More Deals Falling Through
Appraisals coming in lower than the agreed-upon sales price continue to cause more real estate deals to be cancelled, recent surveys show.
In December, a third of real estate professionals reported they had a real estate contract fall through, up from 9 percent a year earlier.
The National Association of REALTORS®, along with other housing industry groups, point to low appraisals and rejected mortgage applications from a stringent lending environment as the main forces behind the high number of transaction cancellations in recent months.
Too often, foreclosures sales — which tend to be sold at big discounts — are being weighted into valuations, experts argue.
The National Association of Home Builders’ chairman Bob Nielsen has called the use of distressed and foreclosure sales in comparables in appraisals “inappropriate” and “needlessly driving down home prices.”
Sixty percent of builders say they are seeing problems from appraisals coming in below their contract sales price.
“This is not only unfair and unreasonable, but it perpetuates the cycle of declining home values, drives more home owners underwater, harms local economic activity and acts as an obstacle to the recovery of the housing market,” Nielsen said in a statement in December about appraisals.
But the lending environment also needs to change for the housing market to recover and for fewer deals to stop falling through, housing experts say.
“If we simply return to the normal credit standards, verifying income and looking at the creditworthiness of an individual to stay in a property long term, we think sales will be 15 percent to 20 percent above where they are,” NAR spokesman Walt Molony told Investor’s Business Daily. “There are more people trying to buy homes than are succeeding today.”
Daily Real Estate News | Tuesday, February 07, 2012
Appraisers: Don’t Blame Us
“Don’t shoot the messenger,” is the message the Appraisal Institute has for those in the real estate industry. Appraisers have been taking heat the last few months over low home values, with critics arguing that values aren’t matching a home listing or contract’s price and valuations are unfairly weighing distressed properties into the equation.
“Appraisers don’t set the real estate market; they reflect what’s happening in the market,” Sara W. Stephens, the Appraisal Institute’s president, said in the handout. “Obviously, the market is depressed — home prices have fallen far below the values of a few years ago. Many homes simply aren’t worth what their owners think they are.”
Appraisers say their main goal is to protect lenders against entering into a risky mortgage, not justifying the sales price for a buyer or seller. But the report emphasizes: Appraisers are independent, third-party experts and serve as an unbiased source of information.
Buyers and sellers “shouldn’t assume an appraisal is somehow ‘wrong’ if it doesn’t match the listing or contract price,” Stephens says. “There’s no reason to assume the contract price is the ‘correct’ price simply because it’s higher than the appraisal.”
A lot of the criticism over appraisals recently has centered on appraisers using distressed sales in their comparables — comparing an abandoned foreclosure to a lived-in home that may not have the maintenance issues that the foreclosed home might have.
“Appraisers know what adjustments to make, if any, when using distressed sales as comparables,” Stephens notes. “In some markets, distressed sales are so prevalent that it would be improper not to use them as comparables.”
Daily Real Estate News | Friday, January 20, 2012