House appraisal came in low but high enough for refi -- is it a big deal?

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Trakl
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Joined: Tue Jun 07, 2016 10:24 am

House appraisal came in low but high enough for refi -- is it a big deal?

Post by Trakl »

Doing a refi on my mortgage, and the required appraisal came in low. Last appraisal was in 2011 and they said 392K. Since then we've done $45K in improvements and the local market is red hot, but this new 2016 appraisal is $375K. That's just silly. I am very sure we could sell tomorrow for nearly $500K if we wanted to sell.

But we don't want to sell, and we probably won't sell for at least 15 years. Also, the $375K appraisal amount is plenty sufficient to get the 80% LTV ratio that the bank wanted in order to do the refi.

So is there anything to worry about? As long as the appraised value is high enough to get my refi done, and as long as I'm not looking to sell any time soon, there's no reason to fret about the appraisal having come in low, is there?

Thanks for your thoughts.
icefr
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Joined: Sun Apr 17, 2011 10:50 am

Re: House appraisal came in low but high enough for refi -- is it a big deal?

Post by icefr »

Nope, nothing to worry about. The appraisal just needs to come in at the desired LTV amount and you're fine.
curmudgeon
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Re: House appraisal came in low but high enough for refi -- is it a big deal?

Post by curmudgeon »

For the refi, no big deal, just let it ride. I would spend some time studying the details of the appraisal though, to understand the mechanics of how they came to an unexpectedly low value. If you were trying to sell, and the buyers lender came up with a similar low appraisal, it could cause real problems. I have heard that refi appraisals lean to the low side these days, while purchase appraisals are more market-driven, but I'm not sure how much truth there is in that (or how they legally get away with it for that matter).

In a mixed neighborhood, the most common way to come up with unrealistic appraisals is to use bad comps. If you study something like redfin, look at all the sales over the last 6 months/year, and see what similar houses sold for. Then look at which ones the appraiser chose to use as comps.
Topic Author
Trakl
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Joined: Tue Jun 07, 2016 10:24 am

Re: House appraisal came in low but high enough for refi -- is it a big deal?

Post by Trakl »

Many thanks for the quick and sound counsel. I appreciate it.
PVW
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Re: House appraisal came in low but high enough for refi -- is it a big deal?

Post by PVW »

Similar thing happened during my last refi. The appraisal came in so low the bank was going to charge me some extra points for the refi. I paid down the balance to meet their loan to value guidelines.

The situation wasn't helped by my opinion of the appraiser who I thought was very unprofessional (nothing egregious, but just not the behavior I would expect from someone in a service industry). After grumbling to people who pretend to listen to me, I moved on and forgot about it. The appraisal is only used for the purposes of the refinance and if it doesn't affect that process, then don't worry about it.
mattshwink
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Re: House appraisal came in low but high enough for refi -- is it a big deal?

Post by mattshwink »

Trakl wrote:Doing a refi on my mortgage, and the required appraisal came in low. Last appraisal was in 2011 and they said 392K. Since then we've done $45K in improvements and the local market is red hot, but this new 2016 appraisal is $375K. That's just silly.
What is your current tax assessment? If the amount is higher than the appraisal request a review/dispute the current tax assessment. You should be able to lower your taxes....
snowman
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Re: House appraisal came in low but high enough for refi -- is it a big deal?

Post by snowman »

We refied last year, appraisal came really low. We got a letter from lender informing us that we have the right to appeal. I called to ask what it means for our refi, and was told that the letter goes out automatically whenever appraisal comes 10% or more below their own internal value models. Was told that it has no affect on our refi. We didn't appeal, and we closed 2 weeks later.

My take? We live in a red hot real estate market, houses move quickly. We actually had to wait 2 weeks for appraisal company working for the lender to assign appraiser. The person that showed up looked and acted "unprofessional" - hard to describe but really different from what we were used to in the past. That tells me appraisal companies that downsized significantly after the bubble burst found themselves understaffed and unprepared for the boom that followed. They are probably hiring anybody right now, and it shows.
PVW
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Re: House appraisal came in low but high enough for refi -- is it a big deal?

Post by PVW »

snowman wrote: The person that showed up looked and acted "unprofessional" - hard to describe but really different from what we were used to in the past.
My last refi was in 2011, so it was during the hangover from the housing bubble. My appraiser rescheduled once, then showed up several hours late to the appointment and gave an excuse about a bad software update. He had difficulty going up the stairs in my house and, given his physical condition, I don't think he would have been able to do more than 1 appraisal in a day.
ze233
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Re: House appraisal came in low but high enough for refi -- is it a big deal?

Post by ze233 »

mattshwink wrote:
Trakl wrote:Doing a refi on my mortgage, and the required appraisal came in low. Last appraisal was in 2011 and they said 392K. Since then we've done $45K in improvements and the local market is red hot, but this new 2016 appraisal is $375K. That's just silly.
What is your current tax assessment? If the amount is higher than the appraisal request a review/dispute the current tax assessment. You should be able to lower your taxes....
Agreed. See if you can lower your property taxes with the low appraisal.
forevernaive
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Re: House appraisal came in low but high enough for refi -- is it a big deal?

Post by forevernaive »

I once had the same situation with a refi, and the culprit was the measurement of square footage--my house apparently shrank substantially. But the value was over what was needed for the LTV, so the bank didn't care and I didn't either.

The side benefit of a low appraisal is that (in my state) you can use the lower appraisal to appeal the assessor's valuation and maybe lower your property taxes. Best of both worlds--lower interest rate and lower taxes.

In theory appraisers aren't supposed to know the LTV needed by the bank, but I wouldn't be surprised if they did. And if they are low on some and high on others, their average for the area might look acceptable to the professional review board.
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Meg77
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Re: House appraisal came in low but high enough for refi -- is it a big deal?

Post by Meg77 »

As a lender we run into this a lot. Appraisals are ordered anonymously and can't be challenged or changed unless there is a specific error in the report, or if you know of newer and more relevant comps that they didn't use (you can contest the comps if theirs are much older and yours are within the last 60 days, but not if all the comps are around the same time period and theirs just happened to be worse).

Check the appraisal for errors (number of rooms, square footage, existence of certain amenities like a garage) for your property but also for the comps they used though. You want to make sure that data is correct in MLS or else future appraisals could come back with the same errors.

Generally there is nothing you or the bank can do about a low value though. Appraisals are sometimes more art than science sometimes, especially on pricier or custom homes. However appraisers are quickly losing the ability to adjust for anything subjective such as type of flooring, appliances, fixtures, and landscaping. Buyers may be willing to pay more for those features, but appraisals are based more on specific boxes that can be checked.

For instance, my husband and I spent $30K building a nice stone outdoor kitchen and fire pit as well as built in planters on our rooftop deck. We also have a premium view of the skyline that most of our neighbors don't share. But our appraiser recently told me he can't really count that; he has to check a box for decks that simply gives him two options: improved deck or unimproved deck. So our space counts the same as other roofs with nothing more than a simple grill and sitting area. That doesn't mean a buyer wouldn't pay up though; they just may have to be able to come to the table with more $$ than the appraisal would reflect.

Oh and as for hot markets, many times it takes longer than you'd think for comps to catch up to market prices. Enough people have to be willing to pay OVER appraised value for long enough that there are enough comps in any given neighborhood to support the higher values going forward. So depending on the inventory turnover rate and the availability of local buyers to bring extra cash to the table, this can be a problem if you're caught in the middle.

But for a refinance, you don't have to worry about any of that!
"An investment in knowledge pays the best interest." - Benjamin Franklin
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