As the housing market continues to come back to life, one of the fallouts over the past year or so has been low valuations in home appraisals, according to the National Association of Realtors.
Back in the fall, the NAR said about 11 percent of Realtors surveyed said a contract was canceled because the appraisal value came in below the negotiated price. Another 9 percent said the contract was delayed, and 15 percent said the contract had to be renegotiated.
“Though the real estate recovery is taking place, the combined issues of stringent mortgage lending requirements and appraisal frictions are hampering otherwise qualified buyers from purchasing a home in a timely fashion, and in some cases are preventing them from buying at all,” NAR Chief Economist Lawrence Yun said in October.
Why are appraisals coming in low?
The reasons for the low appraisals were attributed to several factors, including:
- The high number of foreclosures and short sales. This means these lower-priced sales are what appraisers have to use for recent, comparable sales. Some appraisers aren’t distinguishing between distressed and non-distressed homes.
- Appraised values don’t reflect rising prices, low inventory, and bidding wars.
- Turnaround time is slow.
Meanwhile, the NAR said last week that sales of existing homes are at their fastest pace since November 2009 when the market reached 5.44 million in response to the home buyer tax credit. Total sales have been above year-ago levels for 22 months in a row. And when it comes to prices, there have been year-over-year increases in sales prices for 14 months straight.
New homes are seeing skyrocketing figures as well.
The U.S. Census Bureau reported that the median price of new homes hit a record high in April of $271,600. That’s an 8.3 percent jump over the month prior and 13.1 percent higher than April 2012.
As home prices continue to surge, are appraisal values keeping pace? It seems to depend on who you ask.
Seattle realtor’s strategy
CNNMoney reported this month that due to the shrinking inventory, appraisal values seem to be catching up to the rise in home values.
“I started pulling out the key boxes at the homes so the appraisers couldn’t get in,” real estate agent Michael Ackerman, of Seattle, told CNNMoney, describing his earlier experiences. Ackerman then brought information on comparable homes to the appraiser when they requested access to the home.
Since he started doing this, Ackerman has closed 15 homes this year and none have been appraised for less than the selling price.
Appraisal trouble in Florida
But things are a little different in Florida, according to an article published earlier this week in The Miami Herald.
“Many sellers are saying, ‘We want you to waive the appraisal,’ ” said Bette Abrams, who works at Coldwell Banker in Coral Springs, Fla.
That’s what happened to the Bridgnauths, a couple who married a year ago and have a 20 percent down payment and good credit to get a conventional mortgage, the article said. They made an offer on a house in Miramar. Three appraisals came in below the contract price.
Predictably, the seller didn’t want to reduce the price and instead suggested the couple pay more than the appraisal. Many buyers are doing just that with the rationale that appraisals aren’t keeping up with rising market prices.
Atlanta appraisal issues
WSBTV in Atlanta, Georgia, reported on May 13 that home values in the area are being bogged down by low appraisal values. Consumer investigator Jim Strickland reported that a home seller in Marietta, one of Atlanta’s largest suburbs, had a buyer willing to pay $544,900. But an appraised value of $455,000 botched the deal because the buyer couldn’t get a loan for the sales price.
The $90,000 difference was a shock to the homeowner, who felt he was not able to get what his house was worth.
Realtor Terry Burger told the news station the holdup in appraisal time harms buyers and sellers and is slowing the market recovery.
“It was allowed to crash quickly, but it feels like we’re not able to get those values up as quickly,” said Burger.