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New rules for Appraisals make loans tougher to get

By
Real Estate Agent with Windermere

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If you are representing a seller, and someone wants to buy their home, the buyer will need an appraisal to get  their loan. Much of the time they will also want to have an inspection on the property as a contingency.  The inspection usually comes before the bank gets around to ordering an appraisal.   Most inspections cost the buyer $500 to $550.  They usually pay before the inspection, or at the time of the inspection without the guarantee of the loan going through.

Now somewhere further down the purchasing cycle, the bank that the buyer decides to use orders an appraisal.  With the new appraisal rules that became law recently the appraiser is from a pool of appraisers.  They may live more than 200 miles from the property.  They may never see the property.  There are no rules about this.  They may use something like Zillow to do the appraisal on the property.  If the appraisal comes in low for various reasons, your buyer may not be able to secure the loan to buy at the price agreed upon.  You will now need to negotiate a new price.  That is if the buyer wants to negotiate a new price. 

Generally the bank will loan on the ratios they have agreed upon, but now on the current appraised price and not the contract price between the seller and the buyer.  You and the seller are now in a very bad predicament.  The buyer can ask for a new appraisal, but the new one may not be better than the last, and many banks will take the two and average them.  The buyer also has a problem. He has paid to have an inspection on a property that he may not wish to buy. 

Is there an easy solution to this scenario?  No.  Top attorneys say that this real estate law procedure is not going away.  Appraisals are going to be at a distance from the lenders and agents.  What sellers need to do is have their home priced as close they  can to current comparable properties if they want to see a sale go through. 

Special amenities of listed homes  will not carry as much weight has they have in the past.   Short sales and foreclosures will be included in the comparables used by appraisers. 

Things will get tougher before they will get easier.   We need to be sure our sellers are aware of what the appraisers are going to use for comparables.  The information is available, and may make the difference between sale and no sale.

Comments (8)

Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

Isn't this incredible? I understand that the purpose is to avoid using appraisers who are "friendly" to the lender, but getting people who have no real basis for comparison is so horrible. Just stupidity being thrown at a bigger problem.

May 28, 2009 02:04 AM
Terry Miller
Miller Homes Group - Tyler, TX
Miller Homes Group and Tyler Apartment Locator

Not good. They messed up and we gave them all the power. Great incentive.

May 28, 2009 02:05 AM
Patricia Aulson
BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate - Exeter, NH
Realtor - Portsmouth NH Homes-Hampton NH Homes

I agree with Karen above on her comment. and with Terry above as well. Geeze!

Patricia Aulson/Portsmouth NH Real Estate

May 28, 2009 02:12 AM
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Linda, this is going to present new challenges to our job. We can make our case with our own comparables, but each situation will be different and the bank may or may not be listen. My experience with banks and listening where values are concerned is dismal. Fortunately, we have gone to another bank and it worked out. Watch out for AVMs.

Sharon

May 28, 2009 02:15 AM
Lori Cain
Own Tulsa - Tulsa, OK
Midtown Tulsa Real Estate Top Producer

Fair or not, this is reality. I may include this article in my Listing Packet.

May 28, 2009 02:17 AM
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

AND CAN SOMEONE TELL ME WHERE THE ACCOUNTAFREAKINBILITY IS WITH THIS?  (sorry for screaming!)

I had a house that was supposed to close on the 11th of this month (May).  Appraisal ordered on 27th of April.  The appraisal was delivered to the lender on May 19.  Loose wires were tagged as something that needed to be fixed.  We got in there and fixed it right away (within 12 hours) and asked the lender to order the reinspect.  The appraiser is on VACATION and won't be back till this Friday (tomorrow the 29th.)  MUST BE NICE!  My buyers are being charged with a $150 per diem since May 23.  THANK YOU LANDSAFE (and if anyone from landsafe is reading this please contact me.)

Had two different escrows come in low, we could re-negotiate the price on one but not the other.  The one where we re-negotiated price (lucky) they used NON MODEL MATCHES when model matches were READILY AVAILABLE as closed comps in the previous 45 days and their NON MODEL MATCH COMPS WERE OLDER CLOSES THAN THE MODEL MATCH COMPS.

On the escrow we couldn't save, it was non-distressed and the REO & short sale were factored in.  Condition and the fact that this house was MOVE IN READY (landscaping, appliances, excellent condition, upgrades) could not be factored in.

This is driving me insane.  I should just write my own post about it!

May 28, 2009 02:18 AM
Jon Budish
Resident Realty - Fort Collins, CO

I wonder how long it will be until "big brother" will determine which R.E. agents a buyer or seller can use?

May 28, 2009 02:22 AM
GLENN LEACH
Mortgage - Puyallup, WA

Some lenders (like us) have found better ways of assigning appraisal to appraisers who care about doing a good job.  Many of the big box banks have, under pressure or under the inefficiencies that share size can bring sometimes, just thrown the appraisal ordering process to these chop-shop appraisal service firms - who don't really care who does the order.  Their requirements:  1)  You have a license.  2)  You'll work for half or less of what you used to make, and we get to keep the other half because we have the order and you don't.

The new rules suck, but when the lenders don't make the effort to work out a system that still takes care of their customers within the rules - that's not necessarily the fault of the new rules.

Choose your business partners wisely - there are differences between lenders right now that may not be readily apparent to you unitl you have to live through some of the nightmares that are happening out there right now.

May 29, 2009 05:26 AM