Why appraisal lower for cash out refinance?

Question

In end of October 2019, I purchased a 4-plex for $175,000 in Cleveland but my appraisal came in for $245,000 at that time. 10 months later now, I want to do a cash out refinance but the appraiser this mortgage company that I am working with has appraised my 4-plex $190,000 ($54,000 below last year’s appraisal). I know the home price my neighborhood has been going up, not going down.

Is this common? I thought about switching lender but each lender does it’s own appraisal and it will cost me another $800. Any advance will be greatly appreciated. Thanks

Russell Brazil · Answer

Yes on a refi its typically more conservative. 2 main reasons.

1) no contract in hand justifying market value with the contract price.

2) no real estate agent involved selling the property tonthe appraiser.

Jason Wray · Answer

Thomas,

I would advise against calling the appraiser due to AMC/Dodd/Frank rules!  The loan can be red flagged for talking to the appraiser about value.  You have to have the bank/lender do an "Appraisal Rebuttal" its a form that you use to dispute the value.  The form allows you to choose (3-4) comparable sales sold in the last 90 days within a reasonable proximity.  You must also supply a narrative that supports the comps in rebuttal to the comps used.  For example closer in proximity, closer in sale date, do any of the appraisers comps fall under the "Inferior to subject property" and list reasons.  Examine gross adjustments and if the the positive adjustments were not applied.  You can also contact local agents for sold on date prior to or of inspection that would be a recorded sale not on MLS.  I have seen thousands of appraisal in my time and done many rebuttals and have won & lost.

Bottom line is appraiser hate when a lender or customer tries to tell them how to better job.  But quite frankly there are tons or poor appraisals completed daily due to high demand and turn time rush requests!  You lender should of already offered this method to resolve.  Since they did not I would look to another bank to do an in house AVM or new AMC.

Thomas Wang · Answer

@Bill S.

I will be calling the appraiser and ask for reasoning. I did sent her the original appraisal and current rent till, which is higher then when I purchased.  She also went inside all units and took photos.

Steve Morris · Answer

Well, you can go back to the lender since they ordered the appraisal and make a case on why it's worth more.

I'd get together some pretty compelling comp sales (don't think Zillow is very convincing) though to convince them.

Have no clue which appraisal was more accurate though.

Phillip McDonald · Answer

@Thomas Wang

Yes, I am in Colorado Springs.  It would be great to connect with you. I am typically up in Denver a few times a month, so I am sure we can find an opportunity to meet. I will message you my contact information.

Bill S. · Answer

@Thomas Wang where did you get the name for the original appraiser? On the refi side, what was the correspondence with the new appraiser? The best outcomes are where the appraiser gets information from you giving them backup for what you are hoping for. You should have recent comps. You should provide documentation as to where rents for the property and in the area have gone since you purchase. Do the work and make their job easy and you will likely see the value you want. Now that the appraisal is in. Review the two and compare see what changed. You can go back the appraiser and build your case but it's a lot easier to do it upfront before they let the number out of the bag. I have also heard there is a lot of push back to cash out refi's due to the past crash. I also think appraisers are being more conservative if there is cash-out of the refi.

Steven Foster Wilson · Answer

@Thomas Wang has anything in the rent changed? Appraisers will look at rent to help figure a value as well, a vacancy or lower rental rate could hurt your value?

One thing you can do is pull your own comps and challenge the appraisal and explain why you believe the value to be higher. Explain this to the lender as well and order a second opinion appraisal, but you will have to risk an additional $800.

Joe P. · Answer

Could you speak with the appraiser to try and understand why he valued it lower? Maybe they don't have all of the info necessary, and are also being cautious during covid to ensure they don't overvalue properties.

I had my primary home appraised by an appraiser who only did drive-by. It was easily about 40-50k less than my expectation -- it didn't affect my refinance on my primary since my loan value wasn't near the appraisal. But then the appraiser had to do a walkthrough and told me that there is market uncertainty leading to lower values. But of course, walking through, he could see the house was updated, clean, and in good shape.

Instead of going right to shooting the guy, talk to them. See if they would be open for an in-person visit, or understanding where the value wasn't as high as it should be, and perhaps with more data they could see if it improves the value or not.

Phillip McDonald · Answer

That is not common. The appraisals should each reflect market value.  One of the appraisals is probably just wrong. You could see if your original lender will use the prior appraisal with an apprasal update completed by the original appraiser and then do the refinance with the original lender.

Mark Hirleman · Answer

I've run into similar problems with appraisals, and every time it is an appraisal without a corresponding contract.  I had a client that had an appraisal done for a refinance with a company that didn't want to do a cash-out for whatever reason.  The appraisal came in $50k less than what the house was worth, and interestingly enough it was almost exactly the percentage LTV which made a cash-out impossible.  This client was convinced that the mortgage company and appraiser were in cahoots to avoid the possibility of a cash-out.  I have no way to confirm or deny this theory, but I couldn't come up with any better explanation with how obviously wrong the appraisal was.

Why appraisal lower for cash out refinance?

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