Understanding the appraisal process can befuddle even the most experienced real estate agent, let along a home buyer or seller.
A few weeks ago in Ashburn, Virginia where some clients had a contract to buy a home, the Appraiser showed up to physically inspect the home a few days after the 21-day appraisal contingency expired.
Yes, you read that correctly.
You see, the mortgage company had accidentally misplaced their contract and not put it into the workflow queue. And, even though I personally spoke with the loan officer specifically about the 21-day timeframe in the first week… it still got screwed up!
The workflow is a lot more complex these days with complex checks and balances. The reason for them is thanks to fast and loose Wall Street money that fueled the mortgage business back in the go-go days of the early 2000’s and thoroughly corrupted the previous set of checks and balances. I saw this coming back then specifically when a few clients quit their “real jobs” to become no-doc loan pitchmen using dirty Wall Street money (I’m not making that up).
(See the video clip below)
Let’s get back to our case in Ashburn…
A few days after the appraiser showed up, I had a call from the loan officer telling me that the home did not appraise at the contract sales price. It was low, firesale low.
It was low, firesale low.
The standardized sales contract that we use here in Northern Virginia real estate transactions has a sequence on how the buyer and seller can renegotiate the sales price, ultimately allowing the buyer to Void the contract if the final offer isn’t to their liking.
Yes, Void the contract and get their Deposit back with no obligation to buy the property.
In this case, the seller agreed to lower the price, not to the appraised amount, but closer to current market value.
In my opinion, this appraiser’s scientific, state-approved method of determining value did not accurately reflect current market value. Appraisers need to use sold comparables and couldn’t use the 25 nearby sales that were currently pending (under contract but had not closed).
Appraisers are licensed professionals who use a specific calculation to compare nearby recent sales to the subject property to justify market value to an Underwriter at the bank. They use “Uniform” paperwork to add and subtract value. These adjustments are often murky to a commoner, including me.
Our situation in Ashburn was unique because the Sellers had to sell and were really motivated to get the deal done. They couldn’t be greedy, like many sellers these days, and didn’t complain about the delays or price reduction.
Wait, it gets better.
As we hit the home stretch towards the closing, the mortgage company notified the buyer that the Underwriter ordered an updated appraisal and then planned to send it to Internal Review for extra scrutiny.
It seems that this internet based lender who doesn’t really know that Ashburn is located in Loudoun County, Virginia which is one of the wealthiest high growth counties in the U.S. of A. It’s where new data centers are being built and the Metro is extending the Silver Line. Near where Amazon Web Services, Verizon, Orbital ATK and other kinda-well-known companies employ engineers and rocket scientists… WTF?
The result was a delay in the final loan approval because of the Internal Review.
Stress, and more stress for both buyer and seller.
After many calls to Supervisors and Supervisors of those Supervisors, the Closing Department called to say they had the loan and were putting together the final Closing Document (they had already sent this to the buyers a few days before) but, since it was after 2:00, Settlement needed to take place a day late.
- Home buyers need to prepare for a low appraisal
- Don’t be afraid to nag your loan officer if the appraiser hasn’t scheduled to see the home.
- Do not plan on a Back-to-Back Settlement (Seller tip)
- Lean on your Buyer Agent to be an advocate
- Have your real estate agent show you the current under-contract homes
Our regional real estate market isn’t unique. Reading WSJ articles discussing analysis like the Case-Shiller Index are interesting, but know they are using data that is months old which does not really reflect your local market this month. The CNBC report on the CSI is using statistics that are totally out of touch with current conditions giving the analysts room to refine their reports.
If you can’t find someone who you really trust in your area, then send me an email and I will help you find an agent (fyi – they may pay me a referral fee) in the market you are interested in. I’ve done this for decades with great results – I look forward to helping you out.
Want to know more about Wall Street’s involvement, watch or read The Big Short.