GETTING ACCURATE APPRAISALS

An appraisal is an estimate of a property's current market value. Whether you’re buying or refinancing, the appraisal of your new property is a vital part of getting the loan amount you request from your mortgage broker. Thing is, with the West Side real estate market rising at least 20% a year, it can be difficult to get an accurate handle of your property’s true worth.

Appraisal is an art. An accurate appraisal combines a variety of information; recent sales prices of comparable nearby properties, plus an inspection highlighting the pluses and minuses of said property. Appraisals from two licensed appraisers can differ by tens of thousands of dollars, depending on their experience, neighborhoods of expertice and the comparable property sales price information they used to arrive at the appraised value.

In 2003 and 2004 there have not been enough properties for sale in the neighborhood to meet buyer demand. Therefore, a home that’s reasonably priced by local standards may get 12-15 offers and sell for close to $100,000 over asking price. Unless you’re putting a huge chunk of cash down, having the property appraise for the sale price can be a big issue.

In a rising market like we have seen over the past several years, it can be difficult to justify the sales price. If the market is rising 20% a year, and the most recent published sales are even four months old, you’re already showing a 7% difference in price. Thus, using recent sales may not necessarily validate the new price of a property.

A mortgage broker gets you a loan, but they do not put up the money. They are middlemen between home loan borrowers and the actual lenders. They handle the home loan application and paperwork but don't lend their own funds. Therefore both the mortgage broker and the lender rely heavily on the appraisal to determine a property’s value.

Whether you are purchasing or refinancing there are ways to get the most accurate appraisal for your property. Noted real estate columnist Bob Bruss offers these points for consideration:

1. BE SURE THE PROPERTY IS IN TOP CONDITION WHEN THE APPRAISER COMES TO CALL. If the property is a mess with items from the seller scattered throughout waiting to be disposed of, it can leave a negative impression with the appraiser, even though it shouldn’t affect the property’s market value. The appraiser should photograph the property ‘ front of the house, interior as well as the neighborhood. These photos will be included in the package delivered to the lender substainsiating the appraiser’s price analysis. Make sure the property looks as good as it can.

2. ACCOMPANY THE APPRAISER ON THEIR TOUR OF THE PROPERTY. Have the buyer and / or real estate agent accompany the appraiser as they inspect the property, so that any and all questions can be answerd in a manner that benefits the buyer. Ask for a business card, make sure the appraiser is licensed, and not just a trainee. Make their job easy, point out property benefits that you feel the appraiser might miss, and give the them a written list of the property’s features and benefits to be included in the appraisal report.
 
3. OFFER DOCUMENTATION THAT JUSTIFIES THE PRICE. Good appraisers are busy; make their job easier. Give the appraiser the information they need so that the appraiser can justify the requested loan amount to the lender. Have the real estate agent pull up sales comparables (a.k.a. comps) that support the property’s selling price. If you leave the appraiser to pull up this information on their own, your pristine property may end up getting compared to the recently sold neighbor property that had foundation and dry rot issues and required a complete rehab.
              
4. REQUEST A COPY OF THE APPRAISAL FROM THE LENDER. The appraiser is hired by your mortgage broker to justify the amount the lender will loan ing on the property. If you, the borrower, are not satisfied with the appraisal, call the appraiser, ask how they arrived at the loan amount. If you are not satisfied with the amount they are offering to lend, request a ‘review appraisal" from your broker, and see that it is paid for by the lender. Be sure the second appraiser is familiar with the local real estate market.

5. AVOID ELECTRONIC APPRAISALS. Lately, mortgage brokers have begun using computerized appraisals for residential properties. This can be a particular problem if you’re paying top dollar for the property, as information that’s a couple months old is already obsolete.

Wall Street bond investors who buy into the secondary mortgage market are truly concerned about accurate property valuations. When a borrower defaults and goes into foreclosure, investors take heavier losses if a property’s value has been inflated. According to Fitch Ratings, a major risk-assessment firms for the global bond market, ‘‘Anything less than an on-site, exterior and interior professional appraisal is likely to overstate the true worth of the property if it's in any of dozens of slowly appreciating markets.’

‘Appraisers visit the property and observe its condition, and the condition of the neighborhood," noted Sarbashis Ghosh, Fitch's senior director for residential mortgage-backed securities.

Automated valuation models depend on public records of closed sales and are not up-to-date on pricing in changing markets. An automated property valuation in a depreciating market such as San Francisco or San Jose could cause a million dollar property to be devalued by $100,000 to $150,000 for bond market purposes.