Your House May Be Overvalued and You Might Pay for It
Whether you’re looking to buy a house or refinance, at some point you’ll need to have the property appraised, so that you know how much can be financed using the property as collateral. There can be a tendency, when the appraisal comes in higher than you expected, to decide to finance more, so that you can do some remodeling or pay off some other bills. You need to be careful, though, that the appraisal doesn’t misstate the value of your property, putting you underwater when it comes time to sell.
Appraisal fraud is not uncommon in the mortgage industry. Unfortunately, because of the way the mortgage business works, there’s an incentive for appraisers to “tweak” the numbers, almost always up. Here’s how it works:
- When you contact a lender to finance or refinance your home, you’ll typically get a “good faith” estimate for the amount of the loan, based on purchase price or what you plan to do with the refinance proceeds
- Your lender will hire an appraiser to estimate a fair market value for the property
- Because there are many appraisers competing for work with lenders, there’s an incentive for the appraiser to find a way to meet or exceed the good faith estimate.
Of course, there is a down side for lenders as well. If the appraisal overstates the value of the property and the lender makes a larger loan, the lender could end up on the short side of the deal if the property goes into foreclosure. However, most mortgage lenders sell their mortgages, so they don’t end up facing those types of problems.
As a practical matter, it may be in your best interests to get an independent appraisal, so that you have a realistic sense of what the property is worth.
Contact Attorney David J. Karbasian
Contact our office online or call us at 856-667-4666 / 856-600-HURT to schedule an appointment. Your first consultation is without cost or obligation. The sooner you call, the sooner you can move forward with your claim. We can accommodate evening or weekend meeting requests and will come to your home, if necessary.
