maddalone
Bend Oregon Homes Online-Principal Broker, SFR, CSP - Bend, OR

The stated "reason" for denying the loan, unacceptable appraisal , is interesting.  Is there further explanation as to what was unacceptable about the appraisal? Was "too high" actually put in writing as the reason? And what does the appraiser think about his work being deemed "unacceptable"?  hmm...that's food for thought.

I understand how banks are skittish in today's market, but if your loan request didn't meet their lending criteria, why did they even process your loan application in the first place and burden you with paying for an appraisal?

Something just doesn't make sense.  That's got to be frustrating.

 

Jan 17, 2010 09:57 AM
Eric J
Eric J - Dream Home Financing - Freehold, NJ
Dream Home Financing

Andrew, that actually DID happen to me with a Pennsylvania loan. However, I had to remind the lender that the appraisal was ordered through THEIR ONLINE SYSTEM !!  It didn't take long before they approved the loan....talk about a law suit waiting to happen.

Jan 17, 2010 10:03 AM
Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease

Andrew,  

Wow! That is an incredible story.  I do feel the the banks and mortgage providers are not really sure how to make decent decisions today, since they have made so many poor choices in the past. 

You are the first AR person I've seen from WB.  (My dad went to Wilkes and parents are from Kingston, PA.) Great area. 

All the best, Michelle

Jan 17, 2010 10:31 AM
Patricia Aulson
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate - Exeter, NH
Realtor - Portsmouth NH Homes-Hampton NH Homes

Ha....you never know from one day to the next what's going to happen.  Crazy!

Patricia/Seacoast NH

Jan 17, 2010 10:51 AM
Anonymous
Russ

Homes rarely increase in value substantially less than one year after it was purchased unless something drastically was done to the property that would warrant an increase.

It is real simple, cash outs are usually done when people don't have money and thus a riskier transaction.  It makes even riskier because of the phantom equity that seemingly came out of no where.  At least 50% of the foreclosures right now are investment properties which compounds it even worse.

The appraisal is unacceptable because the appraiser can't and won't state why the value of the property increased satisfactorily.  It is also a simpler way of stating what was said earlier about the risk of the transaction.

If he weren't taking money out of the property, the deal would have probably without a hitch as a rate/term refinance.

Jan 17, 2010 11:48 AM
#52
Dean Carver
United Brokers Group/Carver Home Team - Ahwatukee, AZ

Many banks will deny credit if they see more than a 20% price increase from where the property was purchased in a short period of time. Be careful about purchasing deeply discounted properties and then trying to refi.

Jan 17, 2010 12:29 PM
Andrew Trevino
ADT Real Estate - Wilkes Barre, PA
Wilkes-Barre Homes For Sale

Wow, what a lot of information in these responses. Thanks to all who commented. Your feedback is great! I don't think I can respond to everyone here, but know that I do appreciate you taking the time to respond.

This has been a frustrating situation for me. I didn't think I did anything wrong. I saw an opportunity for a great investment and I took it. If I had known that it'd be hard to refi later, I still would have bought it. If the mortgage broker had advised me that it probably wouldn't fly, I wouldn't have spent my money on an appraisal, but I learned something here.

And I have this great appraisal...now, where did I put that frame?

Jan 17, 2010 12:32 PM
Michael Werbick
Castle Pines North, CO

It is very simple....for one reason or another the underwriters did not want to finance your property.  So the conditioned it with and unacceptable appraisal.  The LO did his job and was probably looking at a decent value and back end because it was an income prop.  However, when the appraisal came in the LTV changed and the bank was not going to make money so they denied.  My best thoughts as a LO myself without knowing all the details

Jan 17, 2010 12:46 PM
Raylene Estabrook
Signature Homes Real Estate Group - Yarmouth, ME

Why am I not surprised. At least you know you got a good deal even if your money is tied up longer than expected. Good information to know for my investors. Thanks for sharing.

Jan 17, 2010 11:21 PM
Andrew Trevino
ADT Real Estate - Wilkes Barre, PA
Wilkes-Barre Homes For Sale

Michael,

Sorry, but I didn't understand that scenario at all. How would the bank not make money on the deal? It's a high rate loan, no matter what and they'd be financing more money, so they make more money. There's no scenario where the bank doesn't make money. Thanks for the comment, though.

Raylene,

Maybe this would do better under and umbrella with my other properties. Thanks for your comment as well.

 

 

Jan 18, 2010 12:52 AM
Mark Towler
Southeast Mortgage - Atlanta, GA

It sounds to me like the bank just did not want the loan. I believe for several reasons:

- too small of a loan amount

- cash out on an investment property

- rapid rise in value

I am guessing this home is also in a declining market. Hard to get a loan that small these days. Most folks in that value range are cash buyers. I would be interested to know if another lender takes it. Please let us know if they do.

Jan 18, 2010 08:04 AM
John Crosby
Real Property, Inc. - Marblehead, MA

Hi Andrew, Chances are the underwriter didn't want the loan and usually what happens in that case is the appraiser gets slammed.  As an appraiser I hate to tell you how many times, especially in the recent past, I've received irate calls from borrowers and their agents with wild accusations regarding an appraisal report based on false information from the originator regarding the appraisal report.  In most all of the cases there was nothing wrong with the appraisal report (i.e. value or conditions) that would cause a loan to be denied.  In my opinion some underwriters would much rather blame the appraiser rather than to take the responcibility for their decision to decline a loan.  On the plus side it sounds like you made a good investment.

 

Jan 18, 2010 10:40 AM
Andrew Trevino
ADT Real Estate - Wilkes Barre, PA
Wilkes-Barre Homes For Sale

Mark,

I think that is the concensus. I'll be sure to update everyone with the next step. Thanks for the comment.

Hey John,

I was actually proud of the appraiser for standing up to the demands for new comps to lower the value. I didn't blame him at all. I just wish I wasn't caught in the middle. Thanks for your comment as well.

 

Andrew

Jan 18, 2010 01:00 PM
Kerry Jenkins
Prime Properties - Crestline, CA

WOW.  That's pretty crazy.  I would try another couple of banks with that appraisal in hand and see what they would do.

Jan 21, 2010 06:22 AM
Andrew Trevino
ADT Real Estate - Wilkes Barre, PA
Wilkes-Barre Homes For Sale

Plan on it Amy. Thanks for the comment.

Jan 21, 2010 06:24 AM
Anonymous
Melissa

Was this BB&T by chance?  I'm going through the exact same thing right now.

Jan 18, 2011 06:30 AM
#63
Anonymous
allison

Same thing here! With BB&T! I cannot even put into words how frustrated I was. To spend $425 bucks, wait 89days and get no where! FYI- Even though Bank of Am. gets a bad wrap for all of the housing in lingo- Their level of professionalism vs. BB&T is off the charts! I felt like I was talking to my neighbor anytime I was speaking with someone over at BB&T-Loan Processor even hung up on me! After waiting for 60 days and hearing absolutly nothing, I began calling every Monday to check on the status, week 2 she hung up on me!  After dealing with this we have decided to stop all of our banking with them-

Just started the process over with BOA, and so far MUCH MUCH better! (just an equity loan this time)

 

Apr 29, 2012 01:28 PM
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