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South Bend Home Loan

Thursday, August 1, 2013

How Appraisal Data Verification Can Stop Your Sale

If you're a Realtor, you've had a sale or two before where you were nervous about how your client's home would appraise.  You likely didn't stop worrying about it until you got the mortgage lender's call telling you the report was in and the value was fine.  Once you got that call though, you probably crossed the appraisal off of your list of things to worry about, believing all was good with it. 

THINK AGAIN!  What Realtors don’t realize is that most loan underwriters conduct a data verification process after an appraisal is received that could take that nice, clean appraisal and make it a deal breaker in the financing of the home.

What is Data Verification?

Banks rely heavily on the value showing in the appraisal report, but that value is only as good as the appraiser who put the report together.  Sometimes appraisers have off days.  Sometimes they miss things.  Sometimes they even deliberately try to make a value work, thinking they’re helping the buyer out.  For whatever reason, the value they put on the appraisal report is not always right.

How will a lender know that though?  They’ll know because they run the appraisal through an online data verification system.  These online systems have been created to do fast value assessments based on MLS data and property tax records.  Companies like DataVerify, Collateral DNA and Corelogic are all extensively used by the mortgage industry to provide a quick ‘second look’ at the appraised value of a home.

How does this impact the loan?

Most of the time, this doesn’t impact the loan.  The data check comes back close to the appraised value and everything moves forward.  Sometimes, though, the data check value is significantly lower than the appraised value.  The lender may then try running it through a second or third data check system, hoping to find one that supports the value.  If none do though, they have a problem.

How is the problem fixed?

A failed data check does not automatically cancel out the original appraisal.  Lenders understand that a lower automated value could be wrong.  The lender doesn’t want to waste the buyer’s time or money, so they will verify the accuracy of the information though assessor records to ensure the sales indicated are actually legitimate sales before taking the next step. 

If there is still concern after that, though, another appraiser is hired to do a desk review of the original report.  They will review it along with the MLS data to say whether they feel that the original appraiser was accurate on value or whether they agree with the computers and think he was stretching.
If the second appraiser says the value is ok, all is good.  The bank can proceed.  If he does not, they get the value that the second appraiser feels is accurate and, assuming it works with the data check figures, they proceed with that lower value.

What should a Realtor do then?

Well, first, if your lender says that a desk review of your appraisal is needed, don’t freak out.  There’s a good chance that the second appraiser will support the first appraiser’s findings. 

They may not, though, so you’ll want to start talking to your buyer about how you will proceed if the appraisal is cut.  Just like with other cut appraisals, the home buyer can request that it be disputed.  Just like with other cut appraisals, though, those disputes are hard to win.  Recent comparable sales in the subject property’s immediate marketing area (PUD/subdivision/neighborhood) carry the most weight and should be the area of focus in any value dispute. 
You also have to be open to the reality that the current value of the home might be lower than the price.  If it is and if the seller won’t drop the price, maybe this isn’t the right home for your buyer to purchase.   Lenders are protecting themselves when they verify the value of a home, but they’re protecting the buyer too.  We’ve all seen homeowners who have suffered from owing more on their home then it’s worth.  Keeping them from over paying upfront is one way to help avoid that for your client in the future.

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