In order to lower their risk of exposure to the foreclosure market, banks are pressuring appraisers to low-ball their final appraised values. This practice is fueling more downward pressure in an already weakened real estate market. In addition to this, the banks are not even accepting independent appraisals any more.
I have been a real estate broker and investor for over 18 years and have never seen such manipulation in favor of the banks. What is upsetting to hear is how the banks are exacerbating this real estate crisis by “killing” deals that qualified buyers and motivated sellers have already agreed upon. Banks are so scared that a bust in real estate is ultimately coming that they will force a buyer and seller to renegotiate the contract in order to lower their own risk exposure. Ultimately, they could create the real estate bust they have feared as home inventories increase due broken deals.
Typically, banks use their own appraisers. However, prior to this real estate crisis, they would consider an independent appraisal as long as it was preformed within two months of a contract. In fact, one effective marketing tool Realtors will suggest to a seller is to hire an independent appraiser. This will establish a more reliable true market value to a buyer in order to encourage an offer.
In the past, I have talked to many appraisers about their relationship with banks. They have always told me that as long as there is a contract and it is within a reasonable price range of their appraised value, they would give you that value on your appraisal. The reason for that is because in their minds the contract is a comparable.
Today, banks are factoring in a foreclosure “fear factor” for properties. Typically banks lose about 60 per cent of a mortgage amount in addition to recovery costs for a foreclosure procedure. Foreclosure is their last resort. They will write down these mortgage amounts on their books order to hold the loan together until they have no alternative but to go through foreclosure proceedings. They are not interested in becoming property owners.
Buyers of course can put more money down and that would help the transaction go through because it would mean a lower mortgage amount. However, today, we do not have too many people that can put eighty per cent down or more including paying for closing costs.
So what else can a consumer do if you get one of these low-ball appraisals? Here are some tips on how to begin to challenge your bank.
1. Request the copy of the appraisal to be faxed to you immediately with a follow through of the hard copy. Then look for errors in the comparables. For example: Let’s say there is a home in your neighborhood that has a similar square footage and other amenities that sold within a 6 month period; and, it is not on their comparable list of homes. Yet, if they included it, that could bring up your home value. That would be a red flag for a challenge to their total value.
2. Obtain three comparable sales within the last six months within your neighborhood that you feel can bring up your home value. If there are no comparable sales, then you need to go out to a one mile radius from your neighborhood, however the closer to your home the better. You can call a Realtor for this information or go online to your county’s property tax rolls where you can do your own searching. However, not all counties in every state are online so you might need to go to your local appraiser’s office.
3. Despite the fact we are hearing that banks are not looking at independent appraisals, you should still invest the money in purchasing an independent appraisal. It will help prove your case.
4. Write to the financial institution to appeal the decision. State your facts with your back up proof. Send it registered mail with a return receipt so you have documented the letter.
5. Each state has a financial regulatory department that governs the banking industry. You can search online for your state “Division of Finance.” Make a complaint to them in writing, also sending it registered mail with a return receipt.
There’s a saying: “An appraisal is an art, not a science.” However, the banks are manipulating this art and I question this as an acceptable process in the appraisal profession.