Tuesday, January 23, 2018
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The mortgage pit-falls in today’s market

The changing mortgage rules and slipping real estate transactions has created quiet the environment for lenders today. Unsure about how the real estate market will be in the near and far future, the lending criteria has been tightened all across the board and it’s leaving a lot of sour buyers in it’s path.

I had a very interesting week where one of my client had their mortgage pulled at the 11th hour by their lender. The lender cited a appraisal that showed on average 22% adjustments while what the lender didn’t realize is that the appraiser used just the last five sales which weren’t really comparable to the subject property.

The appraisers, when conducting appraisals on properties for lenders, are asked to use properties that have sold recently to come up with an accurate picture of value. The changing real estate market has put the appraisers on edge to make sure they don’t overvalue properties and place higher weight on recent sales and ignore any comparable properties that are sold earlier in the absence of like properties. This can create an appraisal where massive amount of adjustments are being done on properties that aren’t really comparable. Lenders using these appraisals will pull at the last minute and leave carnige for buyers.

Here are couple of things you can do to avoid such situations:

  • When purchasing your property, do a detailed review of comparable properties including timing of last sales
  • Make sure to have the appraisal completed as soon as possible. Any delay in conducting the appraisal could add to difficulty of getting a mortgage. When waiving a mortgage condition, try to have the appraisal completed within the conditional period.
  • Ask around about the appraisers being used to do the evaluation. Most lenders have an approved list of appraisers and while all appraisers evaluations are lower than market value, some appraisers are known to be very conservative on value. Pick a company that you feel comfortable with. You are spending the money so make it count
  • Review the appraisal with your mortgage and real estate agent before sending it out to the lender. As a purchaser, you have more information about the property than an appraiser that walked through it once. Review the details and make sure they are accurate
  • If you’re purchasing a property that’s unique, something I deal extensively in, you have to pay close attention in making sure the appraisal in done accurately to reflect and emphasis on any differences outlined in the comparable properties. Send copies of past sold properties to appraisals to prepare them for the property they are working on.

Now, I realize that my statements here might come across to some of you as manipulative or short handed but when you have your client’s deposit on the line, a real estate agent as I, wouldn’t be doing their job if they didn’t help keep their client’s deposit secure and get them the financing required. I personally do the due diligence for our clients to make sure they aren’t over paying for a property when we are negotiating.  This phase is getting the lender to see the value our client has paid.  Our client’s making the purchase aren’t being coerced into making the purchase rather are doing so because it’s a need they have and we, who are working for them, have to control all factors that could affect the outcome. We also get paid when the closing happens which is a bonus!

I hope this helps you with your upcoming purchases. The market has been changing and I wrote a blog post about what you can do today to prepare for the worst case scenario which you can review here.

If you have any questions about purchase real estate in today’s market or would like more information about real estate financing, you can contact me directly.