If the home does not appraise, you know what that means...the lender will not make the loan.
In my experience here, I have seen times where the lender provides the appraiser with a copy of the contract for sale and purchase before the appraisal is done. I don't know what the custom is across the US.
Also, be aware with the overinflated prices we just experienced in many areas of the country, many appraisers were put in very uncomfortable situations. Many fingers were pointed at them later, for appraising homes so high. They really couldn't win, for losing. Now whose fault was it? Buyer, seller, lender, appraiser?
Appraisers have a very, very difficult job, especially in the types of markets we have been experiencing over the past several years! I certainly would not want to do what they do!
An appraiser is probably the one that would best be qualified to answer a question like this.
The effect of this is that the customer is in jeopardy of not recieving an accurate account of the value of their home...but an evaluation that meets the need of the lender.
We strongly agree with the fact that there should be no connection between the appraiser and the actual contract price......but as you can see, this is not the case. To us it's like providing the ansewers to the test before the questions are asked.
Your concern is a valid one!
The original loan was for 165K plus 22K escrow for repair costs the appraisal came in at 190k. The refi appraisal just came in at 480K.
The only way to look at it was that the lender wanted the coverage of the mortgage insurance in case anything went wrong with the loan
It is a violation of regulations for an appraiser to accept or prepare a report based on a pre-determined value, but it happens a lot, mostly due to pressure to hit the number needed for the deal to work, by those with a vested interest in the outcome, especially in the cases where the value is actually less then the selling price. However, that is not always the case.
The appraiser needs to have a copy of the purchase contract because it has information that is required to be included in the report. It is quite common for the appraised value to equal the purchase price even if the actual value is higher. This is done because the lender will only fund the loan for the amount of the purchase price and prevents various types of mortgage fraud such as cash back schemes. But there are times when the value would be reported higher.
As Terry stated, if the contract price of your house is justified by the comparable properties in your area your appraisal should be on target. In other words, if it was listed correctly to begin with the appraisal whould be very close. Also there is no ratio between the sale price and appraised value, there is however a ratio between the sale price and list price.
Regarding your particular suspisions, from what you wrote, the only concern you may have would be if the purchase price was higher than the actual value which could happen easly in declining markets. To address that concern you could have the appraisal reviewed by another appraiser or a real estate attorney to determine the accuracy.