I was recently interviewed on a news program, on which I was asked for my learned response and advice to a highly outraged homeowner. This gentleman had purchased a home for roughly $1.5 million, near the peak of the San Francisco Bay Area housing market, circa 2007.
Having watched uber-low interest rates come and, most recently, threaten to go, maybe for good, he decided that it was the right time — economy slightly up, income good, credit good, mortgage soon to adjust, and rates still very, very low, though on the rise — to take his lender up on its frequently mailed offers to refinance his mortgage for free.
The lender deemed him to be highly creditworthy but, alas, his home appraised at right under $1 million — more than $500,000 below what he paid for it a few years ago.
This appraisal caused this homeowner no end of outrage, as you might expect. And in this way, he was no different from so many other homeowners across the country who have tried to refinance or, what's worse, to sell their homes and had their application rejected or their transaction threatened (or even killed) by a low appraisal.
As we all know by now, in real estate a home is worth only what someone is willing to pay for it. So, appraisers' opinions of value are based on what a real buyer actually paid for similar, nearby homes that sold recently (comparable sales, or "comps" for short).
This particular gentleman differed from the average homeowner in that he was a physician, a scientist of sorts. So he had gone online, pulled his own "comps" and run his own spreadsheet analyzing what the home's value should have been (he thought).