Curious on how many other agents across the country are seeing an increase in deals falling apart from overworked and restricted appraisers?
Scenerio:
Lender pulls comps and uses the best comps available. They use comps regardless of financing terms. Two of the comps are the same in every respect except that one was a cash deal and one was financed. The cash deal was $10k over our asking price, the financed one was $10k under our asking price, the third is under our asking price as well. The appraiser values the subject under contract price. The lender says the seller has to reduce price in order for the financing to go through. The seller is penalized and eats the difference to get the deal done.
The next appraisal done on some other deal, uses our subject as a good comp, with a deflated value for loan purposes? Now the values are forcing downward.
The first rule of the value of real estate is determined on what a buyer is willing to pay.
An appraisal is simply a tool the lenders use to protect their interest in real estate and verify the collateral is worth it. If the lenders would stop lending money to consumers based upon if they are breathing or not, they would not need to protect their interest. They created the fiasco by predatory lending and corrupting appraisals on high finance loans that should never have been done in any event. Now they are back to their old tricks of forcing value again and effecting the market with third party opinions to protect the lender.
Let the buyers and sellers decide value and if the buyer cannot afford the property, then so be it. Affordable housing for the people without any blood in the game needs to stop.
Take it back to the way it used to be, require 20% down and lose the credit score. Make the lenders do their job and offer loans based upon the people. This will eliminate predatory lending and lender corruption of appraisers. This will eliminate discrepancies in values that are less than the downpayment because the lender will be protected. Simple.
As a listing agent, how do you tell a seller not to take an offer based upon potential future value discrepancies? I don't suppose we would get many referrals from this seller.
The system is still corrupt for fly by night lenders to take money from consumers who are not able to afford real estate in any event.
Replies
Oh... and appraiser's use THIS definition of Market Value from Fannie Mae:
Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.
It's not really just about what a buyer will pay. If you do want it to work the way you state, I recommend turning away all pre-qualified buyers and dealing only with those who have cash.
To your point, buyer's and sellers do set the price... but when the buyer is borrowing a large sum of money and using the equity in the home to secure the loan, the bank is going to cover it's ass... period.
I'm going to be brutally honest here. 99% of all appraisals I do that fail to hit or exceed the contract price are because the contract price is simply not supported by comparables within the market.
I can't tell you how many times a realtor meets me at a property and hands me a stack of superior comps while trying to justify their list/contract price. Some realtors know how to value properties. Many do not. Many more do not understand the difference between value and marketability. Value HAS to be supported. This means that EVERY adjustment has to be supported by the market. Not everything that appeals to a buyer has supportable contributory value.
Now... I'm not just realtor bashing (I have that license too). I do a good amount of business reviewing the work of other appraiser's and some of what I see is horrifying and depressing.
Short summary: Challenge the appraisal with the lender. Provide comps. Explain (in detail with support) why the comps or adjustments are bad. If nothing else, the appraiser will have to revise the appraisal to answer those concerns.
I see many problems in the process. Right now I see a trend of higher listing prices with out valid support. This is dangerous for all of us. The way appraisers work is, as we all know, on comparable in the area. One sale of an over priced home is NOT a comparable. Most Relators use the CMA to get listings. If A listing agent uses good fair priced sold comparable and another Realtor uses only the highest sold comparable for the client to establish a list price we know who gets the listing. We also know a reduction will be coming with an excuse as to why it is required. Pricing this way is NOT ethical but it is widely done. Appraisers must find more than 3 comparable. They have to look at a pool of comparable. They then consider the lowest or under priced and yes the highest seemingly over priced as less than accurate of Market reaction to the pool of comparable. They then require more research and support of the over and under typical values.
Buyers have paid more than a home is worth many times in the past. We saw it in large in recent past. Why would a buyer do that? Well many did and do IF their agent pulled comps to support the offer price to encourage the buyer to write the offer. Again this is not ethical but we saw it in volumes and still see it all the time. This was a large part of the crisis we saw. Appraisers did not work with the client the Realtor did. The Realtors set the list prices with the sellers and the offer price with the buyers all by choosing comparable to support their actions. Buyers wrote over valued offers mostly based on their Realtors knowledge and ended up with negative equity. What Realtor stood up and said "no don't buy this it is over priced" when their client loved a home the Realtor showed them? Realtors played a large role in the crisis as did many others in the process.
I will say there are a lot of Appraisers who use adjustments that are not required or supported in any way. Some use bad comparable and a few are just not doing what is really required to do a good valid appraisal. If you think this is a problem then look at all of the comparable. Suggest others your feel are better (not because of sales price). Check the adjustments and question how the appraiser obtained or justified them. Agents can call the appraisers for clarity and explanations Look for any mistakes in the appraisal and make a list. If you do not get satisfactory explanations and logical data from the appraiser then contact the lender and inform them of your concerns.
We all have to work together, be knowledgeable, be honest, be professional and put our CLEINT'S best interest first. This is the main problem as I see it.
Yes, this has been my experience.
Also in our county property taxes went up a lot this year, as it turns out, because county appraisers started using some automated valuation system that uses properties out of area and without consideration or adjustment for view, condition and location.