One common protection afforded the home buyer that is written into the “Contract for Sale” used by the local Association of REALTORS is the appraisal process. Our current “Contract of Sale” reads as follows: “The contract is contingent upon the property appraising at or above the sales price as determined by lender’s appraisal or other appraisals obtained by the Purchaser.” The appraisal plays an important role in protecting the purchaser by providing one more level of objective and educated opinion of value.
Unfortunately, many buyers purchase and close on their home, assuming that an appraisal was done, when in fact no appraisal was completed to confirm the property value. Worse yet, they may have paid $300-500 at closing for an item that was to include the appraisal fee.
So, what went wrong?
First, we need to understand that the “Contract of Sale” is between the buyer and the seller and the lender is not a party to the contract nor are they obligated by conditions set forth in the contract. Further, most lenders view the appraisal process as a step that will protect them should the purchaser default on the loan. So, what happens when the purchaser has really good credit or puts a substantial amount of down payment on the house? In this situation many lenders may choose NOT to do a full appraisal, choosing rather to run the home through “desktop appraisal” process.
The desktop appraisal or “Automated Valuation Model” is a process where someone compares the property as listed by tax records or at best in MLS information and makes a judgment based on average home values in the neighborhood, etc. Many important steps to an accurate valuation are missing, a personal visit to the property to observe current condition and updates, an accurate measurement of the home, and a careful accounting of the home’s features compared to features of comparable homes, to name a few.
Suppose you wanted to purchase a car and determined that you wanted to first check the “Blue Book” value on the vehicle you were interested in purchasing. Now armed with the Blue Book value would you be prepared to buy a car from the Classified Ads without first going to check it out to make sure it is the same car and in the same condition as the Blue Book assumptions? I think I know the answer! But that is about how much thought many banks have given the “appraisal” process on many home purchases while the buyer sits back and pays the fee on the HUD statement with a misplaced confidence that the bank has confirmed the value on their home.
One step The Greg Jansen Team completes for all of our purchasers is a confirmation of the appraisal process. First we confirm that a full appraisal was or will be completed for each buyer unless the buyer agrees to have that step dropped from the process. Second, we ask the lender to drop the fee from the HUD statement if a full appraisal is not completed on the home. Finally, we request that a copy of the appraisal be provided to the purchaser at the closing. These steps serve to protect the buyer and further prove the accurate value before they make one of the biggest investments of their lives.