Appraisal Problems

 

 

2012 has been such a funky year for appraisals. Possibly the most problematic year that I can remember too. The sharp incline in activity, multiple offers and overbids leading to price escalation has made it harder than ever to appraise a home. Once upon a time the loan officer you worked with had a favorite appraiser they worked with and that went a long way to insure a competent appraisal. Now, those same lenders can’t even speak to the appraiser…who comes via a request to an outside appraisal management company. I’ve worked with appraisers who had never been in the town where they were doing the appraisal. In one case I had to assist the lost appraiser find the house I sold. That doesn’t inspire allot of confidence in me with regard to their knowledge of the local market and the countless variables that affect value there.

Any time I enter escrow I worry to some degree about whether or not the place will appraise, and if it doesn’t what impact will that have on the deal. I have no doubt that this fear is in the mind of every listing agent who’s in a multiple offer scenario. This is one of the major reasons that sellers look for offers with more than 20% down payment…as well as offers that waive the appraisal contingency all together. If you have 30% down you won’t have an issue even if the appraisal comes in low.

I have 2 different appraisal headaches right now. In one case I have a house in Tracy in escrow where the appraisal came in $20,000 under our agreed upon price. My buyers scraped and scratched to come up with that down payment. When they appraisal came in 20k low they have 4 choices…they can 1) back out, 2) make up the difference themselves in cash, 3) the seller can lower the price or 4) both parties can split the difference. In this case the buyers didn’t have the extra money and couldn’t get any more either. The seller reduced the price. As you can imagine, this is painful for the seller but the truth is there’s not much she/he could do. You can’t complain to the bank…it just is what it is. If you take another offer it better be with 30% or more down because that appraisal isn’t going to disappear. You’re stuck.

My other headache came after winning a bidding war with 11 offers and a purchase price that went $ 45,000 over asking. The appraisal came in $40,000 under our price. This wasn’t a huge problem since my buyer put down over 50% but it sure doesn’t feel good when an appraisal comes in a bunch lower. Nobody likes to feel that they overpaid for a home. The thing that drove me crazy here was the comment the appraiser made that he was an expert in Tracy and the market here has been dead since the last month or so. Really? He couldn’t justify the price as a result. What market has he been in? Not this one. I’d like to think that value is determined by what a buyer is willing to pay, but that’s not the case.

To make things even stranger, the appraiser who did the first example above has done 3 or 4 others on deals I’ve had this year. 2 of those were on properties that went WAY over asking and no comps at all were available…and he brought both in at the agreed upon price. The example above didn’t seem that far off to me and he brings it in 20k short. Go figure! Appraisals are pretty capricious…