As a home buyer, you expect that the lending process, i.e., the mortgage process, will protect you from a bad deal. You could not be more wrong. Of course, that is not surpsing today, given the near meltdown of our entire economy arising from the sub-prime mortgage fiasco.
But you might feel removed from the excesses of the sub-prime world. After all, your mortgage was prime and not sub-prime - so the people you did business with were looking out for you. You better sit down.
Remember when the Earnest Money Contract was completed. They took your thousands of dollars and deposited in an "escrow" account. Just the word "Escrow Account" conjures up a sense of security. The system must be protecting you. Not exactly.
You see, one of the first things that is done after you are approved for a loan to buy the house is the appraisal. You probably thought (and still think) that the appraisal is some kind of disinterested, neutral process where the real and genuine value of the house is revealed. If this impartial, non-aligned evaluation is too low, you won't get the necessary funding and you will no longer be obligated to buy the house. You will get your earnest money back and start looking for a house that has the value you are offering. Sounds good. If only it were true.
You see, the appraisal process is inherently corrupt. The appraiser is not disinterested or impartial, except maybe in some rare occasion. The reality is that the appraiser is almost universally told at the time the request for appraisal is made what you have offered for the price. And the game from there is to see whether the price is justified, not what the house is actually worth.
Appraisals of residential properties are based on the comparable sales of other properties of like kind and quality. Therefore, the fact that there is a house, yours, being sold for the price you are paying for it is some evidence of what a house like yours, or in this case, yours, is worth. It is almost an endless circle of comparable values with only the most obvious dilapidated house not meeting the contract price.
So when you bought your house and recieved word that your appraisal came in a few thousand more than the price you offered, you thought you were pretty smart. You still are, but now you're just a little bit smarter. Next week, what you can do to legitimize your appraisal and the process.