A few months back I was referred a client “Jim” and his wife. They had recently had their loan declined with a larger bank because of a low appraisal value. This left them frustrated for a few reasons. First, they were sure their home was worth more than the value they were given and second, they felt frustrated that they had just spent $400 to have this appraisal and had no way to fight the value.
What does one do in this situation? It can feel like you’ve been ripped off and now are no better off than when you stated the process. Well, there are two choices and neither come with guarantees. In the off chance, this happens to a client of mine here’s what we do:
1. Appeal the appraisal. Most lenders have some sore of appeal or review process in place, allowing you, the borrower and/or a Realtor to show why they feel the value is inappropriate. The best way to do this is to find comparable homes that have sold more recently or closer to the home than the homes used in the appraisal. This most likely won’t get you the higher value you are looking for but will offer some peace of mind with an explanation for what was used to determine the value and why.
2. Take your chances with a new Lender. Now this one, I rarely, if ever advise. The odds are not in your favor to have an appraisal come in higher. The quality control process now leaves a lot to be desired, but overall values tend to be fairly consistent.
When Jim and I talked about his situation, we realized two things very quickly. First, the other Lender did not offer an option to appeal the value and two, the loan officer that he was working with lacked the ability to think critically about this situation. In fact, with the appraised value Jim had gotten, he could complete his refinance by moving into an FHA refinance program instead of the conventional program he was told to pursue. Most loan officers are aware of the higher loan to value (or percentage of homes value that can be lended) with this program. Jim just had bad luck with a poorly educated professional.
Here’s how Jim was able to obtain his refinance. After going over the risks of paying for another appraisal, we decided together that the risk was low for the benefits of the refinance. The appraisal came back around the same value as the first mortgage, but that was all we needed to combine his first and second mortgages into one new mortgage at a lower interest rate as well as save Jim and his wife over $350 per month. This gives Jim a lot of room each month to enjoy his new boat and do some Walleye fishing in Detroit Lakes.
Sometimes, the value of the appraisal isn’t the problem, sometimes it’s simply finding the right solution for the facts at hand.
Have a great week!
Image courtesy of cooldesign / FreeDigitalPhotos.net