Cautious Lenders: Conservative Appraisers?
February 8, 2016 12:27 PM Subscribe
Do cautious mortgage lenders tend to use appraisers that value properties on the low end of the spectrum?
I have had my house appraised 5 times since I bought it in 2004, for various reasons, and it has been valued all over the map. Granted, the mortgage crisis happened. But as I look at the history of these appraisals, I am also wondering if smaller lenders--like credit unions and savings banks--are more likely to have relationships with appraisers who value properties conservatively. Here's the breakdown:
-2004: house valued pretty much at purchase price (we'll say this is $100,000).
-Jan. 2007: appraised for home equity loan by national bank at $143,000.
-Nov. 2008: appraised for refi (that we didn't end up doing) with a local savings bank at $117,000.
-Nov. 2009: appraised for refi we did with a national bank at $128,000.
-June 2013: appraised for refi (that we didn't end up doing) with a local credit union at $104.
This is a relatively small, slow-moving real estate market, so some of the variation might simply have to do with whether truly comparable properties could be found nearby at the time. But looking at this pattern I also wonder if the national banks, since they spread their risk over a larger pool of properties, are more likely to work with appraisers that value homes higher than do smaller, local lenders. Is there anything to this hunch?
The reason I ask: ideally I would like to refi soon, for 15 years fixed, and fold in the balance of the home equity loan. This will require that the house be appraised at a high enough level to maintain an 80% loan-to-value-ratio.
I have had my house appraised 5 times since I bought it in 2004, for various reasons, and it has been valued all over the map. Granted, the mortgage crisis happened. But as I look at the history of these appraisals, I am also wondering if smaller lenders--like credit unions and savings banks--are more likely to have relationships with appraisers who value properties conservatively. Here's the breakdown:
-2004: house valued pretty much at purchase price (we'll say this is $100,000).
-Jan. 2007: appraised for home equity loan by national bank at $143,000.
-Nov. 2008: appraised for refi (that we didn't end up doing) with a local savings bank at $117,000.
-Nov. 2009: appraised for refi we did with a national bank at $128,000.
-June 2013: appraised for refi (that we didn't end up doing) with a local credit union at $104.
This is a relatively small, slow-moving real estate market, so some of the variation might simply have to do with whether truly comparable properties could be found nearby at the time. But looking at this pattern I also wonder if the national banks, since they spread their risk over a larger pool of properties, are more likely to work with appraisers that value homes higher than do smaller, local lenders. Is there anything to this hunch?
The reason I ask: ideally I would like to refi soon, for 15 years fixed, and fold in the balance of the home equity loan. This will require that the house be appraised at a high enough level to maintain an 80% loan-to-value-ratio.
Banks have very little control over the appraisers they use. It all changed in about 2009.
They used to have relationships with the appraisers, but now appraisers are assigned more randomly.
The banker cannot communicate much with the appraisers anymore.
While it seems like this would result in more fair appraisals, it seems more that inexperienced and out of area appraisers are assigned inappropriately.
I also think refi appraisals are much more conservative than purchase appraisals. I think it's because the appraiser has no idea of what the value "should" be and they crank the reports out very quickly, and they are paid by the bank. If appraisers are consistently overvaluing and the banks lose in foreclosure situations, it's that appraiser's reputation if they overvalued the property. The appraisers don't want their clients, the banks, to lose.
The appraisers are gods. It's a terrible situation and we've traded one set of problems for another and the consumers still lose.
The best you can do is talk to the appraiser, show them why your house is worth $X and pray they don't want to screw you over anyway.
posted by littlewater at 12:49 PM on February 8, 2016 [1 favorite]
They used to have relationships with the appraisers, but now appraisers are assigned more randomly.
The banker cannot communicate much with the appraisers anymore.
While it seems like this would result in more fair appraisals, it seems more that inexperienced and out of area appraisers are assigned inappropriately.
I also think refi appraisals are much more conservative than purchase appraisals. I think it's because the appraiser has no idea of what the value "should" be and they crank the reports out very quickly, and they are paid by the bank. If appraisers are consistently overvaluing and the banks lose in foreclosure situations, it's that appraiser's reputation if they overvalued the property. The appraisers don't want their clients, the banks, to lose.
The appraisers are gods. It's a terrible situation and we've traded one set of problems for another and the consumers still lose.
The best you can do is talk to the appraiser, show them why your house is worth $X and pray they don't want to screw you over anyway.
posted by littlewater at 12:49 PM on February 8, 2016 [1 favorite]
Best answer: Dodd-Frank changed the appraisal industry. Banks can no longer hire appraisers directly. There has to be a third-party intermediary. The bank contracts with the intermediary, and that company (called an appraisal management company) is who actually hires the appraiser. The appraisal management company (where I used to work) has a large pool of appraisers to work with, and, in my experience, doesn't particularly tailor the particular appraiser to a particular bank. In my experience, there are only two considerations ever taken into account when placing an appraisal order, and they're exactly what you'd expect: cost, and time. If an appraiser quoted us the lowest price in a reasonable time frame, he got the job. I was in charge of placing orders for a while, and I never once thought about where an appraiser was likely to come in when I placed it. All I cared about was not having to go above our budgeted time or cost. The first person to say yes to our parameters got the job.
There are only a few big AMCs, and most banks work with one of them. My company worked with everything from big banks like Chase and Wells Fargo to tiny little one-branchers. Banks can specifically instruct the AMC to remove a certain appraiser from their list for that bank, but for the most part, the pool is the same for all banks.
The entire purpose of this is so that banks can't influence the valuation of the property. The AMC gets paid regardless of valuation, so we didn't give a damn about the price. It makes it more objective. Banks would often complain to us that the appraiser didn't hit the valuation they were expecting, and our response was: tough. There's an appeals process, but appraisers are usually pretty good at CYA stuff, and the AMC does CYA stuff too, so by the time it gets back to the bank or the homeowner, it's hard to dispute.
That said, order another appraisal, and who knows what you'll get. It's not an exact science.
posted by kevinbelt at 1:14 PM on February 8, 2016 [1 favorite]
There are only a few big AMCs, and most banks work with one of them. My company worked with everything from big banks like Chase and Wells Fargo to tiny little one-branchers. Banks can specifically instruct the AMC to remove a certain appraiser from their list for that bank, but for the most part, the pool is the same for all banks.
The entire purpose of this is so that banks can't influence the valuation of the property. The AMC gets paid regardless of valuation, so we didn't give a damn about the price. It makes it more objective. Banks would often complain to us that the appraiser didn't hit the valuation they were expecting, and our response was: tough. There's an appeals process, but appraisers are usually pretty good at CYA stuff, and the AMC does CYA stuff too, so by the time it gets back to the bank or the homeowner, it's hard to dispute.
That said, order another appraisal, and who knows what you'll get. It's not an exact science.
posted by kevinbelt at 1:14 PM on February 8, 2016 [1 favorite]
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I doubt it. Effectively no bank (small or large, regional or national) actually keeps the mortgages they write. Effectively all mortgages in the US are sold to Freddie Mac or Fannie Mae. Hence, the only thing a bank cares about is whether the mortgage follows Freddie/Fannie's underwriting requirements so that the mortgage will be bought by Freddie/Fannie.
This is a relatively small, slow-moving real estate market
I suspect that the appraisers have a limited comparison pool, so they are going by recent sales. Appraisers use recent sales as the gold standard - this makes sense, because a property is only worth what the market will bear, and recent sales are exactly what the market will bear. However, if there are few recent sales, then they will be highly variable depending on the size of property sold. In this scenario, an appraiser is preferring a recent sale that doesn't exactly match your property to an exact property characteristics match that happened a long time ago. This is also why appraisals at purchase tend to end up being exactly the purchase price - you are the recent purchase, and since you offered to pay for it as a part of the wider market, appraisers view that as an indication that the market value is what you offered to pay for it.
posted by saeculorum at 12:34 PM on February 8, 2016