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UNDER APPRAISALS! The Next Shoe To Drop?

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Real Estate Agent with Realty Pro, Inc. #96851

Re: Appraisals coming in too low all over the nation: I belong to a online community of real estate professionals called Active Rain...It is open to lenders, appraisers, stagers..any field that can be affiliated with the real estate market. Lately I have been reading article after article of low appraisals happening all over the United States. It is putting another burden on the short sale/foreclosure woes that are already happening!!! Here is an excellent article by Dean and Dean's Team!

Original content by Dean Moss

Hope you had a great weekend, folks!  Cool here in Chicago - not complaining at all!

Up until last week, during my 15 years in Real Estate, I suffered through ONE under-appraisal!

Last week, I endured THREE!

And I am not talking about a few bucks under!  Serious stuff!  $25,000 light on a $215,000 home.  $15,000 low for a $179,000 townhouse.  $20,000 below for a four-bedroom brick home, in the very attractive, but by no means affluent, Dunning Neighborhood on the Northwest Side of Chicago.

Why?

A dearth of direct comparable properties!   Or, too many short sales and foreclosures nearby!  Or, no two-bedrooms, and three-bedrooms adjusted downward will not be accepted by the now-more-persnickety Review Appraiser or the Underwriter, according to one appraiser who completed the inspection and appraisal report on one of our "subject" properties.

The boundaries from which to pull comparable properties are far tighter these days - here in the City of Chicago - maximum one-mile circle.  Preferably, half a mile!  No crossing neighborhood boundaries.  In the suburbs - identical elementary school districts, identical neighborhood "feel," according to appraiser's discretion.

And nothing more than four months old!  Three months are preferable!  If all that has closed in the last few months are poor condition bank-owned properties and short sales, these become your comparison panel!   Adjustments for condition - minimal!

Lenders can't dispute the findings!  Realtors can't dispute the findings!

And, if you attempt to force another appraisal, at buyer's expense, the bank rarely adjusts upward - even if the appraisal comes in higher the second time around!

In the average neighborhood of Chicago, our Team has seen appraisers apply a one-percent depreciation factor per month to their appraisal reports.  So, for example, a house appraising for $200,000 on May 1st, would now, theoretically, value at $197,000! 

In some Chicago Neighborhoods, we have seen the time adjustment over the last few months hit close to 2%.  That same $200,000 home, again selling in early May, 2009?  It theoretically appraises for $194,000 today!

So, please, plant this picture in your mind -

The buyer sells his house cheaper than he thought possible, even a year ago.  An overly-aggressive buyer asks for nearly every inspection item on his report be corrected, at considerable cost, to the seller.

Further, the seller, fearing a replacement buyer is only a distant possibility, agrees to the big credits.

Then, the borrower has to clear loan conditions that seem like an obstacle course on one of those reality shows - what's that crazy show, "Wipeout?"  After great effort - the buyers clear the course!

But then the appraiser comes in, low, without opportunity for anyone to refute it.  The only way the property can sell is if the seller grants another price reduction.

He doesn't!  Or, he can't, financially!  So, the transaction dies!  And, nobody wins!

The pendulum has turned, folks - 180 degrees from where it was just a couple of years ago!  At that time, nearly anybody could qualify for a loan, and closing on a home after an offer was tendered was almost a foregone conclusion.

Today, that happy conclusion is not just tougher to realize.  It's too often . . . FANTASY LAND!

The NEW Home Valuation Code of Conduct (HVCC).  Protection for homebuyers?  Or, just too much over protection, and too much discretion for nervous appraisers?

Any thoughts?  Please share!

DEAN & DEAN'S TEAM CHICAGO

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