As published in Scotsman Guide's Residential Edition, February 2009.
Good mortgage brokers look for opportunities to save their borrowers money. Often, this means calling qualified clients during periods of low interest rates to discuss refinancing opportunities.
During this process, however, brokers might find that clients' homes appraise below the values they require. When this happens, mortgage brokers can look for alternative solutions, including using the income approach to home valuation.
Issues with comps
In some cases, a client will have completed home additions or other improvements that are overlooked by online or automated appraisal services, the type you might use to get an initial idea of the home's value. To learn about these home improvements, however, brokers must talk to their clients, many of whom don't realize the importance of bringing up such things on their own.
If ordering an up-to-date appraisal brings the home's value where it needs to be, that's wonderful. If not, however, more steps might be in order.
In some cases, it might be appropriate to take a closer look at the most-recent appraisal. Brokers can ask these questions about the comparable properties used in the report:
Did banks sell them?
Did they include home improvements?
Were they owner-occupied or rentals?
While comparing homes to one another is important, appraisals that rely on this method of valuation too heavily can be flawed and can amplify upward and downward sales cycles. Often, as few as three homes can drive an entire neighborhood's values, including those homes that aren't even on the market.
Behind the income approach
Brokers who feel that comparable-property appraisals distort clients' home values might want to consider promoting an income-based valuation method instead. In so doing, they might help clients escape difficult situations and lead themselves to more closed loans.
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