Reminder #1: Loan Officers Often Quote Below Market Rates (They Can’t Offer) During The Pre-Approval Stage
Loan officers know they don’t have to honor a rate quote when they are pre-approving a borrower (before the borrower’s even making offers).
Hence, many loan officers quote rates that are below market. We saw this happen over the weekend, in fact, when one of our pre-approved borrowers was quoted a below-market rate by a lender with notoriously high rates (prompting me to type this reminder).
Reminder #2: Can Appraisers Use Comparable Sales From Other Cities If There Are No Comps Available In The Subject Property’s City?
The answer is yes – but on rare occasions.
Appraisers do not like to go to adjacent towns for comps for many reasons. First of all – there are adjacent towns in CA with median home prices that vary by as much as $500,000. The reasons have to do with crime rates, the city’s overall appeal and wealth demographics, and school districts (a huge factor in CA), among other things.
Interesting sidebar: There are immediately adjacent neighborhoods in Dallas, separated by a freeway, with median home price disparities exceeding $1.5 million. A reminder of why appraisers don’t cross freeways for comps.
Appraisers also don’t want to go to other towns because underwriters and reviewers (humans and automated) will scrutinize the appraisals more closely, and are more likely to question values.
Rather than going to a different town when there are no or limited comps, appraisers will first likely try to expand their search within the subject’s town by extending the typically acceptable date timeline (by going back one year or more), or by extending the acceptable size parameters.
We do see appraisers go to adjacent towns for comps though still, but the towns are well-known for being very similar and they often share school districts.
If an appraiser tries to use a comp from an obviously more desirable adjacent town to prop a value, it will likely be called out.
Reminder #3: A Single High Comp Does Not Define The Market (Save Deals)
I was livid last week when an appraiser came in low because he ignored a single high comp that sold on the subject’s street that more than supported the value we needed for a refi.
However, within an hour of my fuming, this excellent blog by Appraisal Blogger Extraordinaire Ryan Lundquist appeared in my inbox: Sales Don’t Always Become Comps!
Ryan reminded us that appraisers often ignore single outlier comps for many reasons including: (1) if they are private sales, there is often much that does not meet the eye; (2) there are sometimes enormous concessions or additional goodies included in the purchase that might not be fully disclosed; (3) sometimes buyers simply overpay; and (4) new buyers in the market will still do due diligence and ignore single outlier comps themselves.
Reminder #4: Sellers (Homeowners) Might Want To Clean Up Properties
The first appraisal I ever did was on a street called American Beauty. I remember it well because there was no beauty. The homeowner was a hoarder, and the home was filthy. The appraiser who was training me insisted that I “assume the worst” and come in at the bottom of the range.
So, this is one reason sellers (and refinancing homeowners) should clean up their properties (mow, trim, paint, clean up debris, clean, etc.), as it influences appraisers more than they realize.
Another reason is to avoid condition callouts. We often see condition issues (peeling paint, dry rot, pool issues, missing railing, broken windows, etc.) being called out by underwriters all the time – when they could be easily avoided with a minimum of repairs by a handyman.
And the third reason is simply market appeal. I blogged about this a few years ago when I watched my neighbor sell his home for $2 million. The curb appeal, however, was awful due to overgrown and dead landscaping. A $10,000 landscaping clean-up would have likely added $100,000 to the sale price. I just saw a $2.3 million listing in Dallas, too, with visible and unsightly dry rot that could have been easily repaired before listing – and I again just wondered why they didn’t call a handyman…
