Refinancing Your Mortgage? Understand Appraisals

HOW THE PROCESS WORKS

So how does an appraiser determine the value of your home? The biggest factor will be public records on recent sales of comparable homes in the area. And if the real estate market in your area has been flat, the appraiser may use foreclosures in determining the value.

Before applying for a mortgage, check recent sale prices in your neighborhood on sites such as Zillow.com and Trulia.com to get a realistic sense of what to expect.

The appraiser, who will be hired through your mortgage lender, will schedule a visit to your home as part of the process. Before the appointment, make a list of any features you think enhance the value of your home and point them out in a walk-through with the appraiser.

For example, you might note that your home has an extra half bathroom, a bigger yard or more scenic street location than the comparable sales in your area. You also want to note if your home has a recently renovated bathroom or other features that wouldn't be detailed in public records. The appraiser can call the agents involved in the comparable sales to inquire whether those homes had similar features, says Joseph Magdziarz, president of the Appraisal Institute, a membership association of real estate appraisers.

You also want to make sure the appraiser is familiar with the greater region. That's because proximity to a downtown area, key services or public transportation hubs could enhance the value of your home.

Once the appraisal is reported back to the lender or your mortgage broker in about a week or so, be sure to request a copy and review it for accuracy.

If you don't think the appraisal accurately reflects the value of your home, submit any details you believe were overlooked. This might include a recent sale that wasn't included.

Most lenders have appeal procedures, known as "reconsiderations of value." But keep in mind that a successful appeal will depend on your ability to support your case with specific facts; you can't just insist your home is worth more than the appraisal.

SOME KEY BACKGROUND

It's also important to understand the recent changes in the appraisal industry.

New regulations that went into effect in 2009 prohibit homeowners and mortgage brokers from hiring their own appraisers. This was designed to prevent conflicts of interest that could lead to inflated appraisals, which were partly blamed for fueling the housing bubble.

As a result, appraisers must now be hired through lenders, which order appraisals through outside firms known as appraisal management companies. The idea is to create a layer of separation so that appraisers aren't influenced to come up with a certain value.

Many in the industry say the rules have resulted in lenders farming out work to appraisers who will work for the cheapest fees, which in turn can result in sloppy or rushed work.

That doesn't mean the appraisal you get won't be fair; Goldman of San Diego State University says appraisal management companies have worked out many of the initial problems in recent months. But it's still a good idea to stay on top of the appraisal process so you can ensure there are no oversights.

If you still think your appraisal was seriously flawed, the Appraisal Institute recommends filing a complaint with the governing state agency. To contact the appropriate appraisal board, visit this website.

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