October 5, 2011 (Chris Moore)
Real estate appraisers from across the country are feeling the heat from real estate agents, home builders, home sellers and buyers as an ever increasing amount of home purchases are cancelled due to low appraisals.
According to the National Association of Realtors (NAR), 18 percent of the home purchase contracts in August fell through due to lenders rejecting loan applications or because appraisals came in lower than expected. That was up from 16 percent posted the previous three months and twice what was posted a year ago.
Almost 11 percent of real estate professionals report that they have had a contract cancelled in the previous three months due to low appraisals that had botched a deal.
When an appraisal in a real estate purchase comes in too low, in order to complete the transaction the buyer must come up with more cash or the seller has to lower their price, or a combination of both.
In the mind of the buyer, when the appraisal comes in too low, they begin to doubt the value of the home they are purchasing. Sellers, of course, have a tendency to believe that the appraisal was flawed.
Appraisers argue that many people don’t realize how much the value of their homes have dropped since the housing crisis began and that appraisals have become far more challenging due to fewer sales that are available to use as comparables and to the high number of distressed properties that bring down home values.
Distressed properties typically sell for as much as 30 percent less than non-distressed properties and can have a profound effect on the value of homes in a neighborhood.
In cities like Las Vegas, Detroit and the Riverside/San Bernardino area in California, distressed property sales account for between 40 and 50 percent of all sales which has led to some of the largest price decline in the U.S. since the beginning of the housing crisis. Since such a large percentage of distressed homes are sold in these areas, appraisals tend to be significantly impacted by the discounted prices.
Whereas in cities like Rochester, Boston and Pittsburgh where the percentage of distressed properties is in the single digits, appraisals tend to feel less of an impact by the significantly fewer amount of distressed home sales.
“Appraisers were blamed for the run-up of the market when prices were high, and now they’re being blamed because prices are low,” says Ken Chitester, a spokesman for the Appraisal Institute. “Both can’t be true. Appraisers are doing the same thorough research and thoughtful analysis that they’ve always conducted. So, in short, don’t shoot the messenger.”
Tags: appraisers, appraisals, home values, real estate agents, NAR, lenders, loan applications, housing crisis, distressed properties