You have been searching far and wide and have finally found your dream home. Among the many steps toward home ownership, one of the most important, from a financial standpoint, is the property appraisal. At this juncture in the process, your home offer has been accepted by the seller and the bank financing is in the offing, pending an appraisal. The bank cannot lend more than the home is worth, so when the appraisal falls short of the purchase price, or loan amount, the entire transaction is thrown into a holding pattern. This causes anxiety among all concerned parties, but this issue may be resolved by following the guidelines below. Here are the steps you can take if you find yourself with an unexpectedly low home appraisal.
Appraisers Under New Regulations
The home appraisal business has undergone a major re-working since the housing bubble collapse in 2008. Banks and appraisers were far too cozy in their dealings with each other, directly contributing to the approval of home loans that vastly overstated the home's true value. Appraisers were supposed to never be told the amount of the loan being sought, but in practice this rule was never followed, and appraisers were incentivized by banks to overstate the home's value.
As a result, new regulations require there be no direct contact between banks and appraisers, giving rise to appraisal management companies. AMCs act as a firewall between banks and appraisers, and are responsible for hiring appraisers for the banks. Unfortunately, the way AMCs operate has wreaked some havoc in the appraisal world and led to many issues with accurate appraisals. AMCs take a middleman fee, leaving less for the appraisers. This has led to less experienced and out-of-town appraisers who may be more likely to undervalue properties.
What You Can Do
- Hire your own appraiser, and if there are significant differences in value, contact the appraiser and the bank.
- Challenge the original appraiser's data, and be ready to produce your own data.
- File a protest on the appraisal with the bank.
- Request another appraisal by the bank, using a new appraiser.
- Look for homes sold by owner, which might not have appeared in the Multiple Listing Service database, which could change the results.
- Point out to the appraiser improvements to the home that may have been overlooked.
- Ask the seller to lower the purchase price to meet the appraisal.
- Offer a larger down payment to bring the loan amount down to the appraisal amount.
There is no guarantee that challenging the appraisal will work, but the pay-off of a successful home closing is well worth the effort. Your search for your dream home need not be in vain if you follow the steps above to ensure that your bank financing goes through. FOr more information, talk to a professional like East Coastal Appraisal Services.