Appraisers - Why You Need to Be Concerned

Time was when appraisers magically appeared at a home that was under contract to sell, wrote up a report that usually had the appraised value match the contract amount, and the deal closed. Everybody went home happy.

But not so much any more. And with good reason.

With the mortgage melt-down last year, scrutiny was focused on every step of the selling process. The appraisal system was deemed inaccurate at best, and perhaps knowingly inept or frequently "fudged" at worst. So how does this appraisal thing happen anyway, and what does it mean to the seller and the buyer?

To keep it brief, when a buyer applies for a mortgage, the lender orders an appraisal to be done. The lender needs to know the true market value of the property, so that the lender is comfortable giving the buyer a loan on that property. It used to be that the lender could call on any appraisal company he chose to do the appraisal, giving the lender a healthy amount of control over the appraisal process. At least the lender had knowledge of the appraiser's work, work ethic, areas of real estate market experience, etc. But with the mortgage industry debacle came new rulings on how appraisers were to be selected for a property under contract. Suddenly the lenders had no ability to select the appraiser. Appraisers were being doled out to do jobs from a central control processor. And the lender was strictly forbidden in having any conversation with the appraiser assigned to a file, and forbidden in doing anything that looked like an attempt to influence the appraiser's report. The results were immediately disastrous. Legitimately disastrous. Appraisers who had no familiarity with a community or neighborhood or condo building were writing reports that mocked the meaning of the word "accurate." Transactions were falling apart because of it.

The real estate and mortgage community put up the cry - Fix This! And the pendulum has swung back the other direction somewhat. But we still hold our breath when an appraiser's report is delivered, hoping that the results look accurate, given the community, neighborhood and specific condo buildings.

When the appraisal report supports the purchase contract price, the transaction can do forward. If the appraisal states that the purchase price is more than the market value, the lender cannot issue the loan as requested. Depending on the property, the lender might demand more cash from the buyer, or suggest a renegotiated purchase price, lower than the first agreed upon price, to meet the appraisal report. Or the lender might deny the loan altogether.

This is why the buyer and seller must be making their best effort to agree to a selling price that is not over the market price. It will only mean a brick wall to overcome if a mortgage is part of the deal.

ARE MORTGAGES ALIVE IN CHICAGOLAND?

Times are uncertain, no doubt. We are all watching the stock market every day and groaning, watching the Congress actions and the US Treasury Department actions as they attempt to turn our credit market around.

And the underlying question still remains: can you still get a mortgage loan?

Yes.

You betcha!

I check every few days with my in-house mortgage specialist on this very question. Today she said "Absolutely there is mortgage money available." If the borrower is qualified for the loan, the loan can be had. The interest rates are still historically low, including conventional (around 6.25%), FHA (3% downpayment!), and jumbo (5.5% for a 5/1 ARM - wow!).

Waiting for the home prices to fall further before you buy? That's what so many buyers are telling their Realtors lately. But that begs the question: "When will the prices hit bottom? And how will you KNOW that they are at the bottom? And what will the loan interest rates be when the bottom comes - at today's rates, or higher, or lower?" Nobody has that crystal ball to tell us how to "time" a real estate purchase. In the long run, real estate has always been a good investment over time. The benefits of home ownership can far outweigh the difference of a few dollars every month in a mortgage payment for a home purchased at one price versus another.

Have you delayed making a home purchase this year? Have your friends delayed a purchase? Let me know what you are thinking, how the current state of affairs has molded your decision.