More real estate agents are reporting deals that stall due to low appraisals
A homebuyer may have to put several houses under contract before actually closing on one. Welcome to the new housing market, where contract price and appraised value do not always match.
Low appraised values are causing many deals to falter, according to a recent survey by the National Association of Realtors.
“In the past week, I haven’t talked to a single agent or buyer who hasn’t lost a house or two over an appraisal,” says Debbie Deeb, a St. Petersburg, Fla., agent at Prudential Tropical Realty. She says in her 20 years of experience, this is the most out of sync she has ever witnessed the market.
“There are a bunch of outside influences that affect the appraisal business to the detriment of the buyers and sellers,” says Frank Gregoire, former chairman of the National Association of Realtors appraisal committee.
For one, appraisers are being asked to work faster for less money. Gregoire says the appraisers he knows who had been in the business for 15 to 20 years are no longer working in the mortgage loan business, because it’s not very lucrative. Buyers are typically charged $350 to $400 for an appraisal, and the appraiser is paid a percentage of that.
Deeb says she believes this disparity is a result of housing industry reform measures that
led to Home Valuation Code of Conduct, which is meant to prevent lenders from pressuring appraisers to meet contract price.
Also, appraisal management companies have cornered the appraisal market. These third-party firms are hired by the banks to assign random appraisers for each mortgage application that becomes a contract.
Inexperienced appraisers may sometimes overlook the unique features that compel buyers to make an offer.
For instance, many appraisers do not take views into consideration. They may overlook a basement bedroom, original millwork, luxury window treatments, imported tile, custom lighting or energy-efficient insulation, to name a few. “There’s value in all those things,” says Leon Sarkisian, a real estate agent with Prudential Tropical Realty in Seminole, Fla., and these are all factors that a buyer would use to decide between one property or another.
If a buyer is using FHA financing and the appraisal comes in below contract price, the appraisal sticks to the property for six months and the seller might choose to take the home off the market.
Points of Contention
Real estate industry experts disagree about both the causes and effects of low appraisals –and if they are having much effect at all.
“If someone is putting enough money down, frequently, it’s not a problem,” says Alice Palmisano, a certified appraiser in New York City. “Appraisers do not have the power to totally retard the market recovery.”
Still, while 65 percent of Realtors surveyed by the association reported no contract problems related to appraisals, 11 percent said a contract was cancelled because the appraisal came in too low, another nine percent said the contract was delayed and 15 percent said they renegotiated the deal.
Walter Molony, economic issues media manager at the National Association of Realtors, says that homes are sometimes selling below construction replacement cost. He believes low appraisals are not reflecting the market, because “market value is what a buyer and seller are willing to agree to.”
The Appraisal Institute disagrees. According to a statement titled, “Don’t Shoot the Messenger, Appraisers Not at Fault for Low Home Values,” the Chicago-based Appraisal Institute compared appraisers to mirrors reflecting the market.
“Buyers and sellers often have emotional value attached to a home or are unaware of the market,” reads the prepared statement. “They shouldn’t assume an appraisal is somehow wrong if it doesn’t match the listing or contract price. There’s no reason to assume the contract price is correct simply because it’s higher than the appraisal.”