Is this too much a coincidence???

[Anonymous]

Just got the appraisal on the home I'm trying to buy.   The appraised value is EXACTLY equal to the selling price.  

What is weird is that the owners originally had the home listed about $30K higher a few months ago.  I can't believe the owners would have listed that high without a market analysis.  Which leads me to wonder if the appraiser (with the knowledge of the selling price as she put together the appraisal) made the adjustments needed here and there to have the appraisal match the new selling price exactly.

Am I being cynical to think that the various players in this process might all be in cahoots with each other.  I'd hate to feel like I'm being played for a fool.

On the other hand, I'm grateful that the home didn't appraise any lower - then, financing would be a problem for the LTV.  Still, I was expecting it to come in much higher, and thus being able to get out of PMI a bit early.

[Booner72]

Isn't it pretty common for the appraisal to come in at the exact selling price? 

[Anonymous]

Dunno.  That's why I posted the question.  This is my first home purchase, and I had not come across this on the board here.

[Booner72]

Yah, I dunno either except what I've heard around - my question was more to someone who Does know than u or I.  

[Anonymous]

This doesn't exactly answer your question, but maybe you should think of the price like this.

There's a reason you're buying the house for $30k less than it was listed 3 months ago, because the listing was $30k too high three months ago -- otherwise, someone else would have purchased the house for that price.

[Anonymous]

Well I know for a fact on my first home purchase the appraiser was told what my home needed to appraise for.  So it happens I think at the end of the day its all back scratching all parties involved want the deal go through.

On the other hand I had a good realtor tell me this once.  Equity is virtual and your home can appraise for anything but it doesn't mean someone will pay that for it.  Unless there is a line of people offering to pay more for the home you are buying then its worth no more than what you paid for it....

[Lel]

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@Anonymous wrote:

Just got the appraisal on the home I'm trying to buy.   The appraised value is EXACTLY equal to the selling price.  

What is weird is that the owners originally had the home listed about $30K higher a few months ago.  I can't believe the owners would have listed that high without a market analysis.  Which leads me to wonder if the appraiser (with the knowledge of the selling price as she put together the appraisal) made the adjustments needed here and there to have the appraisal match the new selling price exactly.

Am I being cynical to think that the various players in this process might all be in cahoots with each other.  I'd hate to feel like I'm being played for a fool.

On the other hand, I'm grateful that the home didn't appraise any lower - then, financing would be a problem for the LTV.  Still, I was expecting it to come in much higher, and thus being able to get out of PMI a bit early.

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Sometimes I like to believe in a world in which everyone - sellers, buyers, agents, appraisers, etc. - have perfect information (and when I use the term "perfect", I'm referring to the economic/statistical meaning of perfect).  In this world, it would be normal for the selling price and appraisal price to fall in line with each other.  However, the information that is available to all the parties is not truly perfect, but there is theoretically enough information for everyone involved to make educated decisions about the purchase price of a home.

Many people have raised the question of whether real estate agents, brokers, and appraisers are working in concert to inflate the price of a home.  This has almost certainly happened, but the extent to which it did is a matter of debate.  However, the potential problem was considered to be significant enough that the Home Valuation Code of Conduct was established.  This, unfortunately, led to some problems with accurate appraisals of homes, because in some cases appraisers were sent to neighborhoods far away for which they had poor understanding of the market.

Nevertheless, to me it's not entirely surprising that the appraisal came in at your purchase price, because as stan mentioned, market forces had already driven the price of the house down, to the point that you considered it to be an appropriate price.

With regard to PMI, I believe that it is based on the selling price and the LTV calculated on the selling price, not on the appraised value.  So even if the appraisal had come in much higher, it wouldn't help get out from under the PMI burden any sooner.

[Jazzzy]

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@Anonymous wrote:

Well I know for a fact on my first home purchase the appraiser was told what my home needed to appraise for.  So it happens I think at the end of the day its all back scratching all parties involved want the deal go through.

On the other hand I had a good realtor tell me this once.  Equity is virtual and your home can appraise for anything but it doesn't mean someone will pay that for it.  Unless there is a line of people offering to pay more for the home you are buying then its worth no more than what you paid for it....

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My husband is a real estate appraiser. Part of the documentation he has to correlate when doing an appraisal is the selling price. It's required that he know that information to meet certain appraisal standards. Also, he has to go back and include transfers within the past so many years (I forget how many exactly). So, oftentimes prior sale information is included in the appraisal as well. My husband even has to account for seller concessions such as paid closing costs, etc. That information can often upend a deal.

I think (...or at least hope) the days of telling an appraiser what a property "needs to appraise for" are over. In fact, my husband has turned in real estae brokers and mortgage brokers for trying to apply that kind of pressure.

In the end, a good appraiser protects buyers. My husband has had many buyers thank him for preventing an over-sold situation.

[Anonymous]

I guess I could just as easily look at this as a glass half full situation.   The appraisal does confirm for me that I'm not over-bidding on the home. 

On PMI, I have heard it both ways.  One, that the loan-to-purchase price is the deciding factor.  The other that loan to appraised value is how it is decided.  Of course, one is stuck with the dictated minimum length of time, regardless of changes in appraised value.

Frankly, if one can keep having to pay PMI because the appraised value has fallen lower since purchase, even if they've paid off 78% of their loan, then why can the opposite not also be true?   If a home has improved in value, either due to a favorable market or to investments in improvements, and the bank can reasonably expect to sell the home for this increased amount, then how can they be justified in not using the loan-to-appraised value calculation.

Here is some info from one website  http://michaelbluejay.com/house/pmi.html:

And here's one more thing you can do: If your house has increased in value then you suddenly own a lot more of it, and you can cancel your PMI even earlier. For example, let's say you put $5,000 down on a $100,000 home, and in a couple of years the value shoots up to $119,000 because it's a hot real estate market. You own the $5000 you put into the house, plus the $19,000 it increased, for a total of $24,000. (You also own the equity you built from making mortgage payments, but because of how mortgage interest works, most of your payments for the first few years goes to interest and not principal, so we'll ignore paid equity for our example.) So the $24,000 you own divided by the $119,000 value of the home means you own over 20% of your home. So you don't need PMI any more. But to cancel the PMI you'll need to convince the lender that your home is really worth $119,000 now, so you'll have to pay for an appraisal which might run $400 or so. You'll have to weigh the cost of the appraisal against the amount you'll save by canceling PMI early to see if it's a good deal for you.

[Anonymous]

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@Anonymous wrote:

I guess I could just as easily look at this as a glass half full situation.   The appraisal does confirm for me that I'm not over-bidding on the home. 

On PMI, I have heard it both ways.  One, that the loan-to-purchase price is the deciding factor.  The other that loan to appraised value is how it is decided.  Of course, one is stuck with the dictated minimum length of time, regardless of changes in appraised value.

Frankly, if one can keep having to pay PMI because the appraised value has fallen lower since purchase, even if they've paid off 78% of their loan, then why can the opposite not also be true?   If a home has improved in value, either due to a favorable market or to investments in improvements, and the bank can reasonably expect to sell the home for this increased amount, then how can they be justified in not using the loan-to-appraised value calculation.

Here is some info from one website  http://michaelbluejay.com/house/pmi.html:

And here's one more thing you can do: If your house has increased in value then you suddenly own a lot more of it, and you can cancel your PMI even earlier. For example, let's say you put $5,000 down on a $100,000 home, and in a couple of years the value shoots up to $119,000 because it's a hot real estate market. You own the $5000 you put into the house, plus the $19,000 it increased, for a total of $24,000. (You also own the equity you built from making mortgage payments, but because of how mortgage interest works, most of your payments for the first few years goes to interest and not principal, so we'll ignore paid equity for our example.) So the $24,000 you own divided by the $119,000 value of the home means you own over 20% of your home. So you don't need PMI any more. But to cancel the PMI you'll need to convince the lender that your home is really worth $119,000 now, so you'll have to pay for an appraisal which might run $400 or so. You'll have to weigh the cost of the appraisal against the amount you'll save by canceling PMI early to see if it's a good deal for you.

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From what I understand PMI no longer works this way. So anyone thinking of this should just disregard it. Hopefully Shane or some one with a little more mortgage insight will chime in and explain this better.