Refinance and Low Appraisal

[smokeyblue]

I want to refinance my house with cash out to make repairs and improvements. The housing market where I live has been hot for the last 20 years and there is a housing shortage and most sales end up in bidding wars. I had an appraiser come over and I told him the information about updates. I mentioned previous appraisals and he asked if he could copy the square footage from the document. I am a fool. I thought I was working with a professional when I was in fact not. In my opinion this lazy jerk just took the appraisal and copied everything. This document was from the purchase in 2011, I had it appraised 2 years later in 2013 and it appraised 25% higher due to many improvements. He didn't even bother going in all the rooms or in my basement. I have a huge brand new bathroom that didn't even exist when I bought it.

The outcome was an an appraisal $5k less than what it appraised for 8 years ago. The comps he used were pathetic. They were dumps that didn't have any of the updates mine have and were in terrible neighborhoods on busy streets when I live in a nice family neighborhood where everyone keeps up their houses and there are walkable streets, a park, ball fields, tennis courts and a skating rink. The rate of appreciation in my city has been an average of 3.5% for the last 20 years, and that includes the time when the housing market crashed. My mortgage person actually advised me to put in a dispute and shop elsewhere to see if another institution would allow me to exclude the appraiser. I provided a dozen comps, things he left out of the report and information about local market conditions and he refused to answer to anything other than to say he stood by his valuation. I explained the situation to two other institutions and expected them to be skeptical and both were shocked.

At this point Option 1 is to do nothing and just continue with my current mortgage and make needed repairs with cash over a period of time. Option 2 would be to go ahead with the current bank, get a minimal amount of cash out that could take care of all the repairs. Option 3 would be a supplement to option 1 and option 2, I could get a new appraisal at the credit union I also deal with and get a new appraisal and do a home equity loan to remodel a bathroom and make some updates in my kitchen, build a garage and do some landscaping. Option 4 would be to go with a totally different bank that does their loans/underwriting locally and has assured me that I can chose to exclude the appraiser and his company from the random selection of appraisers and I can start the process over with them and hope I get a reasonable appraisal and can have the cash in hand now so I can start repairs and remodel.

What would you do? That is other than not being dumb enough to hand over an old appraisal. I've decided to stay in this house for several more years and if I had to move marketing time is currently at 1-2 weeks to sale. The mortgage payment with the amount of cash out I want is less than 15% of my take home, so this is not a case of going beyond my means or ending up in a situation where I'm upside down.

 

[HeatherC]

I would ask the bank to re appraise it. Explain all this to them and see if you can just pay for another appraisal. Then I would not show them any paperwork from before. Tell the appraiser what you have improved and leave it at that to,see what they come up,with. I would also insist on a walk through appraisal. Should only cost you a couple hundred dollars.

 

[TLSnell1981]

I would run the numbers for all options and see which one works best.

 

[DisneyLover83]

I refinanced with my current lender and did not even need an appraisal. The “computer” appraisal was even higher than I thought an appraiser coming out would be.

Have you checked to see if something like that is offered?

 

[happily single]

I suspect the reason the appraiser won’t change anything is to avoid looking like he failed to do his job. Appraisers are regulated (maybe by the real estate license dept). I would file a complaint.

I would also speak with your mortgage originator to see if they have an appraiser the use

 

[smokeyblue]

I refinanced with my current lender and did not even need an appraisal. The “computer” appraisal was even higher than I thought an appraiser coming out would be.

Have you checked to see if something like that is offered?

I've tried two local banks, a credit union and Rocket Mortgage and they all require a in-person appraisal. All require a random draw from a pool of appraisers. Only one will allow me to exclude an individual/company due to conflict of interest.

 

[smokeyblue]

I suspect the reason the appraiser won’t change anything is to avoid looking like he failed to do his job. Appraisers are regulated (maybe by the real estate license dept). I would file a complaint.

I would also speak with your mortgage originator to see if they have an appraiser the use

I am planning on filing a complaint with the state licensing agency on the basis of misconduct. I'm not sure what good it will do, but it would be documentation for requesting the appraiser and the company he owns to be excluded in any real estate transactions I make in the future.

 

[mikehn]

Home improvements dont necessarily add any value. It's about comps and what other comparable properties are selling for in your neighborhood. Sure, sales end up in bidding wars, but you're not selling, you're just getting an appraisal. You could always pay for another appraisal from someone else.

 

[barkley]

Home improvements dont necessarily add any value.

this is correct. as well-some home improvements can end up decreasing the value. pergo used to be the end all be all but it's fallen out of favor in some marketplaces and it's presence can decrease a home's value, stunning and lush landscaping was a huge thing in the area i lived in previously until water use restrictions caused homes with much more drought tolerant or outright no water needed landscaping became the must have, i know folks who installed costly pellet stoves into old fireplaces and for a period of time they were considered something that added to the value of a home, then they fell out of favor and could lower a home's value-now i think in some areas they are popular again. values ebb and flow.

 

[tvguy]

Certainly ask for a re-appraisal.
I think there has to be another issue, because even if the appraisal came in $5,000 than eight years ago, you have made 8 years of principal payments. And while interest is the biggest part of the monthly payment, I'm not sure how you haven't gained at least $5,000 just in equity from principal you paid down.

 

[Mackenzie Click-Mickelson]

Home improvements dont necessarily add any value. It's about comps and what other comparable properties are selling for in your neighborhood. Sure, sales end up in bidding wars, but you're not selling, you're just getting an appraisal. You could always pay for another appraisal from someone else.

this is correct. as well-some home improvements can end up decreasing the value. pergo used to be the end all be all but it's fallen out of favor in some marketplaces and it's presence can decrease a home's value, stunning and lush landscaping was a huge thing in the area i lived in previously until water use restrictions caused homes with much more drought tolerant or outright no water needed landscaping became the must have, i know folks who installed costly pellet stoves into old fireplaces and for a period of time they were considered something that added to the value of a home, then they fell out of favor and could lower a home's value-now i think in some areas they are popular again. values ebb and flow.

These are both true but the appraiser should have at least looked. The OP said a bathroom was added in between the last time it was appraised and now should have at least been considered. That said the OP is considering things that are desirable to her for where her home is located at but aren't always things seen that way for an increase in value. It still sounds like overall the appraiser didn't do the due diligence whether the outcome would be different or not is a different story but at least the OP would feel more confident in the end result.

 

[tvguy]

this is correct. as well-some home improvements can end up decreasing the value. pergo used to be the end all be all but it's fallen out of favor in some marketplaces and it's presence can decrease a home's value, stunning and lush landscaping was a huge thing in the area i lived in previously until water use restrictions caused homes with much more drought tolerant or outright no water needed landscaping became the must have, i know folks who installed costly pellet stoves into old fireplaces and for a period of time they were considered something that added to the value of a home, then they fell out of favor and could lower a home's value-now i think in some areas they are popular again. values ebb and flow.

I ran into that when I sold my parents house in 2013. It was 53 years old, and other than flooring in the family room, kitchen, laundry room and two bathrooms was exactly as built, right down to the pink tile in the bathroom. Condition was move in ready, but style wise everything was outdated. I interviewed three Realtors and all said I shouldn't even paint because they felt odds were 50-50 that any buyer would either want to do a complete remodel and pick their own colors, or tear it down and built a McMansion on the large lot. The buyer was an investor/flipper who opted to remodel. It was one of four houses sold in 2013 in that area, and the only one not torn down.

 

[Mackenzie Click-Mickelson]

Certainly ask for a re-appraisal.
I think there has to be another issue, because even if the appraisal came in $5,000 than eight years ago, you have made 8 years of principal payments. And while interest is the biggest part of the monthly payment, I'm not sure how you haven't gained at least $5,000 just in equity from principal you paid down.

Yes good point to at least consider.

Our home was built in 2014. In mid-2016 we refinanced to get rid of PMI knowing our home value had appreciated enough to offset the limited time we had been paying down the loan. We did have to pay for an appraisal at that time and comps came in enough for the refinance to go through fine.

In May 2020 we refinanced again to take advantage of the low interest rates and we qualified for an automatic appraisal waiver. The value of our home far exceeded our balance owed (the value of our home from the county is approximately 100K what it was when it was built and the value from other estimates roughly $80K-$100K more than what it was built for and then add on 5 1/2 years worth of paying it down).

I do know refinancing has been fairly strict with the pandemic so it's possible other things are happening that ordinarily wouldn't, maybe stricter rules regarding cash out options (we didn't take out cash in our case like the OP is doing).

 

[tvguy]

Yes good point to at least consider.

Our home was built in 2014. In mid-2016 we refinanced to get rid of PMI knowing our home value had appreciated enough to offset the limited time we had been paying down the loan. We did have to pay for an appraisal at that time and comps came in enough for the refinance to go through fine.

In May 2020 we refinanced again to take advantage of the low interest rates and we qualified for an automatic appraisal waiver. The value of our home far exceeded our balance owed (the value of our home from the county is approximately 100K what it was when it was built and the value from other estimates roughly $80K-$100K more than what it was built for and then add on 5 1/2 years worth of paying it down).

I do know refinancing has been fairly strict with the pandemic so it's possible other things are happening that ordinarily wouldn't, maybe stricter rules regarding cash out options (we didn't take out cash in our case like the OP is doing).

I was surprised last year when my daughter refinanced her house. She had only been in it a year, and put 10% down. No appraisal required and zero fees. Dropped her interest rate to 2.65% and her payment $200 a month. I do wonder if it mattered that it is a duplex, she only owns her half. The going rental rate is $700 a month more than her house payment.

 

[RamblingMad]

I did a refi at the end of the last year. No appraisal. The underwriters were time crushed. It took about 75 days to close. The demand was that huge. They seem to want to just close and collect their fees and move on to the next deal.

Right now, you're most likely running up against this time crush. You'll want to shop for a refi. Look at other lenders.

 

[barkley]

These are both true but the appraiser should have at least looked. The OP said a bathroom was added in between the last time it was appraised and now should have at least been considered. That said the OP is considering things that are desirable to her for where her home is located at but aren't always things seen that way for an increase in value. It still sounds like overall the appraiser didn't do the due diligence whether the outcome would be different or not is a different story but at least the OP would feel more confident in the end result.

i agree that the appraiser seems to be lacking. the last time we had an appraisal the appraiser measured everything, asked us room to room what was original vs. us putting it in, asked about hidden improvements/replacements, if we had replaced anything or upgraded installed appliances/water heater/hvac....he ended up having to use comps outside our area and use some kind of formula to figure out the value b/c none of the nearby sales within the allowable time frame they normally use were accurate comps to our home.

the only reason i can figure that someones appraisal comes in lower than expected right now is if there's a current/recent downturn in sales (winter could be a factor in some places) or it's one of the areas people are starting to move en mass out of (rural is HOT, HOT, HOT here right now-out of state folks snap up houses sight unseen as they flee with their telecommuting jobs in hand).

 

[Kittyblue]

I'm in the middle of a refi now with the current lender and no appraisal. Doing it without a formal appraisal just limited the amount of equity I could take out.

 

[ohiomom28]

We went to 5/3 Bank to ask about refinancing our home last year and they said they only do a drive-by appraisal and use the zillow app

 

[cabanafrau]

We went to 5/3 Bank to ask about refinancing our home last year and they said they only do a drive-by appraisal and use the zillow app

It would be interesting to be privy to the stats on the loans they write through the years. My guess is they won't exactly stack up as primarily rock solid overall.

 

[DisneyHardin]

We went to 5/3 Bank to ask about refinancing our home last year and they said they only do a drive-by appraisal and use the zillow app

Our last 2 mortgages have been with 5/3 and I agree that they just look at the sq footage, etc and the price based on the neighborhood for their appraisals. When we bought this house 12 years ago, our "appraisal" was for the exact amount of the selling price of the house.

Even if their appraisal methods seem a little sketchy, they have been a fantastic bank to work with. Our mortgage, checking, and credit card are all with them and we've been nothing but pleased with everything.