According to the Daily Real Estate News – Thursday, October 11, 2012, Real estate appraisals are one of the issues holding back home sales. Appraisals generally lag market conditions and changes to the appraisal process have been causing problems. Sixty five (65) percent of REALTORS® surveyed in September report no contract problems relating to home appraisals over the past three months, Eleven (11) percent said a contract was cancelled because an appraised value came in below the price negotiated between the buyer and seller, nine (9) percent reported a contract was delayed, and fifteen (15) percent said a contract was renegotiated to a lower sales price as a result of a low valuation. These findings are notable given that homes in many areas are selling for less than replacement construction costs.
Major problems reported by REALTORS® include:
- Appraisers using foreclosures, short sales, and run-down properties as comparable homes, and not making adjustments for market conditions or the condition of the property.
- Appraised values that do not reflect market conditions such as rising prices, multiple bids, and low inventory.
- Inconsistent and fluctuating valuations.
- Out-of-town appraisers who are not familiar with the area or local market conditions.
- Slow turnaround time by both appraisers and banks.
- Appraisers operating under strict and limited parameters due to bank lending criteria
NAR data shows that the typical foreclosure is sold for an average discount of 20 percent relative to traditional homes in good condition, while the typical short sale is discounted by 15 percent. “In short, there has been an inconsistent appraisal process leading to disruptive delays for home buyers and sellers,” NAR President Moe Veissi said. “All home valuations should be made without undue pressure from any source. Even so, buyers, sellers and agents are free to ask appraisers to consider additional data and to correct errors, or discuss unique aspects of the home, the neighborhood or properties used as comps.”
Fortunately, the level of distressed sales is trending down — they accounted for about one-third of all sales in 2011, but have averaged roughly a quarter of sales in recent months. By 2013 NAR expects the distressed market share to decline to about 10 to 15 percent. As distressed inventory is cleared from the market over the next two years, it should help to correct ongoing problems. “In the meantime, buyers, sellers and real estate agents need to be aware that there are problems with some real estate appraisals, but also be aware of their rights to communicate with appraisers and lenders about errors or concerns with individual valuations,” Veissi said. “In some cases, a second appraisal may be justified.”