Buying, Selling, Refinancing – Be prepared for tight appraisals and a lengthy, demanding loan approval process

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You may have read home prices are rising but a current home appraisal most likely won’t reflect any major increases. Appraisals lag current market conditions (by approximately 4 months or more ) and some changes to the appraisal process in recent years have been causing problems.

A recent article by RIS Media, a leader in Real Estate Information Systems, highlighted some of these problems. In the past, for example, 3 comparable sales for the analysis of a home’s value was the norm. Now some appraisers are required to provide 8-10 comparable sales to determine value. There may not be enough “apple to apple comps to comply with these excessive demands.”

National Association of Realtors president Moe Veissi said “an inconsistent appraisal process is leading to disruptive delays for home buyers and sellers.”

Also according to Tyler Mathisen in an October CNBC Business News segment, it is important for homeowners to realize some upgrades and repairs won’t add as much to a home’s value as expected. For example, putting on a new roof won’t increase your home’s value by the cost of the replacement “since a good roof is expected to be part of a home purchase today.”

The lending process itself has become more difficult with “banks ratcheting up credit and documentation standards for new mortgages” according to the Wall Street Journal in an article on 10/4/2012.

Contributing to these tight underwriting standards are banks’ fear of put-backs where they are forced to “take back in increasing number of loans that the banks made during the boom years and sold to Fannie and Freddie.” (WSJ 10/4/2012)

An understanding of these stricter appraisal and lending requirements will help all parties to the homesale/refinancing process. Being prepared for delays allows more realistic closing time frames to be set and helps ease frustration.