With today's mortgage rates still hovering around generational lows, some homeowners' refinance plans have stalled out due to late or lowball appraisals.
Know your appraiser
The appraiser sets the market price for your property, determining both your home equity and your likelihood to get a fully underwritten refinance deal. Three facts about appraisers:
- Appraisers get assigned by management companies, not by mortgage brokers or property owners. After mortgage lenders complained about cozy relationships between some brokers and appraisers, new rules required appraisers to accept random assignments.
- Appraisers must base their decisions on recent comparable sales. Real estate agents would prefer appraisers to review only buyer-to-seller transactions when setting "comps." However, due diligence requires factoring in the prices of foreclosures and sheriff sales.
- Appraisers face pressure from all parties. You'll want your appraisal to come in on the high side. Your prospective lender would prefer to see a more conservative value, which reduces the risk of a home's value tumbling below the face value of the mortgage. Even though appraisers don't work for lenders, most professionals exhibit a bias for smaller values.
Prepare for an appraisal
However, if you're planning on a refinance in the near future, you can stack the deck in your favor before the appraiser arrives by taking three easy steps:
- Check your neighborhood's comparative sales. Against the wishes of real estate agents, appraisers must review prices from recent foreclosures and sheriff's sales in your neighborhood. Instead of timing your refinance solely around mortgage rates, consider shopping for mortgage quotes after a neighbor closes a favorable deal.
- Revisit your community commitments. An out-of-town appraiser might presume that broken streetlights or trash on sidewalks indicate an unsafe area, not that your local public works officer is on vacation. Partner with neighbors and public officials to keep surrounding areas safe and attractive.
- Budget time and money for multiple appraisals. You may not get the appraisal you want the first time out, delaying your refinance or even costing you today's best mortgage rate. The less urgent your need for a home refinance, the better positioned you are to ride out multiple appraisals with multiple prospective mortgage lenders.
New regulations have forced many veteran appraisers out of business, leaving novices and out-of-town appraisers to carry out the bulk of the industry's property evaluation. Just as "staging" a home helps convey value to prospective real estate buyers, improving the factors that directly influence appraisal prices can help you get the best refinance rates.