Appraisal Matters

In this market, it is getting pretty tough out there for people. On the commercial side, many loans have balloon payments and the owners NEED their values to keep rising. Right now values are at best flat. Over and over I see owner occupied real estate investors who banked on their values rising. Very often appraisals during the "go go" period were even too high for then! Now investors are upside down.

What to do? Well, never borrow more than it is worth. Did you know that the appraiser works for the bank, not the borrower? The only time the appraiser is working for the owner is when they are directly engaged by them. If that happens, it can’t be used for financing! Sound confusing? Here is the bottom line:

In a refinance or purchase, we are only a closing cost. Even if you pay the lender for the appraisal or even hand a check to the appraiser, you don’t own it. The appraisal is done according to the scope of assignment that the lender requests, which can vary. If you are unsure about a value, hire your own appraiser! Yes, it costs more, but when you are spending hundreds of thousands, even millions of dollars, does it matter? Did your loan officer push the appraiser to get that higher value, and thus a higher commission? Bet your loan officer didn’t tell you that!

We just finished a case we appraised 3 years ago. We came in at our value conclusion and another appraiser appraised it for the "requested value." Now the balloon payment is due and the owner cannot refinance. At the time of the first appraisal, great pressure was put on us but we stood our ground AND lost the lender as a client. Now the borrower is in trouble.

Something to think about during the next "upswing" in the market. It always ends!

Eileen