Show me an appraiser that has not been asked to do a free "Comp Check" for a lender, and I'll show you an appraiser that's been in business less than a week! The pressure to do "Pre-Comps" or provide "Ballpark Numbers" for lenders has been around for decades. Appraisal Scoop has posted several stories in the past about the practice.
Here's a quote from one of my earlier posts: "Can you check comps for me? I want to know if I should order an appraisal"
That's a common question that is asked of appraisers every day. Lenders and borrowers don't want to waste their time and money on loans that won't "Appraise Out". Comp Searches (pre-appraisal market value opinions) may also seem like good "Customer Service".
That may appear to be true on the front-end, but those "searches" back-up appraisal production on the back-end (causing delays in appraisal delivery) and generally it's expected that the appraiser will not be compensated for THEIR time!. Also . . Did you know that checking "comps" and providing an "estimate" of a home's value prior to receiving the appraisal order MAY put the appraiser in violation of the Uniform Standards of Professional Appraisal Practice (USPAP) and jeopardize their state license?
Now that homes sales volume is down, re-fi fever has cooled and some markets have softened, mortgage brokers (and lenders) are trying even harder to get their target value in advance of hiring their appraiser.
Just yesterday I received no less than three calls from mortgage brokers wanting me to provide a "Comp Check" value in advance of receiving the appraisal order. What's going on?!
Historically, Internet-based mortgage companies will call . . . fishing for appraisers. They're usually from out-of-town and "their appraisers" always check values for them to be sure that the loan will go through. The faster they talk . . .the shorter the conversation with me will last! Most appraisers won't even consider such requests because if they can't match the number once they've inspected the house, they know they'll find themselves battling with the mortgage broker, owner, and borrower!
What happens when I turn them down? They go fishing for another appraiser until they find one that will :
- Do the Comp Search
- Provide a value that meets the lender's "Target Loan-To-Value".
As appraisers, we think that the broker is just trying to get a "Free Appraisal" upfront so that he's sure that his loan will go through. But is that ALL there is to the story?
Click below to read the latest Mortgage Broker "Bait & Switch" tactics and how your "Comp Check" enables them to con consumers . . .
According to the Bloodhound Blog author Morgan Brown, savvy mortgage brokers are abandoning old illegal Bait & Switch techniques in favor of new ones, based on inflating a home's value in order to lower the loan to value (LTV) and quote the borrower a lower interest rate.
If loan officer “A” thinks your home is worth $280,000 and you are interested in a loan of $250,000 (a LTV of 90%) he will quote you a rate based on 90% LTV. If loan officer “B” thinks your home is worth $312,000 that same loan now has a LTV of 80%. The difference in interest rate between the 90% LTV loan and 80% LTV loan is going to be significant. Loan officer “B” employs the new bait and switch to quote you the 80% rate instead of the 90% - even if he knows it is a stretch for your home to be worth $312,000.
Beginning to see how important that Comp Check is? Is the mortgage broker looking for a free appraisal or is he really just shopping for the appraiser with the highest Comp Check value? Remember . . The higher the value, the lower the rate, and the easier it will be to beat out the competing loan officers! All is well until the appraiser gets back with the real value . . .
It’s loan officer “B” with the news, “I’m sorry ma’am, the appraiser believes your house is only worth $280,000. There is nothing that I can do about it – they are independent third parties and it’s illegal to try to influence them.”
Crushed, you ask what your options now are. They then go on to offer you the 90% LTV loan rate and terms. You are resigned to the fate of the 90% loan. You don’t even remember loan officer “A” or whether what they were offering 2 weeks ago was any better or worse than the new offer.
Plus, you’re out $350, two weeks of time, and your loan officer hasn’t done anything wrong on his end. So you go through with the loan at 90%, and feel somewhat dissatisfied, but don’t necessarily blame your loan officer for the development.
Hmmmmm? I wonder who'll they'll blame? As "Comp Check Appraisers" know, this is when everyone is stricken with temporary amnesia!
Guess what? Your loan officer did something very wrong. By being overly aggressive on the estimate of your home value he was able to out price the competition for just long enough to bait you in to the idea of the 80% LTV loan and working with him. Once you were financially committed with the appraisal fee he knew there was little chance of you leaving – plus he had the perfect cover of an independent third party to blame for the change.
Here's what Bloodhound Blog author Morgan Brown says that borrower's can do to protect themselves from the “value bait and switch”.
- Get familiar with what your home is actually worth. When you talk with loan officers ask them to fax you copies of the comparable sales reports that they are using to make their estimates. You’ll be able to see the home data that they are looking at and make a determination of what your home is actually worth.
- Ask each loan officer you talk to what they think your home is worth and take an average. If one loan officer seems way off the map, remember the old adage: “It it’s too good to be true, it probably is.”
- Do some research online and see what other homes in your area are currently listed at on sites such as Trulia.com and Realtor.com. Use those figures as a rough guide.
- If a loan officer tries to over-value your home, fight the ego-driven urge to go along with it and try to find a rational approximation of its worth based on the above research.