Appraisal Pitfalls
(In the slowing housing market, consumers must be increasingly aware of home-buying and mortgage fraud cases. )
Many people find that many of these cases of fraud involve the appraisal. For all of you unfamiliar with real estate lingo, an appraisal is important for both home buyers and sellers in that it determines the value that the appraiser thinks your house is worth and should be sold for.
A September 18, 2006 article by Andrea Coombes of Marketwatch.com, “Appraisal red flags,” discusses some things that homeowners and buyers should be aware of during the appraisal process.
“A slowing housing market makes even the legitimate appraiser's job harder. An easing market ‘is definitely more challenging for the appraiser,’ said Alan Hummel, past president of the Appraisal Institute, a membership association which provides education and certification programs. In part, that's because appraisers compare sales data on neighboring houses to assess a home's worth. ‘As sales have slowed down, the availability of data is less than what we had before,’ Hummel said.”
In addition to comparing property to property to come up with a home’s value, appraisers also use the cost-value method in which they analyze how much they think it cost to build a particular home as a way to assess the value.
The first thing to be aware of is inflated home values. “‘The first red flag is, does this value seem reasonable,’ said Don Kelly, a spokesman for the Appraisal Institute. ‘If it seems high, that could be a problem.’”
If the appraiser is not using homes within your direct vicinity as comparables, there could be something awry. Appraisers should also be comparing homes in the same school district to get the most accurate figures.
“When the appraiser cites comparable home sales, is he focusing on nearby houses? ‘The homeowner looks and says, 'Wait. These comparable sales are six, eight, 10 miles away,’ Kelly said. ‘You want to find out why. There might be a reason but that's a red flag.’ Also, Hummel said, make sure the homes used in the comparison are in the same school district. If not, find out why not.”
Do not forget about the things that you would normally think would not contain mistakes, like the room count or square footage. If these things are incorrect, they could greatly affect the accuracy and legitimacy of the appraisal.
If the lender does not give you a copy of the appraisal or refuses to issue one, consult a second opinion, since you are entitled by law to receive a copy.
Also, make sure your appraiser has a valid license and certification.
“If you own a home that you think was appraised incorrectly, your next step depends on your situation, Hummel said. First, ‘don't make the assumption that the previous appraisal was bad. There may have been changes in the market,’ he said. ‘Get a qualified appraiser [to find out] what is today's value.’”
“Then, ‘if that first appraisal was so far off that it was fraudulent ... you can complain to the lender, because they got a bad appraiser,’ he said. You can also complain to the State's appraisal agency, as well as the Better Business Bureau and the Appraisal Institute if the appraiser is a member. And, the FBI investigates mortgage fraud now.”
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