How an Inaccurate Appraisal Can Affect Your Refinance Options
06/10/2010 Your sound financial standing is not enough when you want to refinance your mortgage. If you want refinance application approval and the lowest interest rates possible, an accurately valued home appraisal is crucial. However nowadays, getting an accurate appraisal is easier said than done.
It didn't used to be this way. In the past, loan officers maintained relationships with local appraisers whose familiarity with the area facilitated the process of accurately valuing property. But these relationships sometimes led to problems. In an effort to reduce any appearance of unfair influence, a new home appraisal system has been put into place.
Now appraisals must be ordered using a system that involves neither the loan officer nor the home owner. The recently-implemented Home Value Code of Conduct (HVCC) requires that all mortgage broker and lender orders for appraisals be sent to an appraisal management company.
Problem is, use of this new system often results in the lowest-cost appraiser getting the work, even though appraisal orders are randomly submitted to appraisers using a rotating list system. Since time is money, lower-cost appraisers won't typically spend as much time appraising a property as someone charging more for the service will. Less time spent evaluating property can result in inaccurately-valued property; a situation that can endanger your refinance request.
Another problem is finding data that supports your home's value. With property values fluctuating so widely because of market declines, short sales, foreclosures, poor condition of property and more, it's difficult for appraisers to find three properties that meet the criteria to be listed as a comp: property located within one mile and closed on during the previous six months. When appraisers cannot find enough suitable comps, they must provide an explanation for the omission in their valuation. How you can help
Three simple steps are all it takes to reduce the chance of getting an inaccurate appraisal and endangering the refinance process. First, determine which recently-sold properties are the most and least comparable to your home and explain to the appraiser your reason for categorizing each property the way you did. You can ask your realtor for a list of recent sales.
Second, know the amount different comps sold for and why. Lower prices on homes that needed a lot of work and distressed sales can cause an appraiser to incorrectly value your home. Be prepared to tell the appraiser the reason why the comparable house a block away sold for considerably less than yours and avoid the potential for problems.
Third, inform the appraiser about any major home improvements you've done to increase your home's value like updating the kitchen .Just remember that you'll need proof of everything you say. That's it! Good luck working with your appraiser.
