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Home Appraisals: New Federal Law

Often times an all-too-crucial step in purchasing a home is the appraisal, which can be a confusing part of the selling, buying, and mortgage process.  How does one know how much a home is worth? The answer is profoundly dependent on the appraisal; this comes from an extraneous source (the appraiser) which both the buyer and the seller must depend on before the ‘sticker price’ can be defined. A home appraisal not only valuates the property, but also protects the bank from being left with a property that isn’t of much value (or simply one lower than what they’ve invested).

But how does one leave something as significant as an appraisal to a stranger? A new federal law can give home buyers an upper hand by giving them much more say in the appraisal and its processes. Effective January 18th 2014, this new rule gave millions of home buyers information they would not have access to previously unless specifically requested; information that may significantly affect their mortgage application.  Nationally, it will now be required and enforced that lenders inform mortgage applicants that they can collect a copy of appraisals and other valuations in the operation.  Home buyers, sellers, and mortgage applicants will be entitled to this material three days before their loan closes or soon after the appraisal report is complete (whichever comes first).

Previously, unless formally requested, lenders were not obligated to provide you with any information regarding the appraisal. Additional information like appraisal ‘second opinions’ (made by secondary appraisers), AVMs (automated valuations made based on analysis of public record databases and mathematical modeling), as well as exhibits and attachments to the actual appraisal is now available to be assessed and scrutinized by the parties involved.

Photo Courtesy of Haskell-James

Photo Courtesy of Haskell-James

The benefit of having this kind of information gives you and your advisors resources and time to question mistakes and challenge the legitimacy of the appraisal. The idea behind the mandatory information is to prevent inflated appraisals and appraisal fraud by letting the buyer question appraisals and demand corrections. Appraisers may have selected incomparable locations that are not similar in square footage, age, renovations etc. to the house you are buying (or selling). You may question why they hadn’t included value for energy efficiency or other blunders. The only caveat is this rule applies to first (reverse or not) mortgages and construction loans. On the second go-round the bank is not obligated to provide you with information on the appraisal, though you can certainly still ask.

For the majority, appraisers like this new law because it will show a clear discrepancy between truly professional appraisers and half-baked appraisals by poorly trained ones. Unfortunately, the new rule allows you to wave your right to see them early on, which leaves you no time to evaluate the appraisal; make certain you don’t give up the opportunity to correct inaccuracies in something this important.

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