While our local and national Real Estate Markets are certainly down and being blamed in part for our national economic downturn, their recovery is not entirely beyond our control.
Yes, many (most in fact) of the lender's underwriters (decision makers) were happy to sanction loans that absolutely shouldn't have been. They deviated from conventional lending practices at nearly every opportunity to make loans to the point of being irresponsible.
Today, these same underwriters have reacted to the nation's scrutiny by jerking back in the opposite direction to another extreme. Yesterday it seemed like any and all properties were "good" risks for mortgage lending. Today these same underwriters are reluctant to approve a loan for anything but a "cookie cutter" home in a neighborhood where an ample supply of comps is available. This means that unless the required property appraisal names several close by and similar homes that have sold in the past few weeks (months are stretching it these days) the underwriters are reluctant to take the responsibility of making the very decision they are paid to make. Instead they return the appraisal to the property appraiser, refusing to accept it. Somehow, they have lost their gumption.
Because the underwriters are "sending back" many of these appraisals, we now have a large number of property appraisers who simply roll over and lower the appraised value without question even though their work and judgment is questioned. I'll make the same statement here as above. They too have lost their gumption.
· Courage to act
o The courage to take what action is needed.
· Common Sense
o Practical common sense and presence of mind.
So here we are. we have underwriters who are afraid to do anything but that which will never be questioned or examined. And we have property appraisers who will roll over immediately to insure their future income.
The result is continually falling property prices and values regardless of what common sense or principles dictate.
Somewhere mired in this plunging real estate market is the simple fact that for each appraisal whose value has been forced lower by an unwilling underwriter, we have neighbors, homeowners and ultimately people who are being hurt. Their property values are being unduly lowered through the lack of gumption exhibited by those in the real estate industry who either do not understand or do not care to what extent they contribute to this economic downturn.
The fact is property appraisers have an obligation to do their best to establish a fair market value for each property. The responsibility which rests upon their shoulders is large. Each and every property owner is affected by the appraiser's handiwork. Entire neighborhoods are at risk. A low appraisal has a domino effect. Drive around and you can witness the results for yourself. Yes, high appraisals also have a domino effect in the opposite direction. Can you say BUBBLE?
I recently watched this process. The property was not a conventional subdivision home. Locating comparable properties that sold in a reasonable amount of time was a difficult task (as always on this type of property). In these cases, the appraiser has to really work to establish a market value. They have to think much harder, look deeper and then be confident that they have not missed any facts. With all this said and done, this particular appraisal supported the sale price. I have to add here that I am very familiar with this particular type of property and was personally familiar with every comp this appraiser found. I was also pleasantly surprised that he found all that he did. I'm sure he burned the midnight oil on this one. It was a good and fair appraisal!
It should have been smooth sailing from here, right? Not exactly. The bank's underwriters kicked the appraisal back saying they wanted yet one more comp. I'm here to tell you that this appraiser had already found every one. The appraiser graciously spent another day or so looking and in good faith sent it back to the bank with a statement that there were no more comps available.
The buyers had great credit and very little debt. The home was perfect in every way and returned perfect inspections. The contract had no out of the ordinary contingencies or clauses and the negotiated price was fair. It was a perfect real estate deal.
No, apparently it wasn't. The bank's underwriters lacked the gumption to proceed with the loan. Instead, they sidestepped their responsibility by sending it on to the investors who will ultimately be at risk, for their approval. Hey, I wish I could do my job that way. Passing the buck and still getting paid sounds great, huh?
Now we have buyers, sellers, title companies, insurance companies and other participating businesses who already have time and money invested in this transaction. And, all of them sitting around drumming their fingers waiting for the final decision from the lender thanks to the wishy washy underwriters.
Thank goodness the appraiser had the gumption to stand by his work and his decision. Ultimately, the investor recognized the diligence this appraiser had exhibited and the appraisal was accepted.
If you want to know an appraiser who sleeps well at night because he does his job well, I'll give you a name.
Karl Terrazas of Arc Appraisals. He is in the Tampa Bay area and he has gumption! You can call him at (877) 394-2856
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