If you haven’t read today’s Kansas City star, you should. On the front page there is an article titled Bogus Appraisals Stress Housing Market. It is an excellent introduction on what can happen when you choose to not use a professional REALTOR or you use a real estate agent with less than professional ethics.
But more than anything you should make sure you choose a reputable loan company.
Appraisals have been a problem for me in the past. And quite often I have raised an eyebrow when people have told me about their refinances. Let me give you an example.
For a while in Oklahoma I owned a property in a neighborhood where the highest a home had ever sold for was $119,000. The average price of homes in the neighborhood was about $102,000. Almost all the homes were 1400-1600 square foot ranches. The $119,000 home had been extensively updated and added on to. Anyway, a gentleman I knew and like in that neighborhood was telling me that he had refinanced his house and “pulled out some cash”. Curious, I asked him what his house had appraised for and he told me $144,000! Are you kidding me? His house was almost identical to the property I owned that I valued at about (and in fact sold for about six months later) $103,500. Yes, he had an inground pool. But not a $40,000 pool! This was an obvious case of a guy being taken advantage of. He is now locked into that home for the next 15 years while it appreciates to that level.
Another experience I had, and continue to have, is when appraiser’s use non-comparable homes to come up with value. These appraisers and their mortgage officers want to use homes from different neighborhoods and social circles. In other words they will use houses that have nothing to do with each other.
Read the article. Choose your lenders and real estate agents with care. A responsible real estate agent will look out for your interests and warn you when he sees a red flag. Yes, the house may cost you a few dollars more than getting the “deal” without representation. But are you sure it is such a deal?