Dear Kari,
My husband and I had our home on the market for over six months and finally got an offer that we could live with.
Our Realtor informed us of all the reports and inspections that the buyer was going to do, such as termite and home inspections, as well as an appraisal.
My husband and I were sitting on the edge of our chair for three weeks waiting for all the inspections to come in. We finally heard that the appraisal was complete and the buyers could purchase our house for the agreed upon price.
Next we received a call from our Realtor saying the buyers’ lender was going to send out another appraiser.
We were told not to worry about the second appraisal. We have never heard of this before and we thought we were over the hurdles.
Do we have to let in the second appraiser? Can you help us?
Answer:
Congratulations on getting an offer on your home.
I know it is extremely stressful when you have inspectors coming by, and in the sellers’ minds, they overstay their welcome and pick apart the house. Keep in mind this is common today. When you are a buyer, you will be in the same position.
First let’s look at an appraisal: Your lender needs it in order to ensure that the property will sell for at least the amount he’s offering for the loan in case of a default. It is security on the home loan.
The appraisers are licensed by their respective state and can evaluate the market value of your real property. The appraisers take notice of the various problems and bonuses of the home, where the home is located, and so forth.
They compare the property to similar properties in the neighborhood; evaluate the real estate market, measure the home, and the lot size. The written appraisal report usually takes a few business days to complete and send to the lender.
Sometimes a bank will send out a second appraiser, or even a third, and they will also have another appraiser perform a “desk review.”
The second appraisal performed by the bank must agree with the first appraisal of the home. If not, there will certainly be a conflict to be resolved.
In today’s real estate market, typically we may see a request of a “second appraisal” or “desk review” when we are working with the jumbo loans.
Usually the second appraisal is paid by the buyer where that is the person trying to borrow the money. When a loan is above the limit set by Fannie Mae and Freddie Mac, this is when we come into the jumbo loan territory.
These said loans are not conforming loans and do not fit to the guidelines set by Fannie Mae, Freddie Mac or Ginnie Mae.
The “jumbo” loans are for loan balances in our area over $580,000. On Oct. 1 of this year, unless the government steps in and extends these higher loan limits, the jumbo financing will be for loans over $474,950 (this varies by county so check with a local lender).
Understand that the lenders have more at risk with Jumbo Loans.
If a borrower defaults, it would be a more difficult to sell a luxury home, so the lenders try to get a higher down payment. There is a higher interest rate, and perhaps a second appraisal to protect the lender.
The lender may determine that the property is located in a declining market area. If the second appraisal has an estimated value more than 5 percent lower than the original appraisal, the maximum mortgage must be predicated upon the lower of the two.
Kari McCoy owns the Kari McCoy Group, residential real estate at Lyon Real Estate. She can be reached at (916) 941-9540 or e-mail her at sold@karimccoygroup.com.
