If you are getting a mortgage from a bank (or refinancing), said bank will order an appraisal to confirm that they're down to fund the purchase price on the property. Appraisers are separate individuals who go into a house/apartment and compare it to "comps" in the area to come up with what they think is the "market value." This value determines how much the bank will lend. For example, if a home is in contract for $1m but the appraisal comes in at $800k, the bank will only lend on an $800k purchase.
The issue is that, while there are certain market data truths, an appraisal is subjective. And some appraisers are, in technical terms, dumb c*nts. I love having a 60 year old man from Schenectady tell me he knows the UES one bed market better than I do, when I'm the one who literally just found a buyer for the apartment (and the second appraisal came in at ask, so suck it!). And some banks, allegedly, intentionally offer buyers low rates but then give low appraisals. That way they can woo buyers with these "great products" but then screw them on the back end. And make my life hell for like basically no reason.
OF COURSE there are situations where the purchase price is above what the lender can justify, and they shouldn't lend the full amount. This is common in either a bubble (NOT currently NYC) or a rising market (currently NYC). There is, however, a difference between protecting a bank from too risky a loan and actively f*cking a new family. And when we are in a market like today, where you basically have to waive your financing contingency to win a bidding war, the appraisal has way too much power. Shit is arbitrary.
But you don't have to take my word for it! Exposes have shown that appraisers will give a lower price to a home with pictures of a Black family than a white family. You can get two banks to do two appraisals on the same property on the same day and get vastly different prices. And any good mortgage provider will tell you that appraisers are the luck of the draw. So it's wild to me that we put so much stock/faith in something so obviously not set in stone.
Why do you care though?
Because racist people who suck at their job acting as gatekeepers and stopping people from buying homes is so annoyingly American and I am so tired. Appraisers are not unbiased people and they have the ability to singlehandedly stop a purchase through these biases. Since home ownership is one of the best ways to build generational wealth in this country, it can be a form of structural racism that continues to perpetuate a HUGE wealth gap.
And I recently found out through unfortunate lived experience that if you "appeal" an appraisal, it isn't an actual appeal. At least in our case, all they did was send our appeal to THE SAME APPRAISER to be like "what do you think?" Can you imagine if you were submitting a legal appeal and the original judge was the one who got to decide whether his ruling was correct or not? Think he'd ever say "oh lol my bad no you're right"? No, he wouldn't.
And also, after the predatory lending that banks engaged in prior to the 2008 crash, I hate that we are worried about "protecting them" if the buyer is financially sound. Like I get it -- don't mansplain my job to me -- but a home is kinnnnddaaa worth what someone will pay for it. It's not worth what John from Albany thinks it's worth on a day that he was cranky.
Obviously it's complicated and banks shouldn't just lend whatever amount with no due diligence, but we need to make changes. First steps?
1. Every bank does two appraisals per loan to counteract individual bias.
2. Appraisers have to take anti-bias training and are occasionally audited by a government body.
3/4. Make appraisals themselves more regulated with the adjustments/criteria and make appeals actual appeals, where a third party group (can still be at the same bank) reviews it, rather than the original appraiser.
Like that's just basic 101 shit. You're welcome.