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Financing Your Home: The Appraisal Process

With rates as low as they have been in 40 years and many 30-somethings buying their first homes as they start families, many people are looking to finance a purchase or refinance an existing loan in order to reduce their monthly payment.

How have things changed in the past three years?

Two factors have changed the financing landscape: There is greater scrutiny of a property's value and greater scrutiny of a buyer's qualifications.

Why is the appraisal process different?

In an effort to keep transactions at an arm's length, a new layer of bureaucracy has been added to the process. Lenders used to be able to order an appraisal quickly because they had appraisers on staff or a relationship with a local appraisal company. Today, many lenders, particularly the larger banks that lend nationally, use a third party company to select an appraiser. These appraisers are often unfamiliar with the local market. A management company takes a fee off the top so the appraiser is actually paid less then he used to be and is scrutinized more thoroughly.

We had an experience this year where an appraisal done by an out-of-towner came in $650,000 below the sale price. Three other appraisers were brought in and they appraised the house at or close to its sale price. Many realtors have similar stories to tell. This adds time and angst to the process.

In addition, the volume of sales in our area has fallen so there are fewer comparable properties, especially at the high end of the market, for appraisers to use in their reports. For example, the Darien market averaged 375 sales a year from 1997 to 2007. That number has fallen to about 250 sales a year.

The importance of hiring an experienced local appraiser cannot be over-stated, especially in the current housing market.

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