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THE REVIEW APPRAISAL

Sometimes a home has sold for much more than the last comparable sale, and the appraiser has difficulty justifying that price. However, they are able to do it by adding in lots of compensating factors like upgrades, location, market trends, etc. The unsettling part is that you aren’t out of the woods yet. You might still have problems with a “review appraisal.”

 

The appraisal done on your home is referred to as the “field appraisal” done by an appraiser who comes out to your home. Before some lenders will release the buyer’s loan funds to buy the home, they will have someone else do a “review appraisal” to check the field appraiser’s work. This will take place back at the lender or underwriter’s office. They are just looking at the appraisal on paper to make sure it was done according to generally accepted appraisal methods.

 

For example, if the review appraiser sees that the last three closed sales of your floor plan were at $400,000, but your home is selling for $500,000 because you have a pool, they will probably throw the appraisal out. They don’t need to see your home in person to know that a pool doesn’t add $100,000 to the value of your home. It doesn’t matter to them what kind of pool you have or how much it costs. It’s higher than their guidelines will allow.

 

If this happens, this can kill the whole transaction just a few days before close of escrow. The word “inconvenient” doesn’t BEGIN to describe this situation when it happens. You’ve got a deposit down on a new home, moving trucks lined up, etc. This is why I tell my clients, “The deal isn’t done until the money hits your bank account.”

 

APPRAISAL WOES

“Selling” your home and then closing escrow are two different things. Nearly every purchase contract will have an appraisal contingency. This means that the appraiser needs to be able to logically support the purchase price. If the appraisal comes in low, the buyer can cancel the contract and get their deposit back. When prices rise faster than appraisers can support, sometimes the appraisal comes in less than the agreed-upon purchase price. Below are some possible solutions—

 

  1. The buyer still buys the home and ignores the appraisal. Obviously this is the “dream” situation for the seller. This happens quite often in the San Jose/San Francisco market and buyers are often expected to waive the appraisal contingency. It happens here, just not nearly as much. In this case the buyer may or may not need to come to closing with more cash than they had planned on. Lenders will only lend up to a certain percentage of the appraised value, but if the buyer has a large enough down payment it may be a moot point. 2. You can argue that the appraisal wasn’t done correctly (used the wrong comparison properties or made incorrect adjustments) and try to get them to change the value. This is called a “rebuttal” to the appraisal. These are most successful if the appraiser missed a sold property that is more similar and/or more recent than the ones they used. 3. Reduce the sales price to either the appraised value, or somewhere in between. 4. Put the property back on the market and try to find a buyer with more cash down who won’t care about the appraisal.

 

Even if your home does appraise the first time, you still aren’t out of the woods until it passes dreaded, “Review Appraisal,” which I will discuss in another article.

THE NO-BRAINER UPGRADE

So you’re buying a brand-new home from a builder and you are all excited. You get the call from the sales rep that it’s time for you to head down to pick out your options.

 

You sit down with the rep and start going over the thousands of choices available to you, and your head starts to spin. A few hours later, you think you’ve got your dream house outfitted perfectly. Then you get the total for all the lovely upgrades you’ve just picked out, and you just about faint!

 

Now it’s time to cut back and you start slashing and cutting in areas to get back under budget. Usually the carpet is one of your larger upgrades so you focus your attention there. You are faced with a choice of cutting back on the quality of the carpet, or the quality of the pad. I’ve heard many buyers say, “Well, you can’t see the pad, so let’s cut back on that so we can get the carpet we want.” I think that is a mistake!

 

Do yourself a favor and go with the highest level pad they have. Going with a higher quality pad will make your carpet FEEL like more expensive carpet. When your guests step into your carpet, you want them to feel like they are sinking in. Better quality pad will also help your carpet last longer, which will pay you back in the long run. Upgrading the pad is not nearly as expensive as upgrading the carpet a few levels, and it will be money well-spent! And don’t be surprised if the higher quality carpet pad is actually thinner material than the cheaper pad. It’s all in the material itself that provides more support and more of a feeling of depth rather than the actual thickness of it.

SHOULD WE MAKE OUR PAYMENT?

This is a very common question that my clients ask when we are approaching the close of escrow on the sale of their home. This is especially true when we are closing in the second week of the month. Most mortgage payments are due on the first of the month, so this often creates confusion as to whether or not they should make that payment. They often mistakenly think that if they don’t make that payment, they are “saving” that money.

 

You will pay interest on your mortgage up until the day your lender receives the payoff check from the title company. No more, no less. It doesn’t matter if you make your scheduled monthly payment or not. Here is why, and I’ll use VERY round numbers for this example:

 

Let’s say the payoff on your loan is $300,000, and that number is good through the 10th of the month, and your payment is $2,000. If you go ahead and send your payment on the 1st, your payoff now drops to $298,000. So you can see that not sending your payment wouldn’t “save” you that money. Either way you are paying $300,000. In one scenario you pay $300,000, in the other you pay $2,000, and then $298,000 a few days later.

 

You’ll want to double-check when your payment is considered “late” so that you don’t incur a late charge. If your escrow is scheduled to close about the same day as your late charge starts, then go ahead and make the payment. But make it early, and advise your escrow officer. That way they can make sure to get an updated payoff from your lender to make sure you get credit for that payment. [NOTE: Some FHA loans require interest to be paid through the end of the month no matter what day you close.]

 

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