June 22, 2012 01:00PM
By Kenneth R. Harney
One-third of realtors are reporting problems with
appraisals.
Are some appraisers failing to see the improvements in
real estate values underway in local markets that have recently bottomed out?
When multiple bids push a house price thousands of dollars above what the
seller is asking — not unusual in neighborhoods where demand is particularly
robust — are appraisers still coming in with values below the agreed-upon
contract number?
Yes. Growing numbers of mortgage loan officers and real
estate agents say appraiser reluctance to report local appreciation is
complicating sales transactions. In a new poll of its members, the National
Association of Realtors found that 33 percent of them reported appraisal
problems during the month of May. Moe Veissi, president of the association,
said poor appraising “in markets that are no longer in decline is the single
most important” valuation obstacle “to seeing a real recovery.”
Even appraisal experts concede that this is a troubling
issue. Frank Gregoire, former chairman of the Florida Real Estate Appraisal
Board and an appraiser in St. Petersburg, says that many appraisers are
reluctant to make the upward adjustments they know to be justified by recent
positive appreciation trends because they fear criticism that they are
potentially overvaluing the property — exposing lender clients to costly
“buy-back” demands by Fannie Mae or Freddie Mac, or future litigation.
“Even if they have the (local) data to support”
adjustments reflecting positive trends that affect value — pending home sales
and new listings of similar houses at higher prices, for example — “they take
the easy way out” and go with a lower valuation so as not to upset
hyper-cautious reviewers at the appraisal management companies that now control
the bulk of all home real estate appraisal assignments, Gregoire said in an
interview.
One appraiser in his area recently assembled strong
supporting data to make an upward adjustment to a valuation based on recent
sales activity on comparable houses. When he delivered the report to the
appraisal management company that hired him, however, an official at the firm
sent it back immediately with instructions to “revisit” the upward adjustment —
in reality, to get rid of it.
Joseph Petrowsky, owner of Right Trac Financial Group
Inc., a Manchester, Conn.-based mortgage company, says too often valuations in
upward-trending markets “aren’t catching up with the new values, let alone a
property that was involved in a bidding war.” He cites a series of recent loan
applications where the appraisal was thousands of dollars below the agreed-upon
final contract price, endangering or blowing the deals. In one case, the buyer
signed the contract at $312,500 but the appraisal came in at just $280,000,
despite readily available evidence that the local market has experienced
appreciation in recent months.
“Appraisers are scared to death” to report rising values,
said Petrowsky. “I talk to them and they are beside themselves. They feel they
have to [deliver] appraisals they know should be higher.” Much worse, though,
is the impact on sellers and buyers. When an appraisal comes in much lower than
the mutually agreed-upon contract price, the buyers typically need to revise
their loan request by increasing the down payment — that may not be feasible —
or renegotiating the contract price with the unhappy seller.
Dennis Smith, a co-owner of Stratis Financial Corp. in
Huntington Beach, Calif., says the problem is magnified when the appraiser
assigned by the management company travels from 30 or 40 miles away, and has no
insights into neighborhood appreciation trends that may be relatively recent.
He cited an example where a client saw a bidding war — four offers that pushed
the contract price from the listed $350,000 to $375,000 — but the out-of-town
appraiser would not take this into consideration in arriving at the final
valuation.
Sara W. Stephens, president of the Appraisal Institute,
the largest association in the industry, says it is every appraiser’s
professional duty to arrive at valuations that “reflect the market,” including
recent changes — whether positive or negative, if they can be verified with
authoritative and accurate data.
How can buyers and sellers guard against the
see-no-appreciation problem? Tops on the list: Make sure the real estate agents
on both sides of your transaction have assembled accurate data on “comparable”
sales or pending sales that demonstrate how the market has changed in the past
six months or less. Then make sure the appraiser sees the data.
Your purchase or sale doesn’t have to be
jeopardized simply because the appraiser doesn’t have — or chooses not to
collect — all the relevant recent facts.
Adam Simmons
CrystalClear Mortgage
www.Crystalclearmortgage.com
936-447-5626
adam@crystalclearmortgage.com
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