Home Buying in Lewiston>Question Details

Ibebirdman, Home Buyer in Idaho

I am a bit suspisous of the appraisal process. For the home I recently purchased the appraisal came back just

Asked by Ibebirdman, Idaho Sun Apr 6, 2008

$50 over my offer. I suspect this was done just to make the loan go through and that the appraiser knew my offer while making the apprasial. It this often the case? Is there any grand rule of thumb out there as to what often is the the ratio of the average sale price is to the appraisal value? Are they regularly this close or are they a couple of percent lower?

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I am not located in Idaho, and real estate markets are typically local in nature. With that being said, we often see the same thing happening in our area. Often times, appraisals come in for right at the agreed upon price on the contract. Not always, though. If the appraisal comes in too high, then it causes concern to the seller (although they are not always privy to a copy of the appraisal itself). The thought may be, did I under sell? Did my agent give me incorrect advice as to the true market value of the home? Thus, the owner may not want to proceed ahead with the transaction. They may have an issue to take up with their agent. And often it sends a red flag to the lender making the loan. Most loans stipulate that there should be not outside transactions between buyer and seller. So, it's a potential problem.

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.

Sandy Shores
0 votes Thank Flag Link Sun Apr 6, 2008
This is not an unusual occurance. Probably because of the constantly adjusting real estate market. The property needs to appraise for at least the contract price without appearing inflated.

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!
0 votes Thank Flag Link Fri May 22, 2009
I had some clients purchase a home with a 203K loan about a year ago. The appraisal came in about 2k above the loan value and we all knew that it was very low. They are now refinacing to take advantage of the lower interest rates and get out of paying PMI.
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
Web Reference: http://www.Find1Home.com
0 votes Thank Flag Link Fri May 22, 2009
Apparently law makers also questioned the appraisal process and effective May 1, 2009 the HVCC (Home Value Code of Contact) Rule went in to effect. Essentially after this date nobody that has any interest in the appraised value can have any involvement in the ordering of the appraisal or contact with the appraiser. There are many that think this rule was not necessary and will likely cost all sides more money. There is some evidence that their fears may be correct. Many lenders who were burned by previous lofty appraisals were already scrutinizing appraisals, requesting additional comps and explanation of adjustments. Furthermore under this new ruling, conventional appraisals in Maine have become more expensive (costing the borrower more money) and the fee paid to appraisers has dropped (causing the best in the business to retire or consider a new career). Where the difference between the new higher fees and the lower amount paid to the appraiser has gone is anybody's guess but the new "middle man" who hides the identity of the appraisers is making out quite well. I've had three weeks of experience under this new rule and the appraisals so far have been a bit questionable at best. I am confident that this new rule was put in to place with the best of intentions and am hoping that the "bugs" will be worked out quickly so the benefits that were intended will soon shine through.
Web Reference: http://www.DaleDoughty.com
0 votes Thank Flag Link Thu May 21, 2009
I believe it is very common... too common and to coincidental... perhaps the appraiser should not be made aware of what the loan needs are... we've refinanced before and the appraisal has come back dead on... hmmm. it does make you wonder.
0 votes Thank Flag Link Tue Apr 22, 2008
An appraisal is defined as: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

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.
0 votes Thank Flag Link Mon Apr 7, 2008
I have found this is relatively common only if the appraiser feels the property is worth the sale price or higher. The appraiser if supplied with a copy of the purchase and sale contract prior to performing the appraisal because it is noted on the appraisal report that he/she has reviewed it and makes note if there is any seller concessions (seller contributions to closing costs) and if it is common for the area and market. But if the appraiser can't back up the appraisal result with recent compariable sales the underwriter will ask for additional comps to support the value or could kick out the appraisal all together. Hope this helps.
0 votes Thank Flag Link Mon Apr 7, 2008
In my experience, the appraiser doesn't have access to your contract with the seller. Additionally, with the market taking a hit because of the subprime lending fiasco and with so many homes having been over financed in the past few years, lenders expect their appraisers to not take liberties when comparing a subject property to the comparable properties. Lenders aren't interested in over financing a property. Also, I am unaware of any "rule of thumb" in relation to average sale price vs. appraised value. If the contract price of your house is justified by the comparable properties in your area your appraisal should be on target.
0 votes Thank Flag Link Mon Apr 7, 2008
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