Appraisals – The Next BIG Hurdle In Buying & Selling Real Estate!
April 22, 2009 by Jim Walberg · 7 Comments
Jim Walberg provides a first hand experience regarding what is becoming the next BIG hurdle for Buyers and Sellers of real estate, and it is starting right now!
We just concluded an escrow that has given us a glimpse of what may be the next BIG hurdle for your next real estate purchase - APPRAISALS. We sold a listing this month in the high 900,000s. It was the lowest priced sale since 2003 in this neighborhood of homes that have the largest floor plan – 3,450+ square feet. ( The reduced listing price reflected the fact that the Sellers had already moved out of state and wanted to just close the chapter on their time in the East Bay.) Their home was the most beautiful home in it’s class in our geographic area.
So, the appraiser for the Buyer’s lender comes in and completes his work.  The lender had chosen an appraiser that had very little knowledge of our specific area. Because of this fact we sent the lender a list of the comparable sales in this neighborhood for the last two months in order to provide the appraiser with data that we knew were sales of comparable homes. The lender told us they were not able to forward them to the appraiser because they are required to keep an arms length distance from any of their appraisers because of the new law that is officially going into effect May 1, 2009.
“The lender or any third party specifically authorized by the lender (including, but not limited to, appraisal companies, appraisal management companies, and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents).”
This was the first clue we were going to have a different experience with this appraisal. The appraiser used only two comparable sales, both of which were homes that had been purchased back by relocation companies that had no comparison to our listing. One of the homes used even backed to a storage unit complex. Our listing has unobstructed views of our mountains and very private. The appraiser would not consider using any of the comparable sales that we had provided within the neighborhood.
The appraisal came in $50,000 LESS than the purchase price that was already a bargain in our market area! We and the Seller were stunned! We called the lender and asked what their review process was. They said there was none available. Again, we were stunned. This one event has now created a situation that the similar homes that are within a mile of our listing are all going to be impacted by this appraisal,  and it will have a detrimental effect on all of their values for months to come. Our Sellers have been short-changed by this experience and any future sellers will need to price their home using this new reduced price as the basis for their homes. Â
The National Association Of Mortgage Brokers has begun a legal battle to reverse this latest law. They believe, and so do I, that this new regulation will negatively impact both sides of the real estate sales transaction. It will also add costs to the appraisal process, because there will now be a new entity springing up in the midst of the home buying process – third party companies that order appraisals. The increase in costs will be to these companies in order to the have the appraisers still be paid a fair fee. Stay tuned! This specific regulation will have an impact on pricing in all of our communities. So, have any of you had similar experiences with appraisals yet?
Related posts:
- 2009 Real Estate Update: East Bay Real Estate’s Biggest Hurdle – Appraisals!
- East Bay Real Estate Tips For Selling Your Home – TODAY!
- East Bay Real Estate: Fall 2009 Is The Best Time To Buy Or Sell A Home!
Filed Under: Blog, Buyers, News, Real Estate, Sellers
Tagged: east bay real estate, HVCC, Jim Walberg, national association of mortgage brokers
I’ve seen mortgage officers around the country have similar problems to what you describe. Appraisal Management Companies (AMC) charging higher fees, sending appraisers from 100 miles away with little market knowledge, using mismatched comps or ignoring legitimate property comps, taking weeks to complete the appraisal report. Realtors can still communicate with the appraiser but the mortgage officer and home buyer can’t.
Purchase contracts will need to take this new situation into account, especially in regards to the length of the financing contingency. The days of mortgage officers getting a “rush” on the appraisal are pretty much over. I hope NAMB and the other groups involved in reforming the HVCC are successful. The situation now just hurts everyone (buyers, sellers, Realtors, mortgage officers, appraisers, etc) in the process.
There are HUGE hurdles when it comes to appraisal. This is an ever-changing marketplace and we need to shift with market.
Thanks for the information.
Jim,
As you might know I’m also a certified appraiser and have worked for almost any major lender in the country for past few years.
I stopped working few months ago to concentrate on my real estate business. I’ve been working part time during past year or so any way.
I don’t understand the complaints regarding not being able to contact the appraiser. I’ve never considered any comps that I received from real estate agents, I politely accepted them but never considered them.
We look at the comps within different eyes since each lender has certain requirement that creates limitation for appraisers. For example comp being maximum 3 month old and lender would not accept time adjustment on up to six month old comps, or not accepting comps over 15% in square footage, etc.
Almost any lender that I know of has a review process and you can make a complaint with providing more accurate data. It is part of appraiser’s job to explain each item on your request as why it is or it is not a good comp. At the end appraiser change the value based on provided comps or stay with derived value. If a lender is not following this process then you should find a higher authority within the organization to have your voice heard.
All lenders are requiring a detail explanation if an appraiser uses any of special sales like probate, foreclosure, relocation,…..as why it has been used. Also almost all lenders today require at least 3 closed sale and 2 pendings (1 pending 1 active or 2 active sales)
I’m really sorry that you have to go through this frustration of dealing with a rookie or out of area appraiser but this industry goes through more confusion than clarity as years passes by. At some point, I was thinking of becoming active in Sacramento and push for some changes in California but who has time.
Please let me know if I can provide more insight in to the process for you.
Fabi
Hi Jim,
Yes you will see more and more of this as time goes on. HVCC has made it difficult for us Professionals in this buisness to do our jobs.
Remember this only applies to conventional lending not government loans.
I have appraisers that are getting chosen that like you said that have no experience with the area and no experience in the business. I’m also being told by appraisers that have been in the business for many a year they are being asked for things they have never been asked for thus delaying the process and adding additional time before it is completed. It’s been taking 2 to 2.5 weeks for an appraiser to complete one because of all the additional information as well as the 3rd is not requesting the appraisal in a timely manner.
They are experiencing problems working with the 3rd party companies with having to resubmit appraisals with the changes they are requiring and getting paid 1/2 of what they use to get. These 3rd party companies are charging our clients $400 for an appraisal which is about average however the appraiser who is doing all the work is only get about $240 of that and the level of service is lower.
It is the next hurdle and the growing pains will continue…
Hi Fabi…thank you for your insights. I realize that in any industry change is a constant. And, I realize that there are different levels of professionals in each industry. This particular lender would not even talk about a second opinion. It may be that there is an extreme reaction as this law came into effect, and things will settle down as the lenders and appraisers figure out how to manage this new law.
Hello Kathleen, thanks for checking in. My observation is that the appraiser industry as a whole, is in turmoil because of how this new law is being acted out within our industry. And, I have had discussions with many appraisers who are rethinking their career because of having their compensation changed so dramatically with the third part scheduling companies take a significant piece of the fees. It will be very interesting to watch this play out for all of us.