If you are purchasing or refinancing, one of the biggest components to getting approved for your loan is the appraisal. For some, equity is a non-issue, but for others, the appraisal can make or break the deal. When the home’s appraised value comes in lower than anticipated, you can go through a formal rebuttal process. I have had to walk some clients through this appeal.
If you find yourself in this position, you need to be prepared with concrete, factual data. Your home’s value is based on what comparable homes in your neighborhood (or within a 1 mile radius) have recently sold for. Appraisers are required to use 3 recently sold homes to support your value, 1 pending sale and 1 listing and they provide adjustments for value based on those homes.
It’s a good idea to be aware of what homes in your neighborhood are selling for, if not for any other reason than to satisfy natural curiosity. If you’re unsure, or if you think that value may be on the cusp of what you need and you want to refinance, I suggest you consult your real estate agent and see if they can run comps for you. Otherwise, after receiving the appraisal report, we have to go through the rebuttal process. And the only way the appraiser or Appraisal Management Company (AMC) is going to consider the rebuttal is when you have better comps to support the value you believe your home is worth.
Great post as usual, Irene! Appraisals are such a broad topic these days. I have seen more and more appraisers and banks use “gridding” for values if enough relevant properties cannot be found in the immediate area==as per the current guidelines you stated above. We’ve seen appraisers go out further than 1 mile–which really should be the case in many areas anyway.
Personally, I don’t use the word, “comps” or “comparables” anymore as those terms are really so subjective–depending upon who is looking at the data. The industry is starting to focus on what relevant sales are in a subject property’s radius of about 5+ miles. It’s especially so for sellers when they select an original list price for a property. The question is not what a buyer can buy THIS property for, but what else can they buy for the same amount of money. This is information that continually receive from professional organizations on a national level.
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Great feedback, Dawn, and so true. Appraisals and appraisers are nothing but subjective. I’ve seen values vary incredibly when needing to move a loan from one lender to another. The 1-mile radius requirement can also be quite ridiculous when speaking in terms of neighborhoods. Most recently, this occurred with my client that owns in West Menlo Park. As a neighborhood, it’s considered more desirable and is more expensive than homes in Menlo Park east of El Camino Real. The homes used as comps were completely incorrect for my client’s property, despite being in that “magical” 1-mile radius.
Thanks for contributing your knowledge and comment!