An appraiser came in $9,000 over contract price last week on a $297,000 Texas purchase – so woohoo, right?
Wrong. It almost killed our deal.
I am not sure if the appraiser thought he was doing us a favor or what, but he ignored several comparable sales that were much closer to the subject property than the comps he used.
As a result, our “CU” score came in very high, and the underwriter called out the appraisal (for major revisions, explanations, and/or a review).
This was very serious because a review would likely have caused the appraisal to get cut below the contract price. If the appraiser had just used the correct comps initially and come in $9,000 lower (at contract price), we would have been just fine.
Anyway – this is one of the reasons why we like appraisers to come in at contract price as much as possible.
It serves no purpose to come in over contract price, as lenders correlate to contract price no matter what (no matter how high an appraised value might be), and “high appraisals” risk high CU scores and additional underwriter scrutiny.
As a reminder, “CU” stands for collateral underwriter – an application that is used to assess risk associated with an appraisal – and it always picks up comps that appraisers miss or ignore.
Readers can learn more in this blog: What is a CU Score on an Appraisal?
And here is a longer blog I wrote about the folly of ignoring inconvenient comps: Appraisers Can’t Ignore “Bad” Comparable Sales; Agents Shouldn’t Either.
Pivoting From Freddie to Fannie – The Most Interesting Part of This Blog
I often refer to Fannie Mae and Freddie Mac – the two “government-sponsored enterprises” that back or guarantee over 90% of all mortgages – as almost the same thing.
This is because they are almost the same thing, with very similar guidelines, structures, and regulators. BUT – they are not identical.
When we lock loans, we specify whether we are locking under Fannie or Freddie guidelines because we sometimes get different pricing (lower rates) under one set of guidelines vs. the other.
And lately, we have been getting lower rates under Freddie guidelines.
With the above appraisal situation, Freddie’s CU score was too high (a bad thing), but Fannie’s was low enough not to invite additional scrutiny.
So, we pivoted the loan to Fannie guidelines – even though it cost us a ton of money because the rates for Fannie-backed loans are higher right now.
We did so because it was the best thing for the borrower and the only way to close on time.
Deal Would Have Died at an Online Lender
There were all kinds of complications with this deal over and above the appraisal issue, and this is another excellent example of a deal that would have died at an online lender filled with undertrained call center LOs, a lot of fancy tech – and very little “in the trenches” knowhow.
