“Ball of Confusion” – The Temptations
The appraisal process is an integral part of the mortgage lending process, whether it be refinances or purchases! Your lender will insist on an independent appraisal to confirm value. Remember, despite the fact that you, the buyer or refinancer, actually pay for the appraisal. It is a lender requirement and is for the benefit of the lender! The lender has more “money in the game” than you do and wants verification that they are in a safe position as to value. This process has gotten more stringent since the real estate market collapse, only partially due to so many “back-room dealings” (unknown to the average person) where con men constructed elaborate schemes involving loan officers, appraisers, real estate agents, etc.
The fact that the appraiser is verifying for the lender also supposedly protects the buyers against over-paying for a property. This is a great assumption except appraisers are basing everything on today’s value AND how much you are borrowing or monies currently loaned against the property (in a refinance). If you are putting 20% or more down OR if you have considerable equity in your property, the appraiser is more likely to be amenable to the agreed upon sales price or appraise to confirm the refinance.
Since so many people have refinanced in the last few years, due to absolutely the best interest rates we’ve seen in most of our lifetimes, many people come to the conclusion that this refinanced appraised value is their market value. I only wish!!! A refinance appraisal simply validates to the lender that they are in a strong equity position and they should allow you to continue to make payments to them at a lower interest rate. They want the business, you seem like a decent risk!!
Market value, on the other hand, is what a buyer is willing to pay! We are moving towards a seller’s market (and at certain price points, in some locations we are already there) due to reduced inventory. However, we still have a slightly paranoid & very finicky market, in that it is a very “value-driven” market. I’ll see properties only very slightly overpriced and sit. Then as they lower their price a minuscule amount, they receive multiple offers. It’s all relative, of course, to the beginning price-point of the property. Properties with what I call “ethereal value” are much harder to price. Ethereal value can be “view”, “waterfront”, “acreage” (unless it’s farmland), etc. It’s often hard to find comparable sold properties and it’s very difficult to pin an absolute value on these items. For some buyers, they are priceless…for others, useless!
So, the bottom line is a recent appraisal due to a refinance may or may not reflect what the market will bear. That’s often confusing and disappointing to any seller!! And, I don’t blame them. But, it is (often) what it is!!