Value Roulette
The entire loan process is dependent upon a property's value, and as such, one of the first things a mortgage broker or bank will generally ask a borrower for is a list of their assets. This includes the real estate that is going to be used as collateral, along with its Current Market Value. Unfortunately, the best estimate that most owners usually have is the Assessed Value from the County Assessor, which accompanies each year's tax bill. Since these values, for a variety of reasons, are typically below Current Market Value most home owners and loan officers rely on a wild guess or a freebee online consumer grade valuation product and entire process moves forward on a "Guestimated Value."
Typically, most lenders prefer to fund real estate purchases because everything is neatly spelled out in the purchase and sale agreement, including a fixed value and down payment, and there is no guessing where to begin. Unfortunately, this process becomes more difficult in cases of refinancing, as the value expectations are not based upon a fixed value, but rather the borrower's needs. It even gets more complicated when the borrower has recent reference points upon which they have based their expectations. They could be based upon other sales they think they know about in their neighborhood, active real estate listings or even rumors of market values from homeowners in the area who have recently financed or had an appraisal completed.
The loan submission process typically takes about eight hours of client interface, data and documentation collection and paperwork preparation for the average loan officer. Sad to say, it is often through this interaction and long before the appraisal assignment is even ordered, that the "magic number" and expectations are established.
Anyone should be able to recognize the problems associated with this uninformed approach, whether as a seller, buyer, borrower and taxpayer because everyone's time and expectations are based upon the gamble wheel of Value Roulette. ("round and round and round it goes . . . where it lands nobody knows")
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Valuable Secrets
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