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Q&A: Problems with appraisals

Q: I was just told that the house we want to buy didn’t pass the bank’s appraisal. We have good credit and steady jobs. Why are the banks being so difficult? Is there anything we can do to change the bank’s mind?

A: Even though it’s a buyer’s market, lending standards are stricter than ever. The appraisal can make or break the bank’s decision because the house must be appraised for more than what the buyer is seeking to borrow. “During the 'go-go' years of 2003-2008, many financial institutions lost their discipline and often lent 90- to 100 percent of the appraised value," says Michael Vittorio, president of First National Bank of Long Island in Glen Head. "They also hired appraisers who were too liberal and irresponsible.” Vittorio notes that banks are required by regulation to use an appraiser and then they must hire an independent appraisal reviewer to give that appraisal a second look. “Thankfully, most financial institutions have gone back to a traditional formula of lending at 70- to 75 percent of the appraised value,” continues Vittorio. “But I’m still concerned that many have short-term corporate memory and are foolishly increasing their lending back to 80- to 95 percent. That’s how the whole financial debacle started."

“You have the option of putting more skin in the game -- come up with more cash to assure the bank that you won’t walk away from the loan and hand them back the keys,” advises Vittorio.

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