I was sent this article and here are my thoughts….



Short appraisals driving up failed home sales





Here's an increasingly common scenario: The seller lists the house for $325,000, the buyer offers $275,000 and they settle on $300,000. A week before closing, the appraisal comes in at $265,000, the maximum upon which the bank or mortgage company is willing to lend. Who's going to make up the $35,000 shortfall? Depends on who is the seller. If it’s a short sale or foreclosure I have found that the bank will usually eat the difference. If it’s a flip or a regular sale the seller will usually put it back on the market or the other option is the buyer and seller will negotiate a lower price and meet somewhere in the middle. From a buyers prospective this is a good thing. I have noticed that often in a market where the prices are starting to go up the appraisals will often come in short.  This happened in 09 when I bought my house. We were experiencing a temporary price increase due to 8K tax credit and overbidding. I got my house accepted for 140K and the appraisal came in at 100K. I got the house for 100K. It was a gamble but the buyer won in that case. This is really similar to how the market is now, with the buyer frenzy and lack of inventory.  The biggest losers here are the flippers which are constantly trying to manipulate the appraisals. Even in this market. They require the appraiser to meet them. They require the buyers to use their lenders which are often brokers who are able to manipulate appraisals better then big banks such as wells or BOFA. And let’s not forget how it used to be in 2002-2007. We could get any appraiser we wanted to bring in whatever value we needed.




Short appraisals typically arise in a declining housing market because the lack of recent comparable area home 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 and appraisals can run all over the map. I really don’t think our local market is declining at this point. The real problem is the short sales we are getting in contract and waiting for approval. As prices increase the short sales we get for 200K are six months later going to be worth 220K and the bank is going to want more once they get around to appraising  and approving the sale. Sure sales run all over the map. We are seeing a lot of non-competitive offers being accepted at lower prices and skewing our sales. Look at all the homes that sell for low prices(all shorts and foreclosures.)  before they even come on the market they are marked pending on day one and sell lower than average because they never see competitive offers that would bid up the house to market value. To me that is a big problem with the industry and the banks are the ones seeing this loss.




The Home Valuation Code of Conduct, or HVCC, that went into effect last May compounded the problem. HVCC prohibits Fannie Mae and Freddie Mac lenders from having direct contact with appraisers. As a result, most lenders opt to work through appraisal management companies, or AMCs, whose pool of residential appraisers includes those with limited training and/or little familiarity with the geographic area being appraised. The true root of the problem is with the quality of appraisals. Its true there are good appraisers and bad ones, just like agents, cooks, contractors or anything. It’s the luck of the draw and I still think pulling a random appraiser is better for the buyer then to use a “pocket appraiser” they just need to develop a better system and require local appraisers to appraise local properties. 




No system is perfect but I believe it’s more better than it used to be and there is still a lot of improvements to be made before we get it right!