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.

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.