Having qualified conventional buyers with 20%-25% down instead of the customary FHA or VA buyers. Finding yourself and your buyers caught in appraisal hell. Your buyers have chosen the home of their dreams and have made offers that both the sellers and buyers have agreed upon, then when the appraisal is performed only to find out that you are $15,000-$25,000 different. So you think that maybe switching lenders will be the answer. Wrong, all of the lenders are using the same pool of appraisers to perform the appraisals so there will be NO difference or significant difference in the appraisals. Now you find yourself dealing with two aggravated parties the seller who thinks the property is worth more and the buyer who has just spent $595.00 on a appraisal to find out that the seller is not willing to come down.
I understand that there are problems in the appraisal land that transcend weak housing markets, debt ridden borrowers and that are causing home buyers and would-be re-financers to miss out on low rates and dream homes. This game is not fun. I have found myself in this game more than I like. "There's been a pendulum swing in appraisals comparable to the one we've seen in mortgage credit, from foolishly lax to overly restrictive."
I myself have experienced many canceled contracts due to low appraisals. In my area we are now selling homes for what they sold for brand new in 1978. If this trend continues where will we find ourselves selling at, will it be post depression levels of the 1920's? Just when Realtors think their particular market is stabilizing they only find out the exact opposite.
With One and a half million more foreclosures due to hit the Florida market this year, where will the "Sunshine State" land? Not looking to "Sunny" from my perspective or the perspective of many sellers.
Now lenders are playing defense. Many of them including GMAC, Wells Fargo are regularly asking for three appraisals and require a "loan to value reduction" for properties located in a declining market. With so many neighborhoods with foreclosures or short sales and not enough solid data. They are appraising the market that is so volatile and different from anything we've ever seen. "If your an appraiser and one-third of the neighborhood is foreclosures, and another one-third is short sales, and another one-third is regular, how do you even determine what is "fair market value?"
Brokers and Realtors contend that appraisers should mark up the value of homes when comparing them to foreclosures and short sales, because many of these homes are distressed properties in disrepair or are so complicated to buy that they command unrealistically low prices.
Now to even complicate matters worse we now have a "New Rule". The world of home appraisals changed on May 1, 2009, when Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct. These new rules prohibit lenders from hand-picking appraisers. To comply with these new rules, many lenders have started using appraisal management companies that afford them the arm's length relationship with the appraiser. These appraisal management companies hand out assignments to their participating appraisers on a random basis, and they get a significant slice of the appraiser's fee, cutting the amount that actually goes to the on-the-ground appraiser.
So in the meantime, all you can do is tell your buyers to peer carefully over the shoulders of those appraisers. It is important to look at the comparable sales that were used. If you don't feel they are reflective of the market, make the lender aware of that and be more involved in the process.
If an appraisal comes in too low, the borrowers can appeal and pay for another appraisal. They may not get what they want, but at least they'll know they tried.
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