@Anonymous wrote:
Not that it matters, but I have a question about the appraisal.
We had appraisal last week. Appraiser expressed that the house should probably appraise at $380-ish, but he would be recording $365-ish because he didn't want to raise any red flags.
Does this sound right to you? What does he mean by red flags? Again--not a biggie--it still appraised at more than selling price, but the comps in that neighborhood for that size home are all over $390k, and I am curious as to why it even matters.
And--if appraisers are supposed to be unbiased (my assumption, not sure this is the case) why do they know the selling price before making the appraisal?
Jut curious.
Lisa
One of the factors that contributed to the creation of the housing bubble was appraisers and mortgage brokers colluding to ensure that the pre-purchase appraisal was high enough for the seller to get a loan. When house prices were skyrocketing, every seller wanted to get a huge price for their home, even if it really wasn't worth the asking price. If the appraisal of the house fell below the inflated asking price, then the loan wouldn't go through and everybody loses - the broker doesn't get his commission, the seller doesn't get a fat check, and the buyer doesn't get a house.
The appraisers would be told the prospective selling price for the home, and would be effective told to make sure that the appraisal hit the number necessary to close the deal. The fallout from this practice is that a lender makes a loan well in excess of the reasonable house value, and now prices are dropping. If the borrower defaults on the loan, then the lender loses tens of thousands of dollars (or more). Multiply this by several thousand and that's what creates the credit market crisis. The banks, in order to be able to make additional loans to new buyers, package their mortgages in securities and sell them to investors with the promise of a certain rate of return. If borrowers across the board default on their obligations to the lenders, then the lenders default on the obligations to the investors.
[As an aside, many people would legitimately argue that the "real" value of a house is defined by the market, and thus the high home prices were simply a product of increased demand. However, this demand was fueled by unwise borrowing practices in which people spent more on a house than they could really afford. It's not unlike telling someone that they can improve their quality of life by running up massive credit card debt to buy a lot of nice things.]
Anyways, now that the practice of inflated home appraisals is well known, the lenders are now scrutinizing every appraisal that crosses their desk. Any appraisal that runs higher than comparable recent sales could get flagged. And it's the
sales that matter here, not the estimated values of houses that aren't on the market.
Having said that, if the comps in your neighborhood really support a higher appraisal, then there should be no reason why you shouldn't get the higher number. If, however, the comps are even a few months old, then arguably your value might not be that high, because home prices in general have been dropping.
