New Fannie Mae Appraisal Program:
Helping or Hurting?
by The KCM Crew on January
14, 2015 in For Buyers, For Sellers
Every home must be
sold TWICE! Once to the buyer, and once to the bank appraiser if a mortgage is
involved.
The second sale may have just become more
difficult.
A new program announced by Fannie Mae may slow down the home-sale closing
process by causing more disputes over prices between sellers and buyers.
“Starting Jan. 26, Fannie plans
to offer mortgage lenders access to proprietary home valuation databases that
they can use to assess the accuracy and risks posed by the reports submitted by
appraisers.”
“The Fannie data will flag
possible errors in the appraiser’s work before the lender commits to fund the
loan, will score the appraisal for overall risk of inaccuracy and may provide
as many as 20 alternative “comps” — properties in the area that have sold
recently and are roughly comparable to the house the lender is considering for
financing but were not used by the appraiser.”
Using the additional
information provided by Fannie Mae, the lender can then ask for an explanation
from the appraisal company for any discrepancies and request an amended
appraisal.
This added step in the
process of determining the price of the home to be bought/sold, could add time
to the closing process and cost to the appraisal for the additional work.
Why is this happening?
Fannie Mae wants
lenders to make informed decisions when agreeing to the amount of a loan that a
buyer will be approved for.
“Excessive valuations create the
risk of future losses to lenders and investors if the borrower defaults and the
house goes to foreclosure.”
What is the process now?
As a seller:
You’ve put your house
on the market, picked an agent who has helped you determine that the best price
to list your home for is $250,000, and found a buyer willing to pay that price.
The appraiser comes to the home and agrees your home is worth the asking price
and writes their report. Everything is working perfectly!
As a buyer:
You’ve found your
dream home, in the right neighborhood, in the right school district, with the
perfect yard, at the high end of your budget, but all the pluses are worth it.
You agree on a price and start daydreaming about living in your new home.
What happens after January 26th?
The lender submits the
appraisal report to the new Fannie Mae program and they come back with “lower-risk comps” that value the home at $230,000. The lender
then turns to the appraisal company to justify the $20,000 difference, adding
time and frustration to the process.
If the lender does not
agree with the reasons for the price difference they will not lend the buyer
the amount they need to purchase their dream home and the amicable, agreeable
sale turns into a heated justification of the higher price. The buyer may even
have to give up on the home if the funding isn’t there.
“The bottom line, appraisers say,
is this could lead to delays to closings and higher costs, as well as a
depression of prices in markets where prices are rising.
Appraisers complain that if they
have to justify every step of their comps for their valuation, rather than
those coming from the one-size-fits-all evaluation from Fannie, it will delay
closing, throw off buyer and seller timetables, and delay real estate broker
commissions.”
Bottom Line
The fear of some real
estate practitioners is that if appraisers feel as though they are constantly
being second-guessed, they may become more conservative in their assessments,
impacting home values and slowing growth in the market.
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