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A Look into the Reverse Mortgage Appraisal Process

May 17th, 2011
     

We are really in a tough market for homeowners, reverse mortgage lenders and appraisers. Just today alone I received three phone calls from different borrowers who were angry about the appraised value that had been assigned to their home by the FHA approved appraiser. I also received an email from a prospective borrower who was not happy with the amount of money she was going to receive from her reverse mortgage proceeds and wanted us to consider a higher amount based on her property’s characteristics. Here is what she wrote:

Dear Mike:
Thank you for the proposal of $136.000.00; but this is not enough money. I need at least 157,000.00 on the reverse mortgage to pay off my existing first mortgage. The property is worth more than what you are offering by far. The appraised value in 2009 was $225,000.00. Property will be at a premium in a couple of years for a land grab and whoever provides the reverse mortgage for me will be making a mint off my property. There is .99 of an acre here including an easement to my lot as it is an interior lot with lots of privacy which is at a premium. There is a reflecting pool, three storage sheds, enclosed room with hot-tub, enclosed back patio 20×22, smokers room, covered front walkway, underground sprinkler system, mature plantings, double-car garage with automatic openers, heat-pump system with air conditioning, new furnace, hot-water tank, well , new water softener with permanent filtering system. The manufactured home itself is over 1700 square feet with 3 bedrooms 2 full baths family room, living room and has a built on panty room with another pantry room in kitchen and many other extras. It also has a security system, steel locking mail-box, fenced with 6ft high cedar fence all around lot. Also in back of garage there is a room that is for storage and has a gun cabinet attached to wall. Please reply with new proposal. Thank you for your help and attention.

As I explained to her, sounds like she has a great piece of property, but the HUD calculations are set of various factors and we cannot vary the lending limits on anything other than those specific criteria. Furthermore, just as with any other mortgage her and her heirs own the property. The bank only holds a loan. So if there is a windfall in the future with a higher value, as long as they haven’t sold yet, they will be the beneficiary of that windfall.

Then I had to research a value questioned by another borrower. She did not agree with the appraiser and felt he was not giving sufficient value to a portion of the property that was above ground, that he called “basement” due to the fact that the home was on a hill and half the wall in the rear of the home was beneath the ground level. After extensive research, we found that there were no comparable sales in the area that would support a higher value, whether the appraiser called it basement or normal living space. In her area, there just were not any sales even with the higher square footage that would support a higher value.

We have also gotten numerous comments on our web site as of late with posters bashing appraisers and the practice of using short sales and foreclosures as sales comparables. Don’t get me wrong, we have come across our fair share of bad appraisals and have fought, sometimes more successfully than others, to have them reconsidered and the values raised by supplying better sales comparables which support a higher value. But when it all comes down to it, the only way to support a value is to find sales that are more similar to your property that sold just as recently as the ones the appraiser used if not more recently, and then there cannot also be several that support lower values as well so it doesn’t look like you are just choosing the highest available sales.

The theory behind using comparable sales is the theory of substitution. In other words, your property is “worth” what people are willing to pay for it or a similar property. If they can come to your neighborhood and buy similar properties for $200,000, whether they are short sales, foreclosures or what, why would they pay $300,000 to buy a very similar property in the same neighborhood? While one low sale should not bring down the value in an area with other verifiable higher sales, several lower sales and even more on the market as existing listings at lower prices can. And just as the letter above indicates, who can say how much more a buyer would pay for some of the items listed? What if you don’t smoke and you actually now want that removed? What if you don’t own guns? Some people don’t want water features or their additional upkeep, don’t need multiple outbuildings and find them excessive or want to worry about hot tubs. Each of us has things about our homes that make it special to us, but could actually make it just a bit harder to sell to the wrong buyer and they would be looking to see how much less you would take since they know they will need to put money into the property to make it special to them.

Without finding errors or missed better sales on the appraisal, the borrower and the originator have no chance getting the value raised by the FHA appraiser later. Also, the HUD system that every lender works with requires that you “log” an appraisal in when it is completed. This now stays with the property whether you change lenders or not. Every once in a while though, we have reverse mortgage borrowers who talk to someone (sometimes even other originators) who tell them they can get a new appraisal or get the value increased. This is prohibited by the HUD system and borrowers need to know that the appraisal will stay with the property no matter who they go to for a period of at least 6 months.

If a reverse mortgage borrower receives word of an appraised value less than their original opinion of value, you can check with your originator and the recent “sold” signs in your neighborhood on similar properties to see if actual closed sales support your opinion. If you can find better comparable sales, you may be successful in an appeal. If not, then the originator has no leverage upon which he/she can go back to request a value increase. You just need to keep in mind that what you believe your property is worth and what informed buyers are paying may not be the same. The appraiser, the lender and potential buyers are going to use the statistical data and unfortunately do not see your home through your eyes.

 

“Reverse Mortgage Appraisal” by www.allrmc.com

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24 Responses to “A Look into the Reverse Mortgage Appraisal Process”

  1. Ray Fry says:

    Reverse mortgage borrowers are now paying at least $100 more for their appraisal due to the federal requirement that an AMC handle the appraisal. The appraisers themselves are making much less due to the AMC keeping a portion of the appraisal fee. The appraisers bring in lower values because they don’t want to be challenged by the lender. It seems like everybody has lost something due to the AMC’s (Appraisal Management Companies) being in the loop.

  2. suzanne lawson says:

    I did not like the appraisal from a reverse mortgage appraiser as the customer has no say so as to the appraiser they may get and mine was a horrible appraisal of my home & property.

  3. Mike Woods says:

    It’s a shame more people don’t understand how the appraisal process works. They get mad at the appraiser and even the lender when the value comes in below what they expected, when in reality the appraiser has no control over what homes have sold for and when.

  4. Eleni Gianno says:

    I am wondering about after sgning. Does the house get appraised every year? How do they fill out the yearly chart till life expectancy? What if the value of the home depreciates? Will the accrued interest become lower or change? How do we keep tabs on that?

  5. Mike Branson says:

    Hello Eleni,

    The lender will not appraise the house annually. The lender has the ability to assign the mortgage to HUD when the loan to value reaches a certain point, based on the original appraised value, and that is why there are two Notes and two Deeds of Trust on reverse mortgages. Values are likely to go down sometimes, but they also go up. Rather than concern themselves with annual fluctuations in value, the lender and HUD are only concerned with the final value when the loan becomes due and payable.

    If the value goes down and the property is worth less than the amount owed at that time, then the heirs can pay off the loan and keep the property for 95% of the current market value or they may choose to let the lender take the property and sell it themselves. At any rate, the heirs and the borrower’s estate can never be made to pay more than the property is worth and so there is nothing to be gained with a yearly appraisal anyway and only an added cost to the lender that would serve no useful purpose.

  6. Marty Morrison says:

    I wish I had seen this thread first, I posted my horrible experience in the wrong folder.

    This thread has more recent posts, like Suzanne. Yes, my experience was horrible, too. The appraiser used one comp that was over a year old, 2nd comp was 17 miles away, a whole different market. The underwriting dept of the bank REJECTED my loan based on the comps on the appraisal being Unacceptable.

    Now, because of the FHA-assigned number that follows these reverse loan applications, if I try to apply with a diff. lender they will know I am Damaged Goods because another mortgage bank had already turned me down. I am in a Catch-22 it seems. Sloppy and sub-standard appraiser has cost me the chance to get a reverse and get out from under my 1st mortgage payments that are breaking my back every month.

  7. Mike Branson says:

    Marty,

    I received your direct comments and I have replied to you in a new blog post titled “Reverse Mortgage Appraisal Disputes and Rebuttals

  8. terri says:

    Do all reverse mortgages require an appraisal? What if you need repairs?

  9. Mike Branson says:

    Hi Terri,

    All reverse mortgages require a full interior exterior appraisal completed by an FHA approved appraiser. Should your home require repairs we can close the loan with a repair set-aside. Read more about this feature in this post or feel free to call us at 800-565-1722. Thank you!

  10. very good article I agree with you

  11. Sue Ellis says:

    I am considering a reverse mortgage but have an unusual situation with my home. I own my
    home outright (has small HELOC which I can easily pay off) but I rent out a separate little cottage on the property – like a Mother In Law unit. How would that little cottage
    impact my appraisal of the main residence (where I live). Would it be a negative? It is a very
    well maintained and upscale cottage and brings in $1,500 month. I was hoping that it would be a positive factor in the appraisal of my home…but maybe it will be a negative? Any comments?

  12. Norm Curtis says:

    My property appraised for $489K in Sept 2009 in conjunction with a re-fi. In July of this year when applying for a lower rate re-fi the appraisal came in @ $375K. I realize the downturn in the market but when I looked at the appraisal I found numerous errors and omissions and totally unrealistic comps. The photos and data used for the comps were from outdated real estate websites. I could have found better comps in my neighborhood while the appraiser went as far as 30 miles away to get a couple of the comps. I appealed to the lender to no avail and have filed a complaint with the state appraisal board as well as filed in Small Claims Court against both the appraiser and the appraisal management company. The AMC states on their website that they review each appraisal for accuracy. I upplied them with a 3 page outline of the errors, omissions and mistakes and never heard back from them. I tried calling first and could not understand their operator. I then sent 4 faxes without any response, tried an Email without any luck and finally a Return Receipt requested letter again with no response. The lender was willing to close the deal if I paid a LTV insurance premium of $3,200. As I felt I had already been cheated out of a $450 appraisal fee I declined that offer. I would like to apply for a reverse mortgage but right now am very leary of paying another appraisal fee unless I can be assured I won’t be charged for the fee unless the mortgage is completed.

  13. Mike Branson says:

    Hi Norm,

    No one can “guarantee” you a completion or value. You have to remember that when all is said and done, an appraisal is nothing more than one person’s opinion of value at a given time. Unfortunately, we often find errors and omissions on reports that need to be corrected but unless the errors and omissions are substantial enough to warrant a change to the value, they usually don’t change the appraiser’s estimate of value. We are allowed to rebut a value estimate but of course, the appraiser is the one who determines whether or not the changes we point out warrant a value adjustment.

    Appraiser’s often state that in their opinion, the sales comparisons that they used were better sales comps than the ones we find and dismiss our rebuttal. They do so for any number of reasons; age of the properties, square footage of the improvements, lot sizes, bed and bath count, property type or construction method, etc. In the end, unless you have homes that are tract type homes that are the same age, size and functional utility, it’s the appraiser’s opinion vs yours as to which is more indicative of what an informed buyer in the market would likely compare your home to if looking to buy. The appraiser draws on his/her experience, education, massive research and careful consideration before simply telling you “no”! In all seriousness, some appraisers take challenges as an opportunity to review their estimate of value and some take them as an affront to their ability and the responses bear out their level of indignation as to being questioned on their value. We have been successful in rebutting some appraisals, but usually only when we are able to find closer, more recent sales that are more similar to the subject property that the appraiser just missed for one reason or another. If the properties are dissimilar in any way, it becomes an exercise in futility as the appraiser can merely retype the appraisal fixing the errors, point out that his errors are now corrected but they did not affect the final conclusion of value or that the sales we found were not as similar to the subject property as the ones he used and that pretty much ends that.

    The best thing that owners can do is check public records in advance and see what is selling around you and for how much. So many borrowers tell us that “But my house is so much nicer” or “I re-did all my bathrooms and landscaping” which is great and may make your house sell faster or even warrant a small condition adjustment, but in the end, will not usually make a huge value change. Appraisers have to be able to justify their opinion of value to the lender and to HUD. If an appraiser thinks your home is worth $25,000 more due to the extras and condition of your home, he/she must be able to show with sales comparisons that homes with similar upgrades to yours sold at the higher values while homes without those upgrades sold for documented lower prices. If the appraiser just uses across the board adjustments but cannot support them with similar sales, the lenders cannot accept the adjustments anyway.

    If you live in an area known as a “non-disclosure” area, in other words, sales prices are not disclosed on public records, then check with a local realtor and see what sales have closed in the past 3 – 4 months. Drive around and look for “For Sale” signs. Listings will not bring values up since you cannot say for certain what the final price will be but they can bring a value down if everything listed is lower than the last sale and that would indicate a declining market. Also, if you note that listing prices are way up, you may want to wait until a few of those homes sell. Realtors will often help tell you what sales have taken place in the market as well. Even if they know they won’t get you as a client today, they are always farming and looking for references and future contacts.

    Finally, if you do your homework, you cannot guarantee yourself of any value going in but you can usually save yourself any big surprises at the time of appraisal.

  14. Mike Branson says:

    Hi Sue,

    We have had this very situation come up on many occasions. It all depends on how your property is zoned and how your city classifies it. If the property is a legal 2 unit property making it a legal rental and zoned as such, there is no problem. However, if it is a single family residence with a guest house that is not zoned for a rental unit, then HUD does not allow the property to be an income producing property to be eligible for the reverse mortgage program. If it’s not zoned for a rental and you had family staying there, that is not an issue but if there is a tenant when the appraiser does the appraisal, it would not meet HUD guidelines.

  15. darvin Kuehl says:

    I am having a similar appraisal problem only its the reverse of everyone else. We were happy with current appraisal, but the underwriter is not. They have called for a second appraisal which they said would be another month as the appraisers are so busy., or, they said do you want to give up ? What was i to do, I said go ahead I guess. Ether way we can’t be responsible if their underwriter is making things difficult. We have not paid any up front fees. They have already transferred , themselves as lender on our homeowners, which we did not want anyway. (the cost is greater if they take over the insurance payment.) besides, another name has just appeared on our policy, Reverse Mortgage solutions, yet we are dealing with Security One. Anyway back to the rejected appraisal, their reason is bad comps. I can’t see why anything will change considering this is a small suburban area in Upper Michigan . Our home is modern minimalist newly built with a killer view of Lake Superior which no one else has in this part of the state. There are no comps. everyone knew that, but we assumed there were adjustments that would work. We are beginning to think no one actually gets these RMs, its all smoke and mirrors….We have been trying to get a RM for over 2 years this is the third company that comes up with the stalls and excuses. Fitst was Wells Fargo, they just went underground in the early part of the process. second was ….I forget, any way they dropped out after the appraisal ., saying ” we don’t like your land contract” So far we have had three appraisals they all were OK with us, now it seems there will be a fourth one, but we are never sure…..Strange dealings the way I see it. Should it take over 2 years and counting to get one of these ?

  16. Mike Branson says:

    Hi Darvin,

    Two years is not normal but appraisal issues do come up. It sounds like you have a variety of issues and no one has been able to resolve the issues, and it may be because of the fact that to meet HUD guidelines there is not a good resolution. Firstly, we are not licensed to lend in MI so I cannot offer to take over and try to close the transaction, but you have said a few things that lead me to believe you might have a property and ownership that may not be eligible for the reverse mortgage program. Let’s start with the Land Contract.

    A true Land Contract can limit the borrower’s right of ownership. I don’t know the MI laws, but in some states a land contract gives you only “naked legal title” while the actual title remains with the seller until the terms of the contract are fulfilled. This may be an issue for you. Your property itself may be an issue if the appraisers are unable to find sales comparables. HUD requires that the appraiser is able to find 3 sales that are similar to your home to support a value. A modern minimalist home may be perfect for you, but if there are no recent sales of similar properties, there is no way to determine the market value or the demand for the type of property. HUD does not allow appraisers to just make adjustments for subjective differences if they cannot support those adjustments. They must bracket any adjustments they make with bigger and smaller, more expensive and less expensive, more bedrooms and less bedrooms, etc to show what typical buyers are willing to pay for certain amenities. If nothing like your home has sold, any adjustments they make are completely a shot in the dark with no factual information to support those adjustments.

    Appraisals can be a very trying issue – for any loan type. We try to determine if there will be any issues before even ordering an appraisal and let borrowers know in advance when we see them. However, we don’t always know what will be on the appraisal until it comes back. I would suggest that you get a copy of the appraisal (they can email it to you) and then send it to a lender or two approved in your area and find out if the property does or does not meet HUD guidelines. If it was just your current lender’s own aversion to the property type, you may be able to find another lender who will accept it. If it truly is that the appraiser cannot find acceptable comparable sales or that the home does not meet HUD’s requirements, you need to know that.

  17. Alyssa G says:

    Hi Mike,
    An appraiser will be coming to the house today. I asked the lender we’re working with if a copy of the report would come from him or if the appraiser would be supplying that to us. I was told that “by law” the appraiser can not give us a copy. Can this be true? That does not make any sense to me, but I don’t want to start becoming difficult if I don’t have all of the facts. BTW we are in Colorado.

  18. Mike Branson says:

    Hello Ayssa,

    The appraiser contracts with the lender or an Appraisal Management Company if the lender does not have a process in place for orders to go through non-sales staff and then the appraisal is returned to the lender along with a certificate that all applicable rules and regulations have been met. This is to ensure that the appraiser never feels any undue pressure from originators or homeowners regarding the values they assign.

    Now having said that, you are entitled to receive a copy of any appraisal for which you have paid a fee. In other words, if you paid for the appraisal, the lender must, by law, give you a copy of it. If they paid for the appraisal up-front and you are going to pay for it at closing, they are not required to give you the copy until after you pay the cost. Once the loan does close, there should be no issue with them sending you a copy of the appraisal – regardless of who paid for it. But if you paid for the appraisal in advance, then there is no reason the originator should not email you the report as soon as they receive it. I always email a complete copy so that my borrowers get the full color photos and all attachments.

    I hope this helps.

  19. Barbara Albin says:

    Hi, We were in the middle of a reverse motgage with one company. We had done the required counseling but they could not find an appraiser to do our home. We are located just 20 minutes from the state Capitol in Sacramento, CA. Finally after about 3 weeks of pushing an appraiser showed up on a Friday and was in a hurry to get it done. Weeks passed while we kept asking our loan officer about the appraisal. Finally, we gave up and asked for our papers to be transferred to a new company, as you can imagine no one was happy. When the new company checked the appraisal report, which we thought was low, it seems as though the appraiser had left off 300 sq ft, while subtracting for not being in a gated community, etc. the appraiser would not fix the report, although he had been paid. Fortunately the underwriting dept. in the new company noticed the problem and is now able to send a new appraiser. When town homes are standard in size how does an appraiser get away with leaving. 300 sq feet off a 1700 sq ft home and not be required to fix the problem? Because of this problem we are months now into trying to get a reverse mortgage. Our property,is just 6 years old, FHA approved, we have no mortgage and want our money back for the first appraisal. Is this a legitimate request and worth fighting for? Than you.

  20. Mike Branson says:

    Hello Barbara,

    Great question. I’ve answered you in a new post you can read here. Please let us know if we can be of any additional help!

  21. barry says:

    hi/ im in the middle of the same problem as a lot of you nice people appraiser ,first thing I lost my partner in November 2012 so in jan2013 I had to refiance a small amount of mortgage of $31,000 had my bank appraisal done came in at a soft appraisal of $165,000 ,so anyway I went looking for a reverse morgaage got liberty home solutions to do it now the fun starts. the appraiser comes to the house never measured the house took the fig of my first appraisal took pic inside and went I got the appraisal back came in at $155.000 and just over a mile away sold for $168,000 now heres more the appraisal wasn’t sign by the guy who came it was done by a women and on top of that the house that sold wasn’t one of the comp , so where is justies now ive found out the pics sent too my loan person wasn’t my house it was a mobile home now you tell me where I stand

  22. Jocelyn says:

    Hi Mike, I am the owner and resident of a 2-family home in Brooklyn, NY. I just finished meeting with a reverse mortgage specialist who helped me complete and sign the application for a reverse mortgage. She said that the stove in my finished basement may be a problem when the appraisals get done. She said the gov’t could either deny the approval of the reverse mortgage or re-classify the 2-family to a 3-family home which would raise the property tax. (I find that is ridiculous because I do not intend to nor have I ever rented out the basement!) She said that a 2-family house could only have 2 stoves. She said I might have to remove the oven range and range hood from the basement before the appraisers come. I explained to her that I do not cook in my 1st floor apartment and that the little maytag stovetop that sits flat on top of the cabinet is not functional and never been used. I do all my cooking in the basement. When I purchased the house in 1979, the basement already had an old stove in place which I replaced with new one 5 years ago. To remove the stove and range hood would be a pain for me. So I asked her what if I just remove the non-functioning Maytag stovetop from the 1st floor apartment which would be much easier to move than the big oven range in my basement. She said she needed to get back to me on that. I am concerned now that this issue has come up and am worried I might not be approved for the reverse mortgage because of this.

  23. Mike Branson says:

    Hi Jocelyn,

    This is a very unique situation. I can answer what we recently had happen with a property that we investigated with HUD and another property that we had to investigate a while back that if you put the two scenarios together they are similar, but they are still different than yours so all I can do is tell you what I “suspect” will be the final outcome here. Firstly, we had a property with no stove. HUD doesn’t require a stove for a functioning kitchen and that borrower cooked using nothing but a hot plate and the loan was fine. Next we had a property that had two kitchens. We had to determine that two kitchens were customary for the area and that the second kitchen was permitted. That property never did meet HUD guidelines because we could find no sales comparables with two kitchens in that area and the second kitchen on our property was installed without permits.

    If your one kitchen above grade did not exist, then I believe you would have a problem as I do not believe the only kitchen would be allowed to be below grade. I believe the fact that the stove is not working above grade will prove to be immaterial. I think it will all come down to what the appraiser says about the second kitchen and whether or not it is common for the area, whether or not he/she can find sales with second kitchens to compare and whether or not the kitchen was built with permits. However, every HUD HOC (Home Ownership Center) operates differently. They all use the same manual, but they seem to interpret it differently and if you call the HOC offices, they are only too quick to admit this. I wish I could tell you what the outcome will be from what you have told me, but I am afraid that most of the determining factors will probably come from the appraisal.

  24. Mike Branson says:

    Hi Barry,

    You can absolutely contest the appraisal. We have had situations such as this and with the supporting documentation, had the entire appraisal thrown out, reported the appraiser to HUD with the appraisal and the information to show the discrepancies and got a new appraisal from a qualified appraiser who used actual information. If you don’t agree with the value based on the sales the appraiser used but it’s all legitimate information and it’s just a difference of opinion, it’s hard to rebut the value. The appraiser is a licensed professional and if it just comes down to your opinion or his/hers but all the information is accurate, the only basis for rebuttal is if you can prove that the sales you have to use are more similar to your home, more recent and/or are closer than the sales the appraiser found and that he/she just missed the better sales comparables. However, when someone else signs the appraisal, the information is false and you can prove it, or there are other grossly negligent issues with the appraisal, having the entire report thrown out is not out of the question!

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