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Reverse Mortgage: Appraisal Process Aimed at Suburbia


This is the second in a series of investigative stories about the reverse mortgage process in the United States. Since it is based on personal experience it necessarily contains some personal details which illustrate problems others are likely to encounter.

A reverse mortgage lets older Americans take the equity out of their homes while retaining ownership. The lender doesn't get paid until you no longer live in the home. You can even leave the property to your heirs although they will have to pay off the loan.

The amount you receive depends on only two factors, your age and the equity you have (value of your home minus any leans such as taxes or mortgage).

The value is determined by an appraisal.

The appraisal process

If you live in the country or a really small town then you face major obstacles because of one simple fact - although they are supposed to be independent professionals able to evaluate your property's true market value, when possible, appraisers actually do little more than inspect your home to determine its condition and precise description.

Then they rely almost entirely on comparing your home to "comps" or comparable prices for recently sold homes near your home.

That sounds fine until you consider whether there ARE any homes comparable to yours nearby and, if so, HAVE ANY OF THEM SOLD at or near full value in the past year?

If you can't answer yes to both those questions and your home is anything but a standard box on a lot, then the appraisal will be mostly a matter of guesswork which could be off by tens of thousands of dollars.

Since the client is normally a bank (backed by a government guarantee), you could guess that the estimated value might be conservative rather than otherwise.

This is made all the worse because of the housing crisis. Homes in cities and suburbia have mostly plunged in value because they were inflated by the housing bubble during the naughty naughties (00-07).

This bubble mentality influences banks' thinking when it comes to home values - especially when there are no "comps" to work with.

But that housing bubble never happened here in rural west central Pennsylvania or in most small towns - in fact, recent exploitation of the Marcellus natural gas field actually increased property values here by thousands of dollars per acre.

What happened to me was simple and it happens to others.

There are no comparable homes within a dozen miles or more which have sold in a decade - there are fairly similar homes, certainly with comparable features and size, but they are still occupied by the original owners.

Details of the appraisal process based on both my experience and on research will be covered in the next of this investigative series.

This is the second of a series of investigative reports on the reverse mortgage process, later stories will look in detail at the use of brokers, just what a reverse mortgage is, and define many of the terms used such as HECM (Home Equity Conversion Mortgage - the technical term for most reverse mortgages).

Look for future parts of this series either by searching at or going directly to my Newsblaze home page:

John McCormick is a reporter, /science/medical columnist and finance and social commentator, with 17,000+ bylined stories. Contact John through NewsBlaze.

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