I was recently reading an interesting article about home appraisals that I would like to share with you as a Canton area home buyer.
Evidently, legislative changes in recent years have resulted in a spike in the price of home appraisals. What’s more, low ball appraisals (which are infamous for breaking up real estate deals) are becoming increasingly common.
While these are unfortunate trends, it’s your responsibility as a home buyer to stay abreast of these changes. Thus, today I’m going to look deeper into how these trends impact you.
A Little Context on US Home Appraisals
Before the Great Recessions, home buyers would pay fairly reasonable prices to get a home appraisal. At that point, your loan officer would typically receive a reasonable opinion of valuation on said property, helping you secure a refinance or loan for purchase.
But because of the 2009 Home Valuation Code of Conduct as well as the federal Dodd-Frank Law in 2010, appraisal costs have jumped and the resulting valuations are lower than they used to be.
In general, appraisal charges have increased by nearly a third.
Meanwhile, home valuations are lower than before, affecting home closings.
Why Did Recent Legislation Impact Lower Appraisals?
From the regulators’ perspective, they believed that a quid pro quo relationship existed between appraisers and loan officers that created unsupportable opinions of values. This, in turn, led to the housing market crash.
So regulators drafted legislation that sought to create a firewall between the appraiser and the loan agent. In fact, originators were forbidden to pick specific appraisers. Independent appraisers were sought instead.
Unlike the past when these appraisers kept 100 percent of the appraisal fee, these appraisers now take in between 40 and 75 percent of the fee, often with a lot more work needed.
Unfortunately, what resulted was on quantity and not quality. It’s all about who will give the originator the lowest fee so they can get the contract.
How Do Low Appraisals Impact Home Sales?
This is an important question to ask. As any real estate expert will tell you, one of the top reasons why transactions don’t make it to closing is because of low-ball appraisals.
After all, if a buyer can’t secure a loan for the amount they’ve offered because of a low appraisal, they can’t move forward with the purchase of the property.
So What Can Be Done If I Get a Low Appraisal?
You have a few options.
First, you can apply for a loan with a different agency so that you get a new appraiser. You should note, that if you challenge the value of the original appraisal, the person who ultimately decides the final value will be the original appraiser. So that’s not a viable path to take.
You can also proactively interview the appraiser on their experience in your community before you set up an appointment. If you are doubtful about their qualifications, pick someone else.
Finally, you can find lenders that use panel appraisers instead of AMC’s. These individuals, who are independent appraisers that receive the full fee that you pay, are more likely to be thorough since they’re getting the full fee.
Happy to Help With All of Your Canton, MI Real Estate Needs
Contact us, Mike and Mary Gladchun, for more insight on how this recent legislation may impact your efforts as a home buyer in the Canton, Michigan real estate market. We would be happy to assist you at every stage of the process!
Until next time,
Mike & Mary