Free Comp checks

<<>> Free comp checks are a short name for comparable sales check. Other names for free comp checks are Real estate value checks, Comparable home sales, and value check

This used to be an industry standard (but it was not legal) for many loan officers and lending institutions. Basically, here’s how this old system worked. The home owner will call the loan officer and explain their situation. They would like to refinance their home and use the extra money to pay down their high interest credit card debt, that new boat or simply get a better interest rate.

Next, the loan officer tries to figure out what the borrower will need to make the loan work. In order to do this, the loan officer will call several real estate appraisers in the area and get free comp checks to figure out a value range for the borrower’s home. In many cases, the appraiser will tell the loan officers the exact value that they can appraise the home for before they’ve seen the home. In these cases, the loan officer would simply select the appraiser with the highest appraisal value (highest bid).

If the home is in average to good condition, this is usually, okay, as many times this will set the market value. But what if the appraiser gets to the home and the home is different than what they had thought? What if the home lacks a bedroom? What if the home offers a different heat source and the quality of the home was inferior to the comparable sales used in the initial free comp checks?

The appraiser has to make a choice. He can call the loan officer and tell them the situation and cancel the appraisal. In this case, the appraiser will not get paid for any time that they’ve used to pull comparable sales or to drive to the subject to inspect the home. They can write the appraisal for the real value, however if they’ve already promised a value, this is not good business practices. Or they can lie about the value of the home.

In many cases, the appraiser would lie about the value of the home. This way the loan officer will be happy and send the appraiser more appraisal work. The appraiser will be happy because they are getting new work and they will get paid for the work that they’ve completed. The home owner will be happy (short term) because they can make their deal work. And the loan officer will be happy, because he will be paid his commission check for making the deal work.

Free comp checks was the old way to see if you should proceed with your loan. And I’m sure you can see why this method has been changed.

HVCC (Home value code of conduct)

In the new method, the appraiser does not have any contact with the loan officer and all of the appraisals are ordered by a third party. This prevents the loan officers from influencing the value of the home and will allow the appraiser to appraise the home for its true value without being punished by the loan officer.

Disadvantages for the home owner

For the home owner, the disadvantages of this new method is that the home owner will have to pay the full cost of the appraisal and other hidden fees for a deal that may not work. Many home owners will pay $400 to $800 to find out if they will be able to proceed with the loan. If the value is not supportive, they lose the money. If the value is supportive, they will proceed with the loan.

Advantaged for the home owner

The real advantage for the home owner is that they will get an honest opinion of what their home is worth. If they can’t make the deal work at what their home is worth, it is better for the home owner in the long run. Here’s why.

I see several home owners try and refinance a year later when interest rates are lower or their situations have changed and they can get a better interest rate and/or terms for the loan. However, the last time they refinanced, the value was fabricated and the home is worth significantly less than what the home was appraised for a year ago. Now one could argue that values declined down to the new value, but rest assure, the appraiser can usually see right through this argument. Now the home owner can spend money after money on new appraisals in an attempt to get the loan they need, with no prevail.

Here is the solution. Find a real estate appraiser on the internet or in the phone book. Call the appraiser direct and hire them to appraise your home. You negotiate the best price for what they can provide. Tell them the reason why you need the appraisal. In the example above, it will be to determine the value of your home to see if you should proceed with a loan.

I provide what is called a Desktop appraisal. This will usually cost $200 or less. In this appraisal, I do not go to your home. I pull information from public records and old MLS sheets. From this information, I select comparable sales and write a report and provide you with a value for your home.

Now you can see that this is about as good as a free comp check, but maybe a bit better. Do you know why? Because now you have the appraisal and you have control of the appraisal. Now you are free to shop around for your loan.

Tell them what the Desktop appraisal came in at. If they can make your deal work at this price, then, and only then, should you proceed. If not, keep shopping. The big disadvantage of this is that a new appraisal will have to be ordered from the bank (lending institution rules). As a result, the value that is derived from the Desktop appraisal may be different than the appraisal from the bank. But you know what; it’s the best you’ve got. So the next time you need a loan, order a desktop appraisal. It will save you $100’s of dollars and give you more control over the lending process.