Appraise for You, Appraise for Me

by brandt

What’s the famous saying about spring?  “April showers bring May flowers?”  That’s a nice platitude.  Except when you look out your door on Sunday afternoon and see this:

Michigan, you make it so hard to love you sometimes.  I changed the phrase last night to “April showers bring an apocalypse to May flowers,” but Ashley wasn’t too impressed.

After we completed the home inspection, one of the next things on the list we were waiting for was the appraisal.  Appraisals are a very simple concept, but can be very frustrating depending on the result.  It’s basically the estimated value of your home, based on internal and external features and factors.  In my previous life, working in the mortgage industry, I was in charge of working between the loan officers and appraisers in ordering and following up on home appraisals.  There have been many updates to traditional appraisal rules and regulations (most taking place in 2010), but most notably it revolves around limiting the contact between the appraiser and the interested parties (such as loan officers, agents, buyers, sellers, etc.).  In all actuality, the appraisal should be a very objective value and estimation of what the home is worth, aside from influences from other parties.

While most times the appraisal is most important for the lending institution, it’s also a good thing for the borrower to keep in mind.  It’s a great valuation of exactly what the property is worth and what the area is worth.  The lender doesn’t really care about the property, though.  Like I’ve said before, they only care about their money.  To quote from my absolute favorite movie of all time, “It’s not personal, Sonny.  It’s strictly business.”  The lender is making a big financial risk in loaning money, and they want to make sure that if something happens, the property will be able to sell around the amount it is lending.

Not all appraisers are created equally. As a matter of fact, depending on the loan officer, we had a small handful of appraisers who were not to be contacted to perform an appraisal.  There were those who did less-than-thorough jobs, appraisers who habitually low-balled or over-valued properties, and when you’re dealing with LTV ratios (loan-to-value, one of the most important things lenders are looking at), you don’t want to take chances.

While I wish I had a nice write-up concerning my experience with the appraiser, or what it’s actually like, it was much more hands-off than that.  I paid a fee to the lender (usually called an “underwriting fee”) which covered not only the lender’s underwriting costs, but included the appraisal as well.  After our inspection was completed, we waited until we heard from our agent about the results of the appraisal.

If this were a foreclosure, I’d probably be most worried about the appraisal coming in too low (signaling to the lender that the seller [the bank] put the value of the house too high, and the lender would refuse to lend us more money than the house is worth).  If it were a private sale, I’d be worried more about the house being appraised for more than it’s worth, which is a good thing, but I wouldn’t want an over-valued home if we’re not planning on spending our entire life here.

The appraisal also plays a very big part in determining your LTV, as well as if you’re going to be paying PMI, the bane of every homeowner, especially new homeowners.  Because we’re going with an FHA loan for the low down payment (3.5%), we’ll be paying PMI no matter what.  But depending on the real-estate market here in Michigan (which has the potential to fluctuate more than…well…I was going to make a Kristie Alley joke here, but I’ll refrain), that might change.  See, we need to get to 80% LTV to avoid paying PMI, and depending on what happens out here, we might be investing in another appraisal in about 2-3 years to hopefully knock that $100-$125/month payment going out that is just straight money leaving my pocket.

We weren’t worried about our appraisal for one simple reason – When GMAC accepted our offer, the thing my agent stressed to me was that it was all based on the market value, and they do their own special appraisal (called a BPO, a “broker price opinion”).  They already accepted our offer price based on the market value and their BPO.  So I don’t think there was going to be any shocking surprises when it came to the appraisal.

Guess what?  There weren’t.  As a matter of fact, the appraisal came in a cool $1,000 over our asking price.  If we take out the down payment and only look at the actual amount the lender is allowing us to borrow, our loan-to-value comes out to be 95.92%, which is just about exactly what it should be.

What’s next for us?  Well, we’ve got a busy posting week this week.  Look for updates to the website literally every day this week as we lead up to the closing on the house, which now sits at T-Minus 4 Days to Operation “Please Sign Here.”

 

Image via.

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2 Comments to “Appraise for You, Appraise for Me”

  1. Yahoo! I love operation: please sign here.

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