Appraisal Costs Going Up? Place Your Bets!
Ugh, back in the saddle after a battle with the flu, my thoughts turn to buyers having to pay more for appraisals in the not so distant future (is it just me or did the last round of flu vaccines suck?)
Many still don't know about the implementation of Fannie Mae's new proprietary "low risk comp" software, and some still don't understand it including many real estate agents out there.
What it is and what it ain't ...
If you're not yet familiar with this newest "monkey wrench" in the real estate industry, you should. It can and will negatively affect the cost of getting a home appraised and increase the amount of time and paperwork involved for both appraiser and Realtor in most cases.
You may want to read my article - Low Appraisals - New Process Impacts Contracts
To help you understand, Fannie Mae (a nick-name for the Federal Mortgage Association) is a government sponsored enterprise, who's mission is supposedly to bring liquidity, stability and affordability to the U.S housing market. Fannie Mae does this by purchasing loans from banks and lenders, securitizing, guaranteeing and reselling loans to investors across the globe. Your loan can be sold many times and for the most part, buyers aren't even aware of it.
That being said, Fannie's new software program will take the appraiser's findings and run up to twenty "comps" and give the appraisal a risk value. The problem with that is, the home in question could be one of the lesser value homes in a nicer neighborhood and the comps could be from an less desirable neighborhood right next door. Or, there may not be adequate properties for comps. Either way, this can result in delayed, renegotiated or cancelled contracts.
This is where increased cost comes into play. A Realtor doesn't get paid until he or she helps a client close, but this new software means Realtors will be working double time to justify their suggested asking price if Fannie's software comps say differently.
While the Realtor has to do more work and doesn't get compensated for the extra time and effort, the appraiser certainly will be and will lead to increased cost of appraisal which will be passed on to the buyer. No one really knows how much of an increase this will be.
The appraiser will take the info and justifications from the Realtor, and spend time weighing it and re-working the numbers before presenting to the lender. We all know no one works for free. I don't think appraisers will do it case by case, but most likely raise the rate overall.
While this applies to FHA loans, the cost incurred may raise the cost of appraisals for non-FHA loans as well. I'm following this with great interest to see how it will unfold. One thing you can expect is this will serve to keep home values / asking prices lower which is good for buyers, not so good for sellers. I think we're going to see the climb in house values stall to a noticeable degree this year. A good time to buy? Absolutely. Even with a higher cost of appraisal, buyers today will still benefit from more affordable homes and also long term expenses being cut like private mortgage insurance which is now 40% less. You'll save on your monthly mortgage payments, despite having to pay a bit more for appraisals; a double edged sword.