Thursday, 12 August 2010
Reverse Mortgages Part 6: The Home Appraisal
Until the bank makes their offer of the principal amount of one's reverse mortgage, the numbers you have been working with in the Good Faith Estimate of loan costs from the broker are just that, an estimate.
In my case, since I bought this place fewer than three months ago, my broker used the purchase price for the calculations.
In the years since the inception of the Department of Housing and Urban Development's FHA-insured HECM program, loan brokers hired the appraiser. Recently HUD changed the rules. Now, the appraiser is picked randomly by an appraisal management company from a pool of state-certified appraisers. The reason for the change is to eliminate influence or pressure to inflate the value of the home and to ensure it is unbiased.
In practice, that means a new business has been created, a middleman who facilitates the process of choosing. The fee for the appraisal is, in some cases, paid by the applicant up front and in others is tacked onto the reverse mortgage.
Due to the additional layer of bureaucracy, the new system has increased the price of the appraisal to the borrower. In my area, it now costs between $450 and $550, up from $350 to $450 and the appraiser, who once got the full fee, now collects only half. The rest goes to the appraisal management company.
The nerve-wracking part of the appraisal process for the applicant is waiting for the value the appraiser places on your home because that, in the largest part, determines the amount of the reverse mortgage. In addition to a physical inspection of your home, recent sale prices of comparable properties in your vicinity are used to determine the appraised value.
Comparables, according to my broker Jerry Gilmour, are nearly everything in determining the appraised value, about 80 percent.
In past economic times, home values remained relatively stable over several months and easily predictable within a few thousand dollars. To decide the asking price of my New York home five years ago, I checked sale prices over the previous two years of condominium apartments that matched as closely as possible the location, size, age and desirability of mine.
By the way, that's how I knew the housing market was beginning to tank and I should sell as quickly as possible. There had been a steady and clearly discernible decline of about five to six percent over those two years in the sale prices of my comparables. Which leads one to wonder what those hotshot masters of the universe at Wall Street banks, not to mention the Fed chairman who kept saying the housing bubble was stable, do with their time.
In our current depressed housing market, home values are continuing to drop and many people are selling, when they can, at any price to get out of underwater forward loans. Plus, there may be low-priced foreclosure sales which, my counselor Buz Zeman says, is an unclear factor in reverse mortgage value determinations.
Jerry says foreclosures and short sales do count, but it is a hot topic in the mortgage business with many varying opinions.
Last week, Jerry told me an appraiser would call sometime this week to make an appointment to see my home. Depending on his/her schedule, I figured it might be a week or two until then. But on Monday, “Randy” phoned to say he had a hole in his schedule and could come by that day at around noon.
He was distantly friendly, efficient and clearly experienced as he wasted no time getting started. First, he measured the exterior bounds of my apartment. Inside, I showed him all the rooms and helped hold the tape measure as he recorded the dimensions on his clipboard.
I tried a minor sales pitch on him, pointing out that all the kitchen appliances, granite countertops and cupboards; the two toilets; all the windows; the carpeting and kitchen flooring were new within the past one to three years. Randy was noncommittal. He asked if the fireplace is gas or wood burning.
My concern is that when I was looking at potential homes in April, I saw two others in this condominium complex that were priced substantially lower, but had not been upgraded or maintained nearly as well as the this one. How the appraiser would know that is the unanswered question.
Randy wanted to know the amount of the condominium homeowners' association dues and what they cover – exterior building and grounds maintenance, landscaping, water and sewer fees, trash pickup, etc. He also asked about amenities – swimming pool, assigned parking, meeting/party room, rental apartment for guests.
He took a bunch of photos, inside and out; then he was gone. At most, Randy spent 20 minutes here. He called the next day to ask about the amount of guest parking and the number on my personal parking space. Who knew such details matter.
Randy said the appraisal would be sent today, Thursday, but I suspect that is a fluid time frame. When Jerry receives it, it will be packaged with the rest of my application papers and sent to the bank. I have requested a copy of the appraisal and if the value comes in too far short of the purchase price, I will ask to speak with Randy.
I have no idea if my inspection is typical. The couple who bought my Maine home did not have it appraised.
But when I sold my Greenwich Village apartment four years ago, the buyer's appraiser spent an hour with me and was fascinating. That building is more than 200 years old and he, obviously expert in New York City building codes and practices over centuries, showed me, among other things, what parts of the interior exposed brick were original and what had been replaced - more than a hundred years before - and how he could tell.
And, he pulled out a loose, two-inch nail in the utility room ceiling that was so old – original, said the appraiser – it had been hand-forged in a square shape. I have kept it as a souvenir of that beloved home.
I'll let you know if the appraisal comes in at an amount that is satisfactory.
The TGB Reverse Mortgage Series
Part 1: One Reason For a Reverse Mortgage
Part 2: The Basics
Part 3: Finding a Lender
Part 4: Do Not Fear HECMs
Part 5: The Mandatory Counseling Session
Part 7: Lender Conditions
At The Elder Storytelling Place today, Lyn Burnstine: Memories