Hat tip to daytrip for sending in this article from Reuters about the alleged appraisal problems. These people need to buck up and get a life – low appraisals are the realtors fault for not supplying enough good comps to justify the price:
When Sean McGowan signed a contract to buy a New Jersey home in November, he didn’t expect he’d still be living with his parents nearly a year later.
The deal fell through after two appraisals came in tens of thousands of dollars below the contract price, part of a wider trend of differences over property valuations that is compounding the U.S. housing crisis.
“It was very frustrating. We really wanted to move in,” said McGowan, a 31-year-old real estate lawyer.
Many housing experts say low appraisals are yet another headwind for a housing market already suffering from a plunge in prices, high unemployment and tight credit.
Lenders are forced to cap their mortgage loans at the value set by appraisers and buyers and sellers often can’t agree on how to make up the difference with an original deal price.
“It’s hard to talk about any recovery of the housing market and home prices until the appraisal issue is squared away, and that is a broad issue,” said Guy Cecala, publisher of Inside Mortgage Finance, a Maryland-based trade publication.
Sixteen percent of Realtors reported contract cancellations in July, matching June’s level, which was the highest since March 2010, when the National Association of Realtors began collecting data.
Nine percent reported contract delays due to low appraisals, and 13 percent reported a contract was renegotiated to a lower price because an appraisal came in below the original price in the last three months, the NAR said.
Appraisers in the United States have long been used to controversy for their role in the country’s housing market.
The appraisal system has been reformed in recent years to put a stop to the high estimates of property values that even appraisers admit helped inflate the housing bubble.
Many industry watchers argue the new regime has caused the pendulum to swing too far to the other side, inadvertently causing the opposite problem: artificially low appraisals.
“The industry, both from a lending perspective and appraising perspective, has gotten as outrageously conservative now as they were outrageously aggressive a few years ago,” said Rick Sharga, senior vice president of data firm RealtyTrac.
Mortgage finance agencies Freddie Mac and Fannie Mae have barred brokers and Realtors from any role in selecting appraisers since 2009. The Federal Housing Authority, which plays a key role in the U.S. housing market by insuring loans for low- and middle-income Americans, adopted a similar ban.
The three agencies together owned or insured around 90 percent of mortgages issued in the first half of the year.
As a result, 300 to 400 appraisal management companies (AMCs) have sprung up, mostly since 2009, to act as intermediaries between appraisers and lenders, according to the Appraisal Institute, an industry association.
AMCs hire contractors to provide 70 percent of residential appraisals, while the appraising arm of banks perform the rest, according to the same group.
Realtors and mortgage brokers, upset that their deals are often stymied by low valuations, say AMCs are to blame in large part for the conservative estimates. Some appraisers also resent the loss of high fees they used to receive.
“They are hiring these young guys and it’s all based on price and not expertise,” said Mike Evans, an appraiser and former president of the American Society of Appraisers, a trade organization.
“Some guy blows in from 300 miles away and grabs three comps that may not be in the right area, and leaves,” he said, using the industry jargon for comparable sales that are used to evaluate a property’s value.
“Because they don’t want the scrutiny, they don’t want to seem like they are going high, they just grab the three lowest sales” as comparables, said David Demuro, a residential appraiser in Florida.
Dennis Blanton, a Coldwell Banker realtor in Myrtle Beach, South Carolina had a buyer agree to purchase a vacation home for $77,500, before the appraisal came in at $50,000.
“It takes the wind out of the sails of the buyer,” said Blanton. He noted the appraiser used short sales — whereby home-owners are forced to sell a home often at discounts of around 20 percent discount to normal sales — for comparison. His buyer is no longer looking for homes in the area.
He noted the appraiser used short sales — whereby home-owners are forced to sell a home often at discounts of around 20 percent discount to normal sales — for comparison
Really? Forced to sell at a discount of around 20%? How does that work? You list the property, get bids, and then take 20% off the market best bid?
Sounds to me like clueless buyers are buying vacation homes in areas where they don’t know the real market value. Good thing the appraisers are there to keep them from blowing themselves (and the lenders) up.
I just got an appraisal for a refi from an AMC (I believe) appraiser (mortgage broker was referred by JtR).
Appraisal was completed same week I started my application and came in slightly above my expectations — in a slow area for comps.
There’s still plenty of lending going on if you’re not trying to fudge your valuation.
Agreed, these cooked-up stories coming out every week are more reasons why the reporting needs to improve. The low-appraisal complaining has been going on for months, and the reporters don’t question them.
The government reads this stuff and thinks they should go spend another trillion – stopppp!!!!!!!
Buyers should be happy with low appraisals, not upset. What is so wrong with getting more ammunition to lower the price?
Just walk away. Now the seller knows what they are truly up against and you will likely be able to come back with an even lower price.
Enjoy the ‘buyers market’ while it lasts, because it won’t be this way forever (even though it feels that way).
“16% report cancellations”-could be for any reason, so toss that NAR BS
“9% report delays”-So what??? and even if the used house salesman only sold two houses, that is 4.5% of houses, no?
“13% report price reductions”- again 13% may mean (who knows?) that 6% of buyers are getting a bargain!!!
I hate this NAR BS blame someone else tripe.
Jim,
Price is what you pay – value is what you got! I love the explaination of the travertine, pergraniteel and the accompanying receipts for the bells and whistles. Unless you can do matched pairs for similar houses with and without the upgrades, the lenders do not want to be stuck with an appraisers opinion that the pergraniteel is a $100,000 of added value. If you want it pay for it, linoleum and travertine have the same functionality. Schadenfreude in full effect!
I agree with clearfund. I understand the emotion of wanting everything to go smoothly, but this is actually a plus for the buyer should the appraisal go south.
Another reason to not try and time the market per se. The “V” will eventually happen. How sharp the “V” is suspect, but there will be something. Better to have a house appraised on the down than the up.
V’s don’t usually happen in the the housing market. It just moves too slow for the emotions to take over a decision. You can’t just hit a button or your computer to buy or sell. You have to go though a multi-month process so fears don’t influence the decision as much. The housing market might slowly rise, it might stay flat or it might drift down, but it will probably be decades before we see 10% gains YoY on a consistent basis.
There isn’t going to be another housing bubble for a long time, pick something else to speculate in, or be disappointed.
In lower cost areas where buyer’s are armed with their pre-approved FHA/VA/USDA 97-100LTV loans the “low apprasial” is the deal killer for both buyer and seller.
This type of buyer does not have cash to pay for concessions or price difference.
As far as the comment regarding upgrades, many of the homes of the “free rent” squatters are now coming to market with some nice upgrades.
We want ACCURATE appraisals, that’s all. Value is what a ready, willing and able buyer is willing to pay. Appraised value should be what ready, willing and able buyers have paid recently for a similar product–not less, not more PERIOD!!! They should be accurate! Low appraisals kill deals. It is not always good for the buyer if the seller refuses to cave when the buyer really wants the property and has no means to come up with the difference, how is that good for the buyer? Lost hope and energy on both sides.
I think a trillion of govt. spending would certainly get us out of this mess in the short term. We can’t assume that all govt. spending is bad though.
“I think a trillion of govt. spending would certainly get us out of this mess in the short term.”
How did that work for Porkulus I? Did it keep unemployment under 8% like Obama promised?
And did you notice that though Porkulus I was supposed to be a one-time deal, government spending is even higher this year than it was in 2010 or 2009?
And when are we going to pay for all this?
Stop reading Krugman. He is a lunatic.
Two comments:
As a lender, on a purchase appraisal that comes in low, I always get my buyer and their Realtor involved in evaluating the comps–coming up with better ones (if they’re there), because my Portland, OR bank can and will reconsider the value if we have the supporting data. In most purchases, though, it’s not necessary–the agents involved in the deal have determined the price accurately already.
The other comment (@WC): Porkulus/Stimulus was about 40% tax cuts–not ideal for stimulus, but apparently the best that could be done. Govvie spending is high in large part because of unemployment compensation (and running a couple of land-wars-in-Asia). In a sane society, we’d tax the top 1% (and the top 1/10 of 1%) who’ve sucked up the lion’s share for the last 10 years.
“In a sane society, we’d tax the top 1% (and the top 1/10 of 1%) who’ve sucked up the lion’s share for the last 10 years”
We do tax them. Maybe not enough, but even if you did increase taxes on a very rich by 10-20-30% you’re still no where close to solving the budget deficit. Top tier of wage earners pull in about 2.5 trillion of about 7 trillion in earnings. They also pay about 600-800 billion in taxes. Let’s say we raise taxes on the very rich by 25%. You still only get 200 billion which doesn’t go very far when you’ve got a budget deficit of 1.5 trillion.
If we were to balance the budget even in a reasonably balanced way you need to do about 5 dollars in cuts for every dollar of tax increases. The problem is nobody wants their sacred cow to take a hit.
The problem with society in general is they want services that they feel entitled too but don’t pay enough to support those services. They’ve sold out their children and grandchildren so they can have what they want now.
I guess wc varobes didn’t pick up on the sarcasm / joke of my statement. Of course a trillion dollars would be too much. Certain people take themselves WAY too seriously on here. Newsflash! Not everyone wants to politicize everything!! Lighten up pal!!!! I just watch Jim for comedy relief.
This poor trusting buyer was saved by the appraiser. It is ludicrous that a buyer hires a professional agent and pays 3-6 points for an over priced house. Who ever stated that an efficient RE pricing model is made up of an uneducated buyer who uses a naive agent needs to go back to school. The buyer could have saved 6 points and overpaid for a house. The buyers did not need an agent for bad advice.
Not to come down on the RE profession but sometimes buyers and sellers are paying for over priced tour guides with no experience. This is another great example.
In my experience as a well qualified buyer waiting five years to buy in RSF. I get more knowledge from these videos. The last open house I went to the agent could not tell me the property line, zoning and building restrictions, what the liens are on the existing property and I had to educate the realtor that the property had a second that was in default. The realtors firm rhymes with “Scary Estates”.
Refreshing!
Thanks “6 percent is too much”. I had the same problem with a unqualified agent and Mortgage broker when I bought my vacation property. The lack of transparency is what killed the deal
I also love the RE Agent that wrote
“………It is not always good for the buyer if the seller refuses to cave when the buyer really wants the property and has no means to come up with the difference, how is that good for the buyer? Lost hope and energy on both sides.
Is “Local Boy” in touch. Does “Local Boy” really feel a few REO’s are the reason the appraisal came in 33% below market? Come on!!
Hopefully the appraisers will now own their work and understand that their work can make or break a household. It may be painful for the buyers and commission driven agents if the over priced deal does not close. If they want it bad enough then save and pay cash.
But that is not the case because the buyers do not have the cash. This “local boy” forgets the lenders are putting up most of the money and taking on most of the risk not the buyers.
As we all know too well it was the banks that lent to anyone no matter the credit, assets or property value and then they just sold the paper. Is that what “local boy” wants again?
Nice!!
I like that there is finally a little jousting.