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Equity Now In The News - 2019



How to avoid a low home appraisal




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Home appraisals are conducted by a professional appraiser to give an estimate of the market value of a house or property. They are most often conducted at the behest of the lender.

In some instances, home appraisals can come in low because values have been declining in the neighborhood, improvements need to be made to the dwelling or the buyer has simply offered too much. A lower home appraisal can derail a potential sale when a lender won’t agree to provide the full amount of financing the buyer needs to close the deal.

Why home appraisals are important

Homeowners seek appraisals to refinance their mortgage or obtain a home equity loan or a home equity line of credit.

“Generally, the loan-to-value ratio is determined by the lower of the appraised value or the purchase price for a purchase transaction,” says Matt Hackett, operations manager of Equity Now, a New York-based direct mortgage lender. “For refinancing, the loan to value is determined by the appraised value. This ratio is very important from both a qualification and pricing standpoint.”

Why avoiding a low home appraisal is important

A low home appraisal may mean that it takes longer to sell your house, which can be problematic if you have started the process of buying another home. If you have immediate changes such as planning to move for a job or a divorce, the low appraisal can make it harder to sell the house at the price you had hoped to obtain.

A low appraisal may also mean the house could be on the market for a longer period. Buyers are sometimes deterred by homes that have been on the market for many months, perceiving that there are problems with the house or asking price.

What causes low appraisals

Many factors can figure in a low appraisal. Taking the time to repair leaky faucets or more major issues such as an old fence can boost the value of the home. Here is how you can combat some of the most common problems.

A home’s appearance matters

Changing market conditions

How to avoid: Do your research on how fast or slow values of homes change in the area. There might be times when sales slow such as the end of summer or winter when fewer people are looking to purchase a house.

Lack of recent “comps”

You might live in a neighborhood where homes are rarely sold or in a new part of town that is still being developed. If you live in a fairly new high rise and few condos have been sold to a second owner, that could impact an appraisal.

How to avoid: Check out the number of home sales in your area and what time of year most of them occur. If you can wait, try selling your house during those periods of the year.

Disconnect between the appraiser and the buyer

How to avoid: This could be harder to avoid because it is often personal in nature.

Unrealistic expectations

Appraisers look at the comparable sales in the neighborhood and generally “bracket sales with a lower sale, a higher sale and a very similar sale and arrive at a number they deem fit,” Hackett says.

The reasons for low appraisals are generally more due to an unrealistic idea of value than anything cosmetic,” he says. “Appraisers are human and they will generally react more favorably to a well-maintained home.”

How to avoid: Look at the prices of homes sold within the past month that are similar in size and age to determine a range for your appraisal before it is conducted.

How often do home appraisals come in low?

How often a home appraisal comes in low depends on the neighborhood and market conditions. Currently Equity Now, for example, is seeing 2 to 5 percent of appraisals come in short, Hackett says.

Steps you take to head off a low appraisal

Homeowners can not shop for appraisals and simply get a second one, Hackett says.

“As a lender, we are not permitted to get a second appraisal unless the first appraisal is grossly incorrect,” he says. “This would be extremely rare as the lender is selecting the appraisal or at least the appraisal management company. We do a tremendous amount of due diligence on appraisers before engaging them as they are determining the value of collateral supporting the loan and are crucial to the lending process.”

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