If your home value has increased you can usually ask/tell the lender you believe the value has increased enough that PMI should fall off and that you'd like/are willing to pay for an appraisal (typically a few hundred dollars). Or, if your loan is owned by Fannie/Freddie, you may not even need an appraisal if the new value/increase is within certain percent range. I know this because I spoke toy lender (a credit union) about getting an appraisal to remove PMI. Knowing the outstay loan amount was X I said of it appraises at X/.8 thenwe should be able to drop PMI. Lender called me back and said that X falls within Fannie/Freddie allowed range that an appraisal wasn't needed. This only works in a market where prices are increasing. Your mileage will vary depending on your lender.
I had similar, however that was 6 years ago or so when the market was just starting to heat up. The appraisal looked at previous sales, but there was such low inventory that there weren't many comps to compare to, and none of them recent. The seller wouldn't come down much, so in order to make up the difference I had to cut into my down payment (which means instead of 20% down it was only 11% down, as only the appraised value counted toward my LTV and I got stuck with PMI for a few years).
I think the appraiser is doing you a favor by not appraising it for the contract price in this case. Why would you want to overpay for a house and have to cover the financing shortfall yourself? Especially in a market that traditionally has slow RE price appreciation.
Let the cash buyers suffer the losses. You'll thank yourself later.
Usually this is mitigated by the appraisal. Lenders generally aren't willing lending more than a home is appraised for because of the increased risk. I'm sure this varies from state to state but I think this holds mostly true in general. That being said, the appraisals themselves are quite subjective and only based off a few similar properties sold recently, so I still agree it's a difficult problem.
Appraisers can only go by comparable sales (“comps”). In a rapidly rising market, comps always trail market value. I experienced this with my own Bay Area home purchase and had to shell out $40k to cover the difference between my offer and appraisal. Home prices at the time were going up 2% per month. Redfin et al now value my house at $90k over my offer
No, you waive the appraisal contingency; the bank still does their own appraisal. If the property appraises low, you pay the difference. In this market, we kept some reserve for that eventuality to make the application competitive. The sellers want a buying frenzy and that's what's happening, so many properties don't appraise since those values are usually calculated on historical sales.
When I was looking to sell my previous house the market was in turmoil and I didn't have a good idea of what the price should be so I called an appraisal company to ask what they would appraise it for and they refused. Their job is to basically rubber stamp whatever the realtor gives them to appease the bank. At the most they'll check a couple of comps in the area to make sure it's not totally out of whack.
My home’s replacement cost is way higher than what the insurer appraised it as, but asking for a higher appraisal counts as warning bells in their eyes (are they planning on burning down their home?).
As an example of above, A couple of years ago my wife and I were selling our home and the appraisal came back lower than agreed sale price, we asked appraiser to pick different comparables and the appraised price went up 10-20k
I once had my house appraised far higher than I thought it was worth. I appealed it by saying I'd sell it to the appraiser for what I thought it was worth, and he could flip it for the appraisal value.
My mortgage lender's appraisal involved an in-person evaluation both times on my house (first house purchase - initial mortgage followed by a refinance). In SF Bay Area, so maybe things are done differently where you are?
I'll grant that they largely rubber-stamp the offer price, but if the property has hidden defects it might be good for the bank to try to find that out before lending.
Buyers who need a mortgage can't go above the appraisal value, which in times of high demand lags behind the actual value of the home. If the buyer and seller reach an agreed upon value and the appraisal comes in lower than they expect, the buyer may have to back out (which can screw up the seller's plans) or lower the offer.
A cash offer doesn't have that risk, so all else being equal sellers will choose them over mortgage offers. This has the effect of raising prices faster than they might otherwise go, because the appraisal system normally serves as a bit of inertia in the system.
It's not a formality. Failing to appraise for purchase price is possible and happens. The formality aspect is the apprised value number itself. Really it only represents 'greater than or equal to whatever the bank needs'. There's no reason for an appraiser to come up with a higher value but they may find a lower value. This is why appraisals for refinancing can lower- the financed amount is usually less than market value.
If appraisals were arranged and paid for by lenders, I think appraisals would become a lot more honest. But most lenders these days will only perform due diligence to the extent Fannie Mae/Freddie Mac require, so the onus is really on the backers to require appraisers have some sort of fiduciary duty to them.
I wonder if this is location dependent, because my bank barely cared about those things when they approved my refinance last year. The appraisal consisted of just driving by the house. They didn’t check for any condition of the house.
It probably helps that the entire house could just disappear and the price for the lot would only change 10% or so.
Not assuming that at all. I'm saying that if the appraisal doesn't go through, then the lender won't cover the remainder of the purchase price, and then the buyer will have to make up the difference out of his/her own pocket. At that point, I'd bail, because the appraiser is raising a red flag.
But since you mention it, in the slower market being discussed here, I would definitely not waive an appraisal contingency.
A friend of mine saved $15K on a house because the appraisal came in low.
If the bank won't write a loan for the agreed price, the original contract is void, since it's contingent on loan approval. If the seller's heart is set on moving, he might well lower the price.
reply