Property appraisals and the potential impact to your finances
Whether you are buying a new home, refinancing your existing home loan, or selling your home, it is important to understand how an appraisal is used to assess the value for the property. A lender uses an appraisal not only to assess the value of the property, but also to determine such things as your interest rate, required down payment, and whether you will be approved for the loan. This article provides important information you should know about the home loan process, the role of an appraisal in determining the value of your property, and what you can do if you believe an appraisal is not accurate.
For a lender to fund your new purchase, refinance, or home equity loan, it will require an appraisal to assist in determining the value of your property as collateral against the loan. Your lender will typically order the appraisal, and you will pay the cost of the appraisal as part of the financing process. Because the lender uses an appraisal to determine the relationship between the property’s fair market value and amount of the loan that you might be approved for, an appraisal that is inaccurate can affect the amount of equity available to you or how much you might pay for a property.
Once the appraisal has been completed, a lender is required to provide you with a copy of the appraisal as soon as reasonably possible, but no later than three days prior to closing. Therefore, if you receive an appraisal that you suspect has inaccuracies that impact the resulting value, some initial work on your part may help to expedite a secondary review of the valuation and assist in closing on time.
One thing you can do to prepare is to ask your lender early in the loan process whether they have a process for re-analyzing an appraisal, particularly if a consumer provides information that may affect the valuation. This process of re-analyzing an appraisal is also known as a reconsideration of value. If your lender has such a process, ask what information they will need and what their procedures are to request a reconsideration of value. Also, to set expectations, find out how the lender will keep you informed about the status of the review of the information you provide and of any action the lender may take to address your concerns.
Once you receive a copy of the appraisal, you should review it carefully, especially if the value determined in the appraisal does not match what you believe the property is worth. In some instances, the appraisal may contain an error(s), exclude significant information, or contain potentially biased information that impacts the final valuation. To prompt a lender to reassess a valuation due to potential inaccuracies, you should collect and provide any factual information that addresses your specific concerns in order to expedite this process. This information may include such items as: a plat map to correct lot size; measurements of your home to correct total square footage of livable space; pictures of your home’s interior/exterior showing updates or improvements and receipts for materials and labor to correct property condition; and/or a list of similar homes near your property that sold within the past 12 months, including the corresponding sales price, that could be more reasonable comparable property sales than those used in the valuation.
If you believe your property appraisal was not accurate, suspect any possible discrimination in the lending process, or have an appraisal-specific complaint, you should contact your lender to request reconsideration of value, if they have a process to do so, or to file a complaint regarding the appraisal with the lender if they do not.
If you believe that the lender has not addressed your concerns, you can contact the lender’s primary federal regulator. Most mortgage loans today are made by non-bank lenders supervised at the federal level by the Consumer Financial Protection Bureau (CFPB). The CFPB also supervises many large banks that make mortgage loans. Complaints against those lenders can be filed online at www.consumerfinance.gov.
You can also contact the FDIC for assistance. The FDIC’s BankFind is a tool for consumers to locate information on current and former FDIC-insured banking institutions, including their primary federal regulator. Complaints against FDIC-supervised institutions can be filed online at the FDIC Information and Support Center, or you can mail a complaint to the Consumer Response Unit, National Center for Consumer and Depositor Assistance (NCDA), 1100 Walnut Street, Box #11, Kansas City, MO 64106. You can also contact the FDIC at 1-877-ASK-FDIC (877-275-3342).
For more information on appraisal bias, please visit the FDIC.gov website, FDIC Tips on Appraisal Bias and Valuation to Address Consumers’ Frequently Asked Questions.
Knowing about the appraisal process can reduce the stress in the home loan and financing process. Understanding how a lender uses appraisals to determine things like your interest rate, required down payment, and approval of your loan is important to protecting your interests. If you believe your appraisal is inaccurate, taking quick action can protect the equity in your home as well as your finances.
Additional resources:
Interagency Task Force on Property Appraisal and Valuation Equity (PAVE)
Protecting homeowners from discriminatory home appraisals, Consumer Financial Protect Bureau (CFPB)
For more consumer resources, visit FDIC.gov, or go to the FDIC Knowledge Center. You can also call the FDIC toll-free at 1-877-ASK-FDIC (1-877-275-3342). Please send your story ideas or comments to ConsumerNews@fdic.gov. You can subscribe to this and other free FDIC publications to keep informed!