Appraise This: An Examination of Real Estate Appraisals

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Note: The ring above is not the ring in question.

When something bad happens, we want someone to blame. Yesterday I dropped my husband’s wedding ring into my favorite crystal glass for safekeeping while he was doing handy work, and the glass broke under the weight of the ring. Frustrated and heart broken, I wanted to blame the jewelry shop for selling us such a heavy ring… (senseless, I know, but I was upset) but I couldn’t. There was no one to blame, just an unfortunate event. (I’m going somewhere with this – I promise.)

On a similar note, and forgive me in advance for bringing up a rather sensitive topic here, but I have to ask…

Why do homeowners blame mortgage companies for low appraisals?

Why (oh why)? I understand we’re all upset that home values are devastatingly low. I get it – we’re all plagued with the same nausea-inducing housing market here. And having an appraisal come in too low to move forward with refinancing can be absolutely arresting – especially if it means tighter budgets, financial turmoil or even foreclosure. But what I’d like to address here is to make sure we aren’t blaming the wrong people.

The reason I bring it up: I can’t tell you the (exponentially growing) number of times I’ve heard the blame of a shallow appraisal wrongfully fall on the shoulders of the mortgage company, or better still, the loan officer/mortgage banker. NOT the downward-spiraling housing market that’s been media blasted for the past… oh say… year and some months now (goodness gracious no!), but… the mortgage company. And if not the mortgage company, the appraiser or the title company who hires the appraiser (neither of whom should bear the blame either).

From casual conversations to online complaints, I’ve seen and heard bitter homeowners with low appraisals tear all these guys a proverbial ‘new one’ for failing to recognize the value of surround sound and pedestal sinks. Misdirected? I think so.

Don’t we realize that if anyone wants to help get us the loan we need, it’s the mortgage company, the title company, and the mortgage banker? Unless there’s some crazy new business model I’m unaware of that allows these guys to make money without closing loans… um, maybe we need to find someone else to blame. (Just going out on a limb here.)

Let’s examine the loan officer: Here’s Gary the Mortgage Guy praying to the Mayan suns (I don’t know… maybe he’s running out of idols) that – for the love – THIS deal will go through. THIS phone call won’t end with a tearful homeowner on the other end. Wouldn’t he be on the side of the homeowner? True, I’m not a mortgage banker, but I can tell you that I feel pretty comfortable making the assumption that this guy wants your home value to be in great shape so he can help you out.

Let’s consider the mortgage company. For starters, it’s my guess that any mortgage company left on the map at this stage in the game wants nothing more than to help homeowners. And frankly, Gary the Mortgage Guy nor his company can be successful until the homeowner’s home value is approved for a loan. So by default, mortgage companies are a poor scapegoat as well.

So who’s left… How about the title company? Quick disclaimer here: I don’t know a lot about title so it’s tough for me to confirm. But I *think* that in addition to appraisal services they offer title insurance, closing and escrow services among other things. All which require (drum roll…) closing a loan! Wouldn’t make a lot of sense for these guys to purposely stiff their partner’s clients on an appraisal, right? Right.

And the appraiser? I don’t think this guy is trying to deliberately underestimate home values. I once heard that dentists and psychologists held the most general contempt for their daily grind… but I wouldn’t be surprised if that’s all changed this year to stock brokers, investment bankers and appraisers. I can only imagine: There you are, trying to do your job efficiently and you have Hulkomania Homeowner behind you pointing out built-in microwaves and garage door openers that aren’t yet notated on your legal pad. (Zoinks, Scooby.)

So here’s the thing. When we’re so mad, so frustrated and choked up about a low appraisal, it has nothing to do with the mortgage company or the mortgage banker. They truly have no control over how the appraisal comes in and you can bet that if anyone’s on your side, they are.

Appraisals are actually based on a pretty standard equation that doesn’t leave anything up to opinion. (You can find more information on appraisals including a live walk-through with an inspector here…)

Unfortunately, the only blamable item here is the market itself. (I know, I sound like my mother when my dog ate my ice cream cone out of my helpless five-year-old hand.) No one’s questioning whether we’ve poured our Home Depot hearts and souls into our homes except the housing trend and the economy. So let’s muster up the right-mindedness in the event of a low valuation, take a deep breath and find respite in the fact that the mortgage/title/appraisal world isn’t targeting us in a ploy to destroy our hopes and dreams. They’re on our side… we just have to wait for the rest of the housing market to join them.

Photo Credit: ILoveButter

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.