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It's a conspiracy!

Mortgage Matters

Is there a conspiracy surrounding the appraisal report for your home purchase or refinance? Recently a buyer was upset about an appraisal value matching the purchase price, so let’s review the process.

There are layers of consumer protections surrounding the mortgage process. Within three days of application we have to give you a detailed list of fees associated with the loan. You get a chance to review this document, and must sign that you’ve seen it. You will be asked to formally “consent” to proceed with the loan before we can take your money for an appraisal. Herein lies the issue with appraisal turn times – Congress wants you to be an “informed consumer” so we have mandatory disclosures and wait periods up front.

Your loan originator is not allowed to have any contact with your appraiser. Most of the time we’re ordering the report through a third-party service, who assigns the job based on a roster of appraisers familiar with the area. In a purchase transaction, the listing (seller’s) agent is usually the contact person, since they have access to the house keys. The appraiser is provided with the purchase contract, which evidences a willing buyer and a willing seller at whatever price and terms.

The appraiser is a state-licensed person who has ethics and continuing education requirements to maintain that license. Appraisal reports these days are in excess of 30 pages because of all the things appraisers must attest to about their investigation of the property. Note too, that in the 1990s we were paying $375 for an appraisal report that was much skinnier – today’s price of around $500 is not much more for all the additional work they are now required to do.

Once the appraiser turns in their report to the lender, the fun begins. You see, the report is an “opinion of value”, but it’s only the first step. The report is uploaded into a Fannie Mae review database that checks the report against every other appraisal ever done for the subject property. If there are any discrepancies, the appraiser must explain and justify the differences. The automated review often also asks why certain comparable sales were or were not used. More work for the appraiser.

Simultaneously, our underwriter is reading over the report. Frequently they need clarifications or changes about some finding. More scramble for the appraiser.

When you as a buyer see that the appraisal value matches the purchase price you offered for the home, it’s not that real estate professionals are colluding against you. It shows you had a Realtor who took the time to do a current market analysis before you made your offer. The house appraises for the purchase price because that’s what it’s worth. All the levels of investigation and vetting surrounding the appraisal just confirm your agent’s good work.

There’s a whole different story when the house does not appraise, but that’s a story for a different day.

Tammy Engel is your local Mortgage Advisor and has been working for your best interest since 1990. Contact her at (661) 822-7325 for help with purchase, refinance, and reverse mortgage. NMLS #235051/303625