HELOC Loan appraisal issue

San Jose, California
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HELOC Loan appraisal issue

Swarochisa Kandregula
Member since 2023 · 7 posts · 0 votes
My wife and I applied for a 200k heloc loan at a local credit union. Our house(new townhome 2021) on redfin was valued at 1.08M when I applied and the outstanding mortgage was about 682k. With this valuation I was sure that 200k would be less than 90LTV. The underwriter got back to us saying they couldn't approve us for 200k and instead countered with 142k . I called up the loan officer and she told me that the appraisal came back at 912k ( or 920k , I couldn't hear it clearly). I knew the appraisal would come back lower than what I saw on redfin but I didn't think it would be this low. She told me that I could pay for a full appraisal or a desktop appraisal but that doesn't guarantee an increase in the appraisal.

While I was discussing this with my wife , I looked up our neighbors house ( built at same time) which was listed for sale about a month ago. It was sold on 9/20/23 for 970k. This house has the same layout and sqft as ours. I emailed the loan officer about this but I would like to know my chances of getting the 200k loan with this new information( I may not get 200k but anything closer to that number would be great). Should I go for another appraisal? Desktop or the full one?


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Patricia Steiner
Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
3y

Shopping appraisals is risky...and not recommended.  What you need is a copy of the appraisal that was already done on your home to see what comparable sales were used in calculating your valuation.  A sale in itself is not 'comparable.' Appraisers and Brokers go through a process that 'adjusts' the sale to make it comparable to - in this case - your home. There are a lot of factors besides those that you mentioned.  So start by asking for the appraisal.  See if all the sales in your market (defined as 1 mile radius), within the last 30 days, that are within a 10% square foot differential were included. If there are sales that you feel should have been included and were not, submit those for review.  Start there.  And, know this:  online valuations are not accurate. They have a standard deviation of 12% to WTF.  They are based on derivatives rather than sales that meet the appraisal standard.

Start by getting the appraisal.  As large as the difference is, it is unlikely that you will be able to get to the $200k mark.  It's still worth doing the work to find out.  Hope this helps.  (Frustrating isn't it!).

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  • Patricia Steiner
    Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
    3y

    Shopping appraisals is risky...and not recommended.  What you need is a copy of the appraisal that was already done on your home to see what comparable sales were used in calculating your valuation.  A sale in itself is not 'comparable.' Appraisers and Brokers go through a process that 'adjusts' the sale to make it comparable to - in this case - your home. There are a lot of factors besides those that you mentioned.  So start by asking for the appraisal.  See if all the sales in your market (defined as 1 mile radius), within the last 30 days, that are within a 10% square foot differential were included. If there are sales that you feel should have been included and were not, submit those for review.  Start there.  And, know this:  online valuations are not accurate. They have a standard deviation of 12% to WTF.  They are based on derivatives rather than sales that meet the appraisal standard.

    Start by getting the appraisal.  As large as the difference is, it is unlikely that you will be able to get to the $200k mark.  It's still worth doing the work to find out.  Hope this helps.  (Frustrating isn't it!).

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  • Swarochisa Kandregula
    OP
    Member since 2023 · 7 posts · 0 votes
    3y
    Thanks for the suggestion and it makes sense. I don't want to spend money on another appraisal knowing that it might not help my case.

    Don't think they would've missed out on anything since the appraisal was not extremely low but I want to know how it's done so I will request a copy of the appraisal report to see what has been taken into consideration.
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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    3y

    @Swarochisa Kandregula what you are describing is a common issue for many beginning investors. Bigger Pockets is a real estate investing website and platform - knowing how to calculate ARV (or current value) is a skillset that any investor will need and also have that skill continually sharpened throughout their career.

    Now, teaching you how to accurately calculate your value in a setting like this would be nearly impossible.  Also, I can't tell if you are an investor or just stumbled on this website curious about this issue...in either case, you have options.  First, as suggested above, ordering an appraisal will be a great option.  What's $1,000 when we are trying to get $60,000?  Then you can see how the calculation works...AND ALSO...you can show that appraisal to a real estate agent friend...which is my second suggestion. Getting a real estate agent to provide you with a CMA, a "Comparative Market Analysis", should show you a pretty close approximation to what your value will be. Admittedly, a real estate agent might not be very good at this either so use someone who is familiar with your area for best results (maybe the person who helped you buy the property?). If you have your appraisal, you should be able to "contest the value" with other comparable properties. Who provides you those comps? Your real estate agent.

    I making these points very brief because of the setting here but the "comps" are how your value is calculated.  The appraisal or a real estate agent can show you what "comps" there are.  

    Hope this makes sense.

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  • Swarochisa Kandregula
    OP
    Member since 2023 · 7 posts · 0 votes
    3y
    I am a thinking of buying a property and I intend to use part/all of the HELOC as down payment for this property. I did request the appraisal report and will take your advice and reach out to someone who is familiar with this area and who understands CMAs better.

    Thank you for the detailed response, I really appreciate it.

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  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    3y

    Most HELOC lenders use an AVM -an automated digital tool that you have no control to dispute. If $970000 is your model match and there are no other lower ones in the past three months then maybe you can get it up to $970000. Are you certain they do 90%? That's higher than most. If you pay $500 for a full interior appraisal and risk no change or lower. Get everything in emails from your credit union, on the phone is of no use.

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  • Tom S.
    Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
    3y

    @Swarochisa Kandregula  Just adding to the great advice posted above.  Even though there was a recent sale extremely similar to yours, they usually average at least 3 recent sales.  Also be careful with ordering a new appraisal, if it comes in lower, typically the lender has to use that. 

    That happened to me one time, I wasn't happy with the desktop appraisal and paid for a full one, which came back even lower.  The lender said they had to use the new lower one if I wanted to proceed.

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  • Swarochisa Kandregula
    OP
    Member since 2023 · 7 posts · 0 votes
    3y

    An update:

    I received the AVM report(Home Genius) from the loan officer and noticed that the house was valued at 990k and it was listed as a 3BR/2BA when in reality it is 3BR/3.5BA. I spoke with the officer about these discrepancies and she took her time to tell me that this particular report had a confidence score of 50 so they didn't use it( she mistakenly shared the wrong report with me) . She told me they used another AVM report (Corelogic with a confidence score 89) and this one had the right information about the house and is valued at 912k. I asked her to share this new report with me so that I can go through the comps. 

    This new report had 4 comps ( 0.05 miles from our home) within the last year and didn't include the latest sale that I was talking about in the original post. 3 of the 4 comps are 2B/2.5BA 1718sqft and the 4th one is 3BR/3.5BA  1760sqft. The latest sale from September is 3BR/3.5BA 1888sqft, same as our house but I'm not sure of the interiors.  

    I am planning on talking to the officer again about this but I'm afraid all she's going to say is that I can go for another appraisal. I'm thinking if this new sale is included in the comps the appraisal will definitely be better than 912k but after listening to how complicated this process can be I'm unsure of what to do especially knowing that if it comes in lower I have to accept that number while paying for another appraisal.

    @Caroline Gerardo yes, I spoke with the credit union about 90LTV before applying for the HELOC.

    @Tom S. this is new information and it makes me want to stick to the appraisal I have right now.

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  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    3y

    Speaking not the same as getting it in writing, ask for it in an email.

    You are sure county records shows your house as 1888? 100 feet not a great difference. Look at the interior photos of the September sale and the listed amenities. Is yours the same or better? If better say you have a Wolf stove and it has an old electric, you have a pool and it doesn't, or view... a human appraiser might do better, maybe, maybe not... 

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  • Brad S.
    Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
    3y
    Quote from @Swarochisa Kandregula:

    An update:

    I received the AVM report(Home Genius) from the loan officer and noticed that the house was valued at 990k and it was listed as a 3BR/2BA when in reality it is 3BR/3.5BA. I spoke with the officer about these discrepancies and she took her time to tell me that this particular report had a confidence score of 50 so they didn't use it( she mistakenly shared the wrong report with me) . She told me they used another AVM report (Corelogic with a confidence score 89) and this one had the right information about the house and is valued at 912k. I asked her to share this new report with me so that I can go through the comps. 

    This new report had 4 comps ( 0.05 miles from our home) within the last year and didn't include the latest sale that I was talking about in the original post. 3 of the 4 comps are 2B/2.5BA 1718sqft and the 4th one is 3BR/3.5BA  1760sqft. The latest sale from September is 3BR/3.5BA 1888sqft, same as our house but I'm not sure of the interiors.  

    I am planning on talking to the officer again about this but I'm afraid all she's going to say is that I can go for another appraisal. I'm thinking if this new sale is included in the comps the appraisal will definitely be better than 912k but after listening to how complicated this process can be I'm unsure of what to do especially knowing that if it comes in lower I have to accept that number while paying for another appraisal.

    @Caroline Gerardo yes, I spoke with the credit union about 90LTV before applying for the HELOC.

    @Tom S. this is new information and it makes me want to stick to the appraisal I have right now.

    ***************************
    So, unfortunately, you did not get an appraisal, you got a fancy complicated algorithm that spit out a relatively blind  #. While in very conforming homogeneous market with plenty of relevant data, that # may be close to an actual market value, it is much more difficult to do in most markets, especially with a townhome or condo. 

    The only way to possibly get a better valuation is to have an actual full appraisal. That way, the appraiser can properly observe and assess your unit's condition, quality, unit location within the project, assess the comp and market data (correct as necessary),  etc, and do the proper analysis with respect to available comps. If that neighbor's unit is an actual model match, or close, my guess is the value should trend closer to that one and even more so, if you could find more of those sales. A good appraiser will not just average the comps, they may do a weighted average or base their final opinion more heavily toward a more similar comp, but more than one good comp is always preferable.

    Now with that said, as a longtime appraiser/broker/investor, I have seen some pretty "questionable" appraisals, so it can be a shot in the dark sometimes - unfortunately. But, if you have some pretty undisputable facts (like that more recent neighbor sale and maybe others), you may have a chance for a favorable outcome.

    Good luck!

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  • Jeet Sangha
    Realtor · Gilroy, CA · Member since 2016 · 255 posts · 72 votes
    3y

    If they're only going off of AVM then it may make sense to order a full appraisal. If you'd like, you can send me a private message with your property address and I can run the comparative market analysis (CMA) for you.

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  • Swarochisa Kandregula
    OP
    Member since 2023 · 7 posts · 0 votes
    3y

    @Jeet Sangha sent you a PM

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  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    3y

    @Swarochisa Kandregula- chances getting the appraisal revised in low ....I would suggest trying another HELOC lender / source and see what they say ...if they come back with same issue - than you know its likely lower than you think

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