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Appraisals slow housing recovery

By Judy Martel · Bankrate.com
Monday, November 7, 2011
Posted: 5 pm ET

Here's another factor working against the housing market recovery : appraisals. Real-estate professionals say that the results of home appraisals are increasingly stalling or preventing sales.

Fewer than 10 percent of realtors blamed appraisals for killing or delaying a deal prior to 2009, according to the National Association of Realtors. But in 2010, 29 percent of them said it was the cause and through September of this year, a third of them said so.

The culprit seems to be a combination of more thorough appraisals required by lenders to determine a home's value and a housing market that makes it difficult to find homes that are comparable. When the market was more stable, appraisers could compare values with as few as three homes in the area, but now lenders are requiring many more comparisons, which appraisers say makes it harder to find similar properties to compare.

The appraisal is important for buyers because mortgages are typically offered for an amount up to 80 percent of the appraised value of the home. A lower appraisal means a smaller mortgage. For sellers, the appraisal could delay the sale and send them back to the negotiating table if their price is above the appraised value. Often, the buyers and sellers will meet in the middle when it comes to the difference between the selling price and the appraised value in order to get the deal done.

What has been your experience with appraisals?

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9 Comments
Marion
November 17, 2011 at 5:32 pm

My husband is an appraiser. He will not work for an AMC because of the low fee schedule and the emphasis on time rather than quality and accuracy. In our experience lenders are demanding more and more. This lengthens the time required to perform an appraisal, but the AMCs want it in a day. We are caught between opposing forces. He has chosen NOT to participate.

I do not understand the comments from people who say they have no recourse if they have a disagreement with the appraisal. On a private appraisal, my husband is always willing to listen to and review any information the person wishes to offer. One of the lenders we work with has a procedure in place for people who wish to dispute the appraisal and he looks over the submitted information and makes changes when warranted.

He also sits down with a homeowner and asks questions about the property, for instance, improvements that may not be immediately obvious.

Lenders make their own rules.

Chucky
November 14, 2011 at 11:14 am

Apprasial killing my business and costing me money. After paying
for an apprasial for a HUD as is property BOA refused to finance the property unless HUD fixed items needing repairs listed on the apprasial. HUD does not fix properties that are sold as is and the buyer is not allowed to make the repairs either. Investors are required to pay 20% down and do not qualify for the other homeowner programs that allow for repairs. I lost apprasial cost and 1000.00 dollar binder fee.

Steve Smith
November 11, 2011 at 11:51 am

Maybe there should be a law passed, banning all appraisals in Sale or Refi transactions, since everyone knows they are not really needed, and are pretty much useless, more times than not, just hit jobs trying to hit the sales price, no matter how much pack is in it, or how much in concessions or how uninformed the buyer might be, etc.

What about those situations where a buyer has been shown all of the over priced listings and picked one to make an offer on, checking the Appraisal Contingency Box in the misguided assumption that if it is not worth the Sales Price the appraiser will say so?

Thanks to Soderburg vs. McKinney in 1996 {Cal Appt} and thanks to the FNMA Certification 23, circa 2007; the door to privity opened wide to allow buyers to sue appraisers if they relied upon their value and then later find out the property was NOT worth the Sales Price.

Market Value as defined in an appraisal is Not the same as Sales Price. It is a measured value which presumes that the appraiser did real due diligence in their Scope of Work in identifying and selecting relevant sales for comparison, that they Verified the sales to make sure they were bonified or arms-length, find out the motivations involved, any personal property, etc.

Once all of this has been done for each sale relied upon, appropriate adjustments need to be made.

Adjustments, by definition in the Market Approach are supposed to be market derived.

Appraisers are being forced to work for fees lower than what they were being paid in the early 1980's and asked to deliver fast reports.

The result is that there is no time or fee for any due diligence, or for the development of market derived adjustments.

As a result, reports are being generated with the sales that are the fasted to come by that look good on paper, then they are adjusted by an automatic forms program function. Adjustments for the various line items are often the same for every property in every type of location, every quality, age and size range, etc, etc.

Using mechanical adjustments makes the whole process speed up.

Those appraisers who reuse to play the game, are largely out of business if all they do is lender work for a living.

Sadly, the whole AMC ordering made a bad situation worse. Now they can do what they do to make their messily $175-$250 with impunity, as there are few willing to do the work to begin with.

The best appraisers will not work at the AMC fee level, and they have enough work that they can't actually deliver a new report in a day or two. Most professionals that I know have a queue of a week or two to start a new assignment.

Sharky
November 08, 2011 at 5:03 pm

It is NOT appraisals that are "stalling," or more succinctly stated "throttling," the housing market- the houses are worth what people are willing (and can afford) to pay for them. Nope. The real culprit is the overabundance of inventory driving prices down. As for deals that are broken as a result of appraisals, well....people need to understand that the homes are ONLY NOW getting appraised for closer to what they are really worth. If only our government wasn't bought lock and key by the central banking cartel, maybe we could get current homeowners who are underwater refinanced based on realistic values as well. Of course, that isn't going to happen. The cartel gets its cake and eats it too- always has, always will.

rn
November 08, 2011 at 3:45 pm

In our case the appraisal had one little reference "Functional Obsolescence" and Chase refused to finance the mortgage. The appraisal came in at the sale price, so I would have expected the bank to have some sense, as the property in question was built in 1939. I'm sure building designs have changed in 70 years, but then the dumb bank couldn't (or rather wouldn't) fathom the concept.

Clearly the problem is not with the appraisal, it is with the fools who read it and interpret it. First the banks cause a financial debacle, then they are bailed out with our money, and now they refuse to let the economy recover. No wonder I sympathize with the "Occupy Wall Street" protesters. We even closed my account with Chase, vowing never to do business with them again. I wonder what else I can do with the banks changing rules on us by lobbying Congress.

cindy
November 08, 2011 at 2:22 pm

Appraisal killing my refi as well. Lender was not happy and is trying to work out the details so I will not waste $400. However, there are things on the appraisal that do not match previous appraisals that were done, and I do not agree with. Apparently it is extremely hard to get them to change what they have done, even if you have good points to consider. I think if you have to pay for the appraisal service, you should have a period of time for adjustments to be made and negotiated. They don't spend enough time in your house to have a clue. And they certainly don't ask any questions. Why should I have to pay a fee for something and have no recourse whatsoever?

nathan
November 08, 2011 at 8:32 am

Apprasial killed my refi. 800 credit score with no debt other than the mortgage. I live in a newer development (7 yrs old) and there are very few sales in my neighborhood over the last 12 months. The appraisal used 2 houses that are 16 and 20 yrs old and one short sale my same neighborhood as comparables. So the apprasied value was $100k less than the last non-short sale in my neighborhood (13 months ago). I'm getting penalized since there are not many recent sales in my neighborhood and the surrounding area has older homes.

Mortgage agent was useful before the apprasial saying that it was not an issue if the aprasial came in low, there are programs to handle this. After the apprasial, it was a different story and I wasted $400. This is why people hate dealing with banks and mortgage companies. Don't use Pleasnt Valley Mortgage from NJ.

Wolverine
November 08, 2011 at 8:11 am

Recovery? Right.
That's not happening any time soon.