Low appraisals continue to be the concrete block tied around the ankles of a sinking real estate market that is already unstable due to epic unemployment, tight credit, decreasing values, rising foreclosures and the like. Because lenders must cap their loans at the value set by appraisers while sellers and buyer’s disagree on how to make up the difference with an original deal price, cancellations happen.
According to the National Association of Realtors (NAR), 16 percent of Realtors reported cancelled contracts in July, due mostly in part “by declined mortgage applications or failures in loan underwriting from appraised values coming in below the negotiated price.”
Nine percent reported contract delays because of low appraisals, and 13 percent reported that a contract we renegotiated to a lower price because the appraisal cam in below the original price, NAR said, making over one in five real estate contracts cancelled in July because of appraisal issues.
It’s hard to talk about any recovery of the housing market and home prices until the appraisal issue is squared away, and that is a broad issue,
Some point to the housing bubble inflation as the fault of high estimates of property values by appraisers, but recent reforms has curbed this and the industry is now seeing what some project to be artificially low appraisals.“The industry, both from a lending perspective and appraising perspective, has gotten as outrageously conservative now as they were outrageously aggressive a few years ago,” said Rick Sharga, senior vice president of data firm RealtyTrac.
Third party appraisal management companies have popped up all over America to play middleman since Realtors were banned from selecting appraisers for Fannie Mae or Freddie Mac approved loans (90% of all U.S. loans). Regardless of accuracy, being too liberal or too conservative, the management companies get paid and are offering smaller and smaller commissions to overworked appraisers who ultimately bear the liability of the appraisal in the new “sue everyone” era.
