Low Appraisals Continue to Hurt Real Estate Sales



Thousands of real estate deals up and down the country continue to called off due to low appraisals which come in lower than the previously agreed-upon sales price, new surveys have revealed.

appraisers

Low appraisals continue to harm housing sales © Olivier - Fotolia.com

Last December, almost one third of professionals in the real estate industry reported experiencing a contract fall through following a low appraisal, a 9% rise from one year before.

Low appraisals, together with mortgage application denials, have been identified by numerous housing industry groups as the biggest reason for transactions falling through at the last minute, reports Investor’s Business Daily.

Experts have argued that many of the low appraisals are unfair, due to the fact that foreclosure sales, which often involve big discounts, are factored into the appraiser’s calculations when valuing a property.

Bob Nielsen, Chairman of the National Association of Home Builders, has said that by using foreclosure and distressed home sales as comparables when performing appraisals is “needlessly driving down property prices”, and totally inappropriate.

Nielsen’s comments follow reports that more than 60% of builders in the US are experiencing problems due to appraisals valuing new builds below the agreed contract sales price.

In a statement at the end of last year, Neilsen claimed that not only are the low appraisals unreasonable and unfair, but they are also perpetuating the vicious cycle of declining property prices.

As a result, “it drives more homeowners underwater, harms economic activity and gets in the way of the housing market’s recovery,” explained Nielsen.

But while Nielsen may have a point, other experts say that many other factors are conspiring to hold back the housing market besides low appraisals. One of the biggest of these is the current strict lending environment.

As NAR spokesman Walt Molony puts it, sales would probably increase by around 15% to 20% from where they are now if we could return to normal credit standards – such as verification of income and inspection of a person’s creditworthiness – instead of arbitrarily rejecting hundreds of mortgage applications based on their low credit score.

Comments

  1. The issues with appraisals are really nothing new. Just before the market tanked, appraisals were much higher than the actual selling prices we ultimately received. Today, if a local market is actually seeing buy prices that are higher than appraisals, it merely points to the fact that because of the way appraisal works, there is always a lag time between the market change, and the time it takes the appraisal process to catch up with it. Appraisers don’t “help” or “hurt” the market. Their job is merely to evaluate it. But that being said, the appraisal window is presently about 9 months. So what I call “Real Time Market Value” often is an early indicator of where your local market is headed. That appraisals will eventually catch up.

  2. Before anyone goes bashing the appraiser again, why don’t you have it reviewed by one of their peers within the same market. In most cases bank-owned homes should not be used as comparable sales. Any competent appraiser is aware of discounted sale price. Rather than continue to bash us, bite the bullet and pay to have it reviewed.
    We do not intentionally “low ball” appraisals. We don’t make up the sales. If an appraisal comes in below sale price we are well aware of the ramifications from lender, seller, buyer, listing agent and selling agent.

  3. As an appraiser, when I see that headline my first thought is..how does he know the appraisals are “low”,
    did he do an appraisal, review an appraisal? do any research? is he expressing his opinion, and if so, what is it based on?

    • Mike Wheatley says:

      Of course, all such things are a matter of opinion. I don’t think anyone is blaming appraisers, who are bound by certain metrics when doing their calculations, but there is certainly a lot of people who feel the same way, that appraisals are ‘low’.

      Anyway, thanks for your comments!

      Mike

    • I know of numerous contracts that have fallen through due to low appraisals. Some appraisals have mistakes in them (incorrect information), and others are taking into account sales that were made at a low price because the person needed to get out of the home due to financial reasons. It is hurting people’s ability to sell their homes, and it is driving down the market. From my experience, it is a huge problem. To the point where I feel anger toward the appraisers I have worked with. The housing market does not have a chance at recovering under the current system, and people are losing the equity (and more) as a result.

    • Gravity Bob says:

      Al,

      I’ll tell you one obvious way we know that the appraisals are low. When we have multiple offers all for more than the appraised amount. That happens to me all the time now. And it’s the appraisal that is off base. Not the savvy investors who see an opportunity and line up for the chance to move on it.