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No Appraisals For Loans Under $400,000; “New Home Premium;” Appraised Value’s Not Market Value

No Appraisals For Loans Under $400,000; "New Home Premium;" Appraised Value's Not Market Value

I want to share a few more interesting comments about appraisals today.

On Wednesday I blogged about how appraisers can’t ignore comps that don’t support value. The agents wanted us to use dated comps and ignore more recent comps, but appraisers of course can’t do that b/c underwriters and reviewers will see the ignored comps and cut the appraised value.

What I did not mention though was the agents wanted us to use brand new homes for comps, and that there were two cash offers for the same property at prices higher than the appraised value.

New Home Premiums: Appraisal-blogger-extraordinaire, Ryan Lundquist, just blogged about “new home premiums.” Brand new homes in a development are worth more than homes that are even a year old, according to Ryan, b/c buyers will pay a premium for “brand new.” He also points out that the rear landscaping and other improvements that older homes have do not offset the new home premium; the improvements are just not worth that much. In any case, this is another of Ryan’s blogs that I recommend.

Appraised value is not always market value: I blogged about this in February but it is worth another mention b/c the issue surfaces so often. The property I blogged about on Wednesday with the low appraised value had two cash offers at or very close to our contract price, and this is why the agents were so frustrated (rightfully so, I might add). With two cash buyers willing to pay almost as much as our borrower was, the “market value” was clearly much closer to our contract price than to the appraised value.

BUT, as per always, appraisers are always constrained by appraisal guidelines; they have to use recent closed comparable sales to support their value conclusion; they cannot correlate to pending sales or offers.

$400,000 Appraisal Exemption: The FDIC recently stated that banks will no longer be required to obtain appraisals for mortgages under $400,000, and many industry insiders and appraisers are up in arms. “Didn’t we learn anything from the mortgage meltdown…” I am reading over and over. But, the actual effects of this new ruling remain to be seen. For starters, we are already seeing appraisal waivers far more often than ever before for loan amounts up to the Fannie/Freddie high balance limit of $726,525.

Here is my recent blog about appraisal waivers.

In addition, the data for automated value checks is much better nowadays, and many lenders will continue to require appraisals anyway. Here is a short article about this from Realty Biz.

And here is a somewhat over-the-top video about the issue from the National Real Estate Post.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167