What You Need to Know About Real Estate Appraisals
Whether you’re purchasing a home for the first time or it’s your second or third time around the block, staying informed about the details of real estate appraisals is crucial to ensuring you and your home are protected! Real estate appraisers play a key role in most home sales because until they weigh in with a determination of a property’s value, the buyer typically can’t finalize a mortgage. However, since the housing boom, the profession’s reputation has been hindered by its dishonesty when trying to acquire loan approvals for unqualified buyers. Here’s everything you need to know about real estate appraisals that real estate appraisers won’t tell you!
Dodd-Frank Wall Street Reform
In numerous cases, including federal lawsuits against real estate data companies, there have been appraisers accused of fudging their numbers so that corrupt lenders could approve loans for unqualified buyers. This has resulted in the Dodd-Frank Wall Street Reform and Protection Act of 2010 which required more state and federal supervision of appraisers and put more pressure on lenders to work through appraisal management companies (AMC’s). Although this process is designed to keep appraisers and lenders from getting too cozy, appraisers say that the new rules have made the process slower, more complicated, and still doesn’t stop some appraisers from yielding to pressure from banks. Before purchasing a home, know your rights and protections and use your tuition when selecting a bank and appraisal company. Let’s take a closer look in the next few bullets.
Appraisers Don’t Know Your Neighborhood
A consequence of the Dodd-Frank reform is that AMC’s are increasingly sending an out-of-country or out-of-state appraiser to calculate property values since some AMC cases assign homes to appraisers essentially at random. This means the appraisers won’t know the area at all and will be less likely to use the right comparisons. Inaccurate appraisals can hurt consumers. If an appraisal property is undervalued it may keep the seller from getting a fair price, and if it’s too high this could put a mortgage out of reach for a buyer. To combat this, do your diligence and research so you have the ability to go back to the appraiser and challenge the report. Point out poor or missing comparisons in your neighborhood based on your own knowledge. Another way to ensure you’re being treated fairly is to get a second opinion.
Request a Copy of your Appraisal
While home inspectors, real-estate agents and contractors technically work for the consumer, the appraiser’s work is owned by the bank. In some cases, homeowners and buyers are adversely affected by appraisals they never personally see. Thankfully, Federal law requires that a copy of any appraisal be given to consumers who request it in writing. Unlike inspectors or agents, home appraisers have to answer to the government, whose regulatory powers over appraisers were strengthened by the Dodd-Frank reform. That being said, don’t be afraid to ask for a copy of the appraisal, you have the right to review it yourself!
Banks Don’t Trust Appraisers
When banks tried to resell homes they’d foreclosed on during the housing bust, they found that their real value was far lower than the appraiser’s report had suggested. As a result, regulations now require appraisers to fill out more paperwork, with the size of the typical appraisal record having doubled to about 30 pages. This means that if the deal goes bad, the first person that gets accused is the appraiser. While it’s probably a relief to the bank that they’re not first in line to get blamed, it’s no secret that they’re not always confident in the appraisers report. Some things you can do to protect against a crooked appraiser is to ask multiple real estate agents for recommendations. After you have your list narrowed down, be sure to extensively interview each appraiser and ask key questions. Here’s a guide to finding the best appraiser!
We hope this guide helped you gain the knowledge you need when encountering real estate appraisals! As always our A-team members are always available to answer questions or help guide you through the process. You’re not alone in this journey—we’re here to help!