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Appraisers vs. Everyone?

Appraisers, Realtors and Housing...OH MY!

The Prelude:    I remember in 2007 when the market started it's decline and housing values began to fall throughout Atlanta.  Appraisers were the first to see it and our appraisals reflected the lowering values.  Understand, this was before declining values were even on the American consciousness, much less daily news reports on radio and television.  I heard the phrase "But they PAID more than that for the house 3 years ago!" so often, it woke me up at night.

The Present:  So here we are in 2013.  Good news is fast approaching - fewer homes are on the market, even investors are having difficulty finding deals.  We are heading toward an appreciating market and interest rates are low.  Homes listed for sale are receiving multiple offers.  What could go wrong?

Appraisals.  Appraisals determine the amount the lender is willing to loan on a property by obtaining the most similar recent home sales.  (After 2007, limitations to appraisers increased on the comparables they could utilize within a report.  Including using sales within 1 mile of the property being appraised and sold within 6 months of the date it is appraised.)  It ain't easy.

Feeling the current optimism in the air, realtors are pricing homes higher than they would have last year.  So let's say John Smith is selling his home for $400,000.  and he receives an offer within 2 days at full price  -  tah dah!   We have a new market value, right?  Yes.  However, if the buyer is obtaining a mortgage, that value must then be supportable to a lender.  Appraisers deal with past sales while realtors are concerned with current and future values.  In a transitional market, these appear to be opposing goals.  So how does the market recover?

The Sequel:  We did it before and we will do it again.  Values rise slowly and consistently as more and more sales back up increasing prices and lenders become more comfortable with the market.  The market is recovering and appraisals are going to be very different from those completed in a declining market.  They need to be reviewed by real people and not expected to conform with computerized checklists.  Appraisers need to be able, once more, to be trusted to know their market and if it is increasing, let their voice be heard!

And remember, appraisers are not the enemy of the recovery - after all, we are homeowners too.

 

 The best solution is to hire a Realtor who is also a Licensed Appraiser.  www.kellyriedinger.com


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donna powell February 20, 2013 at 12:39 PM
Sounds like an advertisement for you - trying to get new clients! I thought that it was a conflict of interest for a realtor to appraise a property that he/she was selling or showing..... Most mortgage companies/banks now have to use an appraisal management company to find a qualified appraiser to value a property that they are considering for a loan..
Kelly Riedinger February 20, 2013 at 12:54 PM
Appraisals can be done for a variety of reasons and for a variety of clients. If the client is the seller, the appraisal is done before the property is listed in order to correctly price it for the market. It is the same premise as any other realtor doing a CMA for a property they are listing. The benefit of knowing current appraisal rules and guidelines, is that the property is listed with a price that is supportable to a lender, lender's appraiser and the underwriter.
Ben Clare February 21, 2013 at 09:52 PM
Thank you for this article. I was told an hour ago that the home we would like to purchase appraised for the value we need but was tagged as "declining market". Now the lender needs another 5% on the downpayment, which will kill the whole deal. Do you know of any recourse we have? Is it possible to get another appraisal? The appraiser messed up in a lot of other ways that I won't go into here, but was also from Marietta and we are close to Emory University. She is certainly not familiar with the area.
Kelly Riedinger February 22, 2013 at 02:54 PM
Ben this does not sound right at all for the lender to charge you additional down payment in this scenario. Not at all! While you can challenge the appraisal or the appraiser's experience with in-town properties, it is worrying that this lender is trying to increase your down payment. Can you switch to another lender?
Ashley February 24, 2013 at 08:32 AM
Actually Ben, that scenario is quite common these days.Lenders will base your loan on appraised value, not purchase price. If you opted for 20% down, then the lender will only lend you 80% of appraised value,which means you’ll have to produce extra cash to make up the gap between appraised value and price. Short appraisals typically arise in a declining housing market b/c the lack of recent comparable area homes sales, or "comps," making it difficult for appraisers to determine the current market value of a property. When home sales slow, good comps "age" fast. Add foreclosures and short sales to the mix and appraisals can run all over the map.If the appraiser made significant errors that would affect the value of the home, you should point that out to your lender but I will warn you that getting an appraisal voided is extremely difficult for reasons which I won't go in to here. If you are successful in requesting and getting an additional appraisal done, make sure you ask your lender what their rules are regarding 2 appraisals. Some lenders, SunTrust is a good example, take the lower appraisal of the two...which defeats your whole purpose and is as ridiculous as it sounds. I hope that in your case your Realtor included a Financing and Appraisal Contingency in your contract so that you have some options.
Ashley February 24, 2013 at 08:34 AM
If the sellers are not willing to reduce the purchase price to appraised value, remind them that they will likely face this problem in the future. If it truly is a bad appraisal and the comps used are not valid comps, the I would advise you to dispute the appraisal with your mortgage company. Home appraisers are not perfect. Some do a good job of assessing the value of certain property and others seem to come from another state, aren't remotely familiar with the neighborhood and they pull numbers out of the clear blue sky.So when we are in a rising market, as we have been for about a year in our area, appraised values often lag true market values; and we see appraisals coming in low.It will take time for sales to happen that are cash purchases or for buyers with large down payments. Once these happen, appraised values can start rising again. Please let me know how things work out. I wish you the best of luck! Ashley Battleson Atlanta Fine Homes Sotheby's International Realty ashley@atlantafinehomes.com 404-281-5828

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