Refi with low appraisal value

[Kevin Larson]

I completed a Brrr earlier this year. When I refinanced the property to pay back my private money lender the appraisal came it at $105k. My projections and comparables in the neighborhood supported an appraisal at $115-120k. The loan I took was fixed for 10 years at 5.35% with an ARM after 10 years at 75% LTV.

After 7-8 months of property values increasing and more comparables to support my $120k value I decided to refinance again to get into a fixed 30 yr with a 4.8% interest rate and to pull some equity out of the property.  I paid the lender a fee of $650 for the loan.  The appraisal came back at a ridiculous $60k value.  I did a rebuttal providing a full punch list of all the improvements to the property, comps that my realtor ran that support my $120k value.  The lender came back with a change to the appraisal that now states $85k.

To the savy investors out there and Brrr experts, if you were in my position how would you proceed?

Would you start over with a new lender and try to get your $650 lender fee back?

Have a strategy that makes sense to continue with the current loan?

Stop the loan and wait to see what happens with the market in the future.

Thank you in advance to the BP community for your reply and advice.

Best regards

[Patrick Britton]

@Kevin Larson obviously, based ONLY on your story, it sounds like your lender needs to find a different AMC, or the AMC needs to refresh its list of appraisers.

What happened to you has happened to me 3 times in the past 12 months. Each time I sent the lender (who then sent to the AMC) a detailed analysis and all 3 times value was revised significantly higher. However, in 2 of those instances the lender had to send a different appraiser but fortunately, only once did it require any extra payment on my end. I should add, that in each of those 3 instances I made my grievances quite clear to the lender, also noting that there are lots of lenders and it's incredibly easy to find another one, especially these days.

And while it might sound like I simply pissed and groaned and complained until I got my way, in each of those instances I supported my claims by questioning the compatibility of the comperable properties used. For instance, one of my properties was a single family detached brick built house. for some reason, the first appraiser thought that a compareable property was a half duplex. another comperable was a frame built house. Fortunately, my knowledge of that specific area is well-above average and I was able to demonstrate rather easily, that the difference in value between a frame built in a brick built house (all else equal) was no less than $40,000 and the difference in value between a single family detached and a half duplex was at least $30,000.

While it is true that without a purchasing sales agreement in place, the appraiser does not have an anchor to which he or she could use to derive their opinion of value, it really shouldn't be necessary.  Given the astonishing difference between your humble estimate of value and the appraiser's estimate of value, something else might be going on here. And don't forget, appraisers are human beings and human beings full victim to strange biases and logical fallacies all the time. I read a story a few months ago about an African American family whose appraisal came in over $100,000 below what they were expecting. They removed all evidence of their heritage from the house and had another appraisal and voila, they got their value which, according to several Realtors familiar with their situation was truly a fair and honest estimate of value. Simply put, the first appraiser is a racist.

Perhaps this was not necessarily the reason in your case, but perhaps there was something else about your house or about you or about the lender or about the day in question of the appraisal that set the appraiser off. These days, most appraisers are totally strung out and under constant pressure from lenders, investors and worst of all, Realtors representing first time homebuyers! 😊  

Also note that after your request for a review, value went up 40%. To anyone with at least one eye open, a 40% increase in value from a review isn't reasonable. Clearly, there is something horrifically wrong with the initial value.

if I were you, I would find a different lender. Of course, I am under the assumption that your property isn't in an area that saw a massive decline in value over the past 12 months. Although rare, it can happen. So in my humble opinion, before you threaten to leave this particular lender and find anybody else, I would do a little bit of research, be honest with yourself and with the property and if you are still on the right side of right, scream and shout until a change is made.

As someone else here said, it is extremely difficult, if not totally impossible to get a refund of your money. But given the substantial difference between your estimated value and even the revised estimated value, I wonder if the appraiser actually set foot inside the property...

Lastly, just be sure that if you are going to scream and shout at the lender that you have loads of supporting documentation and evidence on your side.  This is where having a realtor buddy will help a bit.

of course, you could always hire your own appraiser, just know that the appraisal generated by that person will not matter to the lender.  But it could shed some insight on where the first appraiser went wrong or if in fact, you are the one making a mistake.  Yes, this would mean yet another $650 but frankly, considering how this could either make her break your deal, I think it is worth serious consideration.

good luck