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SOURCE: ADR Mortgage
Andy May, the Mortgage Expert, provides Appraisal risk-tips on how to save in 2013.
Raleigh, NC (PRWEB) January 03, 2013
Appraisals are the life-blood of the home mortgage industry, and the first place to start when thinking about refinancing or purchasing a home. Without an appraisal, borrowers can’t get purchase-mortgages (the Federal Government through Harp 2.0 allows, in certain instances, no appraisal on refinances).
To illustrate how appraisals can save or cost tens of thousands of dollars, we looked at the Pinehurst NC market. In fact, let’s go bigger than that and take the entire County where Pinehurst resides, Moore County, and evaluate the effect of one appraisal on the housing market.
Really, one appraisal? What effect does one appraisal have on a small market like Moore County (NC)? After-all Moore County has slightly less than 100 sales a month. Coastal counties may have even fewer comps. Andy May, has written extensively on home price forecasting and was awarded the first U.S. mortgage related patent.
Say a consumer wants to purchase a $300k+ home (but less than $400k). That means there are about 20 homes sold per month in Moore County (less in the low season, more in the summer). The time of year significantly effects valuation. In 2009 the federal government basically took full control of the appraisal industry (in 2009 the feds scrubbed the industry and added a new layer of “management”) – eliminating a competitive market place for appraisers (no appraiser shopping, just a “rotary approach”). Three comps within the last 3 months is the requirement, with most lenders also requiring a minimum of 2 current listings in order to get a marketable appraisal (no discount in value due to lack of market sales data). Andy May, the mortgage expert, has countless examples of appraisals good and bad.
In the example, your buyer decides to find a problem with your home in the inspection process (this happens a lot).
What about the next 3 months of comparables for future buyers? This sale comes up and represents a comparable (comp) for the neighborhood. Or does it?
The high and low comps are tossed out, so no worries here. We’ll just toss out this low comp and go with the next lowest comp....unless this happens twice within 3 months (that’s a very distinct possibility). Now, homes start to depreciate rapidly as a result of two bad appraisals, particularly in smaller markets. How often? Even once is too much.
The effects from this sale are felt throughout the community. Mathematically, homes in smaller markets will continue to decrease in price due to the 2009 Federal Government housing policy on appraisals. Smaller market home prices are capped from going up – as only a cash buyer can likely pay more than the appraisal or purchase price (which-ever is lower). In smaller markets where there aren’t enough comparables, chances are borrowers can’t get loans in that community. These communities will continue to fall into decline and values will continue to erode.
Tip Sheet -
1. Only purchase in high volume counties. Resale of your property is highly dependent on the number of sales in a community. Be a smart consumer and don’t purchase where monthly sales volume is below 100 a month for your price range ($300-$400k in this scenario).
2. Rent in smaller communities. Stay away until the federal government changes this poor housing policy. Until then – stay on the sidelines and rent in these smaller communities. The unintended consequence of this housing policy is to encourage people to live and work in larger cities. Retirees beware of the small community.
3. Do not rely on inexperienced appraisers.
4. Research and evaluate the market on a variety of government and private websites. The cost per square foot is a good place to start.
5. Hire a licensed loan officer. This is another reason to have a fiduciary (licensed loan officer) by your side. Banks and credit unions are not required to hire licensed loan officers (although many get registered, meaning they supply their name to the registration system). Still, 18 (years old) is the required minimum to sell mortgage loans at a bank or credit union. Who will you choose as your mortgage expert?
Get the most value out of your home sale or purchase by working with licensed professionals that have significant experience. You’ll be thankful you did. You can find additional information from Andy May, mortgage expert, at Andy May's blog. ADRMortgage.com was founded by Andy May in 2005. For additional information please go to http://www.adrmortgage.com or contact Andy May directly. License number 103418.
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