Appraiser Cheryl Acropolis agrees. The owner of Premium Appraisal Services LLC, although an independent, also contracts with two AMCs. However, she observes her own geo-boundaries. Even though she has always lived in Monmouth and Ocean counties, and is a 13-year veteran of the business, Acropolis would do extra research before assessing values as close as nearby Middlesex County.
“A few blocks within a neighborhood can change everything completely,” she says. On one report Acropolis saw, the appraiser had omitted the presence of a large drug store on the lot behind the home’s backyard. “It probably made a $75,000 to $100,000 difference in value,” she says.
To save appraisal fees, lenders also may use “broker price opinions” or BPOs, cautions Acropolis and others. Guidelines vary from state to state, but BPOs are usually drive-bys and can be as cheap as $75, which accounts for their popularity in short sales and foreclosures. The NCRC blames BPOs for artificially deflating property values and depressing municipal tax revenues.
Some AMCs and lenders rely on automated valuation models (AVMs), which draw data from multiple listings, court records and other documents, instead of or in addition to professionals doing on-the-scene home inspections. AVMs are “only as good as the data culled from databases,” warns Marty Wixted, president of Universal Real Estate Services Inc., an AMC in Clifton Heights, Pa. “AVMs today are more often used for refinancings than new home purchases,” says Wixted. (The Campbells’ lender did not use an AMC or an AVM.) “You should never hear that a $400,000 property going for a $300,000 loan was denied because of an AVM,” cautions Wixted, who doesn’t use AVMs or mortgage purchaser Freddie Mac’s Home Value Explorer (HVE) report (an AVM said to generate property values in seconds). Fannie Mae, however, won’t allow AVMs to be used by appraisers, a spokesperson confirms. Says Wixted: “A certified individual [appraiser] trumps all other options.”
A final shock for borrowers may come with the lender’s “commitment” letter, if they’ve mistaken the “initial interest rate” contained in early communications like the good faith estimate, for that final rate. “Borrowers get initial disclosures that are based on the rate at that time for the program they selected,” explains Leo O’Donnell, vice president of lending for First Atlantic Federal Credit Union in Eatontown, N.J. “No one knows what rates will do in the coming weeks before approval,” he reasons. “If the loan is being sold to the secondary market, which is mostly Fannie or Freddie, the lender may be asked for additional fees or contingencies—known as loan-level pricing adjustments or LLPAs,” revised in 2009, which flow down to the borrower. Until this underwriting is finished, lenders don’t know the rate and fees they can charge, he says.
That’s the rub. The final numbers become clear at the end. By then, jumping ship can cost money. Some lenders will refund the lock-in fee at closing. Borrowers who cancel can lose that refund, along with the application, credit report and appraisal fees, etc. The Campbells’ potential lender waived some of these fees.