A general dissatisfaction regarding appraisals is seen across the landscape in America through the myriads of seething Real Estate agents, closing attorneys, and mortgage consultants. Minimal appraisals, often by a non-local appraiser, are killing contracts at the last moment.
Due to a rash of recent appraisals coming in lower than the contract price, real estate transactions are requiring either a renegotiation, thereby guaranteeing a delay to get to closing, or a backing-out on the deal. If the contract price does not match the appraisal, then the buyer has to come up with more cash to close the transaction to make up the amount that the lender will not fund.
According to the NAR, the problem has began to spike following the implementation of a new appraisal rule arising from the New York State Attorney General’s lawsuit against Federal Housing Finance Agency, the regulator of Fannie and Freddie. If lenders want to sell the newly originated loans to Fannie or Freddie, then the loan must abide by the new rule that favors using Appraisal Management Companies (AMC), many owned directly by large banks
Many of the properties that we see, once under contract and in the closing process, are being appraised against non-comparable property sales. Homes that are not “distressed sales” are being compared to “distressed homes,” and improvements and upgrades to the subject home are not being considered. This is due to a lack of good comparables that exists today due to a reduction in the number of homes sold in the past year.
The NAR says the appraisal problem is serious. “Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales,” he says. “In the past month, stories of appraisal problems have been snow balling from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”
NAR President Charles McMillan says appraisals are one of the key issues. “To maximize the potential for a housing recovery and subsequent economic recovery, we need realistic appraisals that are based on proper comparisons and done by a local specialist,” he said.
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June 27, 2009 at 3:53 am |
Hank,
this amc thing in and of itself is proving problematic in our area. even with a good appraisal, delays and gun-shy underwriters are becoming the norm. I have a deal that was scheduled to close on June 5th. An AMC appraisal was ordered with a rush on it May 20th and the report was received on June 4th! The number was good, but the underwriters couldn’t turn it around in time for the 5th so we pushed it out a week. Come the following week, the underwriters asked for a “field review” of the appraisal. (because of the rural nature of our market, I think the appraiser may have pulled comps that were too far from the subject to satisfy this underwriter.) The local rep of the lender thought that should take yet another week, so we pushed it out again. As that Friday approached, we learned that field reviews can take up to 15 days, and nobody can tell me when that 15-day clock actually started ticking. My seller is reluctant to sign extensions for more than a week at a time because he believes the underwriters will take every minute they are given in writing, so we have been filling the file with addenda extending the closing date a week at a time.
And here we sit, hopeful that we can make it happen this coming Friday, with nothing concrete to indicate that, and no real closing date in sight.
June 27, 2009 at 6:20 am |
Jill, I feel your pain! Thank you for your comments.