No. of Recommendations: 10
Hi mew,

This Spring, I went to refinance again, unfortunately because times have been hard, employment has been on and off and we were hoping to sell the house in a few years so I refinanced to an interest only loan, took some money to pay more bills, and kept a pretty low rate, 5.25 fixed I think. At this time, just a few short months ago, the appraisal of my house was $260K, my new loan amount 204K.

OK... so far it sounds to me like you got some significant financial benefits in the financing, no?

I was only willing to refinance and take out money because my home was now valued at 260K.

OK... so it's very realistically possible that AT THAT TIME there WERE in fact sales comparables to support the value of your home at $260,000. AND, if the value *DID* get stretched to the high end of the appraiser's discretion, the only result TO YOU was that you were able to get a lower interest rate on the amount of money you were applying for.

If the value came in lower, your loan-to-value ration would have been higher, and your interest rate (and/or costs) would have been higher. The valuation may have significantly saved you money.

HUHHHHHH????? In my mind, I thought I would like to list it for 250K and accept 240K. I was floored. I explained the 260K appraisal and the response "oh yeah. appraisers do that for mortgage brokers to get the loans/refinances" - IS THIS LEGAL? ETHICAL?

A) that was a very lazy explanation. This Realtor conveniently failed to also present the very realistic possibility that the valuation could have been within accuracy tolerances AT THAT PERIOD OF TIME,

B) As also pointed out above, SOME Realtors frequently "lowball" valuations when seeking referred listings in order to set up a greater likelihood of a rapid sale. (Alternatively, some agents "highball" valuations when they are afraid they are competing to win a listing... you just have to weigh it all out together,)

C) The "Legality" of an appraisal depends on whether it is presented in fraud or not. An appraisal's analytical purpose is to certify to the underwriters that the valuation claimed by the owners is indeed reasonable and marketable AT THAT TIME, so that the underwriters can determine their loan exposures. If an appraisal presents a fraudulently inaccurate valuation, then it would be illegal.

D) The "Ethicalness" of an appraisal is an entirely different topic. Appraisals, in & of themselves, don't carry a great deal of ethical variance. The process of real estate appraising is primarily the application of pre-determined dollar values to specific property aspects (# of bedrooms, # baths (full? 3/4? 1/2?,) square feet, # finished rooms, type of roof, etc. etc.) with a splash of discretion (where are the similar comparables sales located (neighborhoods)? If slightly larger or smaller, what adjustment factor will be used, and how will it be justified, etc.)

Appraisers have an ugly catch-22;
1) Consistently value liberally, and underwriters will flag your work as always needing secondary review... or worse, get blackballed completely,
2) Consistenty value conservatively, and loan officers and borrowers who seek higher amounts at lower rates will choose not to hire you (in essence, again being blackballed.)

Appraisers do not have it easy...

But back to the topic, what is up with an appraiser overpricing just to get a loan? Is there any recourse I can take? Even if it's just writing a pointed letter asking them if they can sleep at night?

You seem to believe that YOU were the one who has been wronged... but in actuality YOU were the one that took advantage of the situation. You requested more money, at a lower rate, and you got it... at the detrimental market risk shoved off on the underwriters.

There is no "judgment" in that statement, by the way... the lenders are "grown ups" and understand the cyclical market risks they live in. They understand that there is some degree of porobability that the 80% LTV loan they make today may end up as a 120% LTV loan in a few years... and although they HOPE it doesn't happen, they know they face that risk.

YOU, on the other hand, have lost absolutely nothing at anyone else's bidding. You took cheap money from a lender at a certain degree of exposire on their parts, and you applied it to paying off more expensive debt, to your benefit. Had you not done so, you'd have been left with far greater interest expenses, and your property value may STILL have cycled.

YES... there is the "sting" of surprise from being told by the realtor that your property may be worth less than you thought... but the market value (whatever it ends up actually being) has nothing to do with your access to, and costs of money when you requested your debt-consolidation refi.

As it is now, even if the appraisal was wildly inaccurate to the high side, it ended up being a GIFT to your advantage. I don't see what you have to complain about in regards to the loan transaction. It appears you made out quite well, in the big picture. You saved money in the debt restructuring at the mortgage lender's risk.

Dave Donhoff
National Mortgage Banker/Broker
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