A for sale sign hung in front of a Homestead, Fla., home in March. Some real estate agents complain that unfairly low appraisals are scotching deals to buy homes.
(J. Pat Carter/AP/File)Photos (1 of 1)
Are low appraisals slowing US home sales?
By Laurent Belsie | 06.23.09
If it’s a buyer’s market in real estate, how come so many Americans are having trouble closing on a home?
One big factor is appraisals. Under tough new rules instituted in May, estimates of home values are coming in so low that deals are falling through. Often, sellers aren’t willing to sell for such prices. Even when sellers and buyers do settle on a price, appraisals sometimes come in too low to support the value and lenders won’t finance the deal.
“There’s definitely a groundswell of frustration that’s building right now,” said Lawrence Yun, chief economist of the National Association of Realtors, in a telephone interview. In the past month, the NAR has received hundreds of calls and many more emails from agents who have had appraisals torpedo deals. “We don’t know if this is a major issue or a minor bump. But … this is just highly unusual the level of [complaints] that we are receiving.”
Individuals are also seeing appraisal-related problems.
“Everybody says it’s just a great buyer’s market,” said Katie Callow-Wright, associate dean of students at the University of Chicago, in a telephone interview. But “the negotiating and the process is much more arduous than I expected.”
Since March, she and her husband have looked at more than 70 homes in the Chicago suburbs of Oak Park and La Grange and put down offers on six. The first five deals fell through, in most cases because the sellers wouldn’t reduce their price below what they bought the properties for a few years ago. The sixth one is under contract and the home inspection took place Tuesday.
Three of Ms. Callow-Wright’s friends have had deals fall through because the appraisals came in too low. Will that happen to her and her husband’s current offer? “We really hope not because we’re dying to get in a house,” she said.
The biggest factor behind the stingier appraisals is falling real estate prices, appraisers counter.
“We’re seeing this because of the circumstances in the market today,” said Bill Garber, director of government and external relations at the Appraisal Institute, in a telephone interview. The new rules may be having their intended effect of producing more honest valuations, he adds. “How does a consumer benefit from being upside down on their house on the very first day?”
The rules, known as the Home Valuation Code of Conduct, are intended to insulate appraisers from being pressured by real estate agents or mortgage brokers to come up with a valuation that will clinch the sale. With these rules, mortgage-backer Freddie Mac, the Federal Housing Finance Agency, and the New York State attorney general were aiming to protect consumers from unfairly high appraisals, which were a problem during the housing bubble.
While it supports the new rules, the Appraisal Institute is concerned that they reward the cheapest and/or fastest appraisers rather than necessarily the most accurate ones, Mr. Garber said. Many lenders are outsourcing the business to appraisal management companies, who sometimes hire appraisers unfamiliar with a local area because they work for less or can quickly turn around the job.
Until home prices stabilize, as they are showing signs of doing, such problems may continue.
“We have six weeks to get this all figured out,” Callow-Wright said. Otherwise, she adds, she and her husband and two children will keep renting the university housing they now have.
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Comments
2. James Ebert | 06.26.09
These days I am teaching realtors how to re-apply their skills to the current marketplace, for their very survival. For the past month, I have been sharing my expertise and appraisal point of view to weekly agents’ office meetings, and sharing my “tools” for them to use. The plan is reciprocal, if we can assist the agents trying to help families purchase a new home, then this will create more comparables that can then be used by all appraisers, while valuing the next property.
Watching the banking industry in transition is like driving over a road under construction. We have to drive around those potholes, and watch out for gravel that is getting thrown around, injuring a lot of travelers, and causing a lot of peripheral damage.”
My simplified system of five main steps for realtors and agents helps them to take a pro-active approach to this market. They are used to working hard at the front end, marketing the home. They are not used to having to carefully shepherd the mortgage process as well. Now, if they want to close the sale, they need to add these tools to their toolbelt. These days, they are often saddled with having to use an out-of-area appraiser carelessly send by the appraisal management company.
These appraisers should be refusing to accept these orders, based on the appraisal USPAP concept of “Geographic Competence”. But they are too desperate, only making 50% of their normal fees from a year ago. Some agents sometimes refuse to allow these appraisers access to the property, but often you cannot tell ahead of time. My system provides a form of insurance. Its not 100% effective, but I can assure you it will result in over 50% more closings in these difficult times.
To download a .pdf copy of these five steps, go to the Ebert Appraisal Service website at http://www.eas2.org, and click on the bottom “5 Tips”.
3. M Struck | 07.01.09
Most major banks are ordering appraisals through AMC’s. Most experienced appraisers will not work for the cut-rate appraisal fees that the AMCs are offering. Appraisers that do work for AMCs at substantially reduced rates are cutting corners, traveling to unfamiliar areas and working long hours to make up for the loss in revenue. Its time that the public become educated on how AMCs are killing deals, not GOOD appraisers.
4. G Wynn | 10.14.09
AMC’s are fighting each other to gain market share, at the cost of the Appraisers’ and the entire Appraisal Industry. 9 out of 10 appraisal management companies are paying 1/2 of what Appraiser where receiving prior to the implementation of HVCC. Many Appraisers’ have no choice but to accept these ridiculous fees ($180-$230, meanwhile the AMC’s are putting the other 40 or more percent of the appraisal fee in there own pockets), and are only hoping that the situation will eventually correct itself. This is an unrealistic expectation. None of the Appraisers who are accepting these assignments can expect to be in business for very long, they’re only postponing the inevitable, which will be changing careers, or bankruptcy.
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1. Richard Bontadelli | 06.26.09
Not all markets are in trouble ! We here in Cedar City Utah are still closing transactions. There are exceptional bargins and that is not bad. Sunrise Meadows phase 3 is a right place at the right time excellent investment .