Appraisers more cautious following housing bubble

moore
moore

It’s a potential nightmare scenario for homebuyers, sellers and real estate agents: a deal is reached and the property passes a home inspection, but the bank’s appraisal comes in below the contract price. The financing falls through and with it months of effort and hundreds of dollars in closing costs.
For appraisers, the state-licensed arbiters of real estate value, the pressures and challenges of the job have only increased since prices plunged and market-defining sales became fewer after the housing bubble.
“It has been a challenge, because the values came down and now people are seeing a rebound, but it will be a while before we can see strong sales data,” said Jamie Moore, owner of Jamie Moore Appraisal Service Inc. in Warwick.
Ideally, appraisers ground their valuation of homes – which typically need to at least equal the purchase price for a mortgage – on the most recent past sales of similar properties in the neighborhood.
But for many houses in many neighborhoods, either the most similar or the only similar properties to have changed hands in recent years might have been deeply discounted in foreclosures or short sales. Those distressed sales are generally not compared with conventional sales.
So appraisers are working a little harder, looking further into adjacent neighborhoods, learning more detail about sales nearby and supplementing the statistical record with their own judgment of what a house should be worth.
“You can’t look at just the sales in a vacuum now, so we look in terms of listings in that neighborhood and pending sales that give us a better indicator than eight months ago,” Moore said. “Lenders are kind of aware that we might need to make a positive adjustment.”
Looming over many appraisers is the shadow of the bubble and appraisals they made five years ago on homes that have since sold for a fraction of that value.
It’s made almost all parties more cautious and methodical about the real estate transactions they are considering.
“You can’t be too crazy – you don’t want to just jump on the bandwagon to make sure a sale goes through or we’ll end up having the problems of a few years ago,” Moore said. “So everyone is cautious. We are nowhere near where we were when it was out of control.”
With the market still favoring buyers and prices in Rhode Island reflecting historic affordability, so far brokers and agents report only sporadic instances of sales falling through because of a low appraisal. But that could change if the market really heats up in the spring and increasingly low inventory triggers exuberance and bidding wars.
Even if houses are worth the high offers, appraisers could be hard-pressed to find data to support it after years of rock-bottom comparables.
“We always worry and there is always a big sigh of relief after the appraisal,” said Jane Driver, broker with Armory Revival Co. in Providence. “But it hasn’t turned out to be as big an issue” as in the past.
Driver said Armory has only had one sale fall through in the past year because of a low appraisal, and she attributed it to an appraiser from the suburbs not familiar with West Side and Elmwood neighborhoods the company focuses on. Rhode Island Association of Realtors President Victoria Doran, of Coldwell Banker Residential Brokerage in Barrington, said her office has only run into the occasional appraisal problem.
Karl Martone, broker for the Martone Group RE/MAX Properties in North Smithfield, said between 2009 and 2011, the appraisal had been a reliably nerve-rattling part of every deal, but 2012 has been a big improvement.
“In 2011 we were coming up against walls on appraisals,” Martone said. “Now we have a surplus of [comparables,] and the numbers [are] reflecting a real value in the market.”
Martone said if the market does keep picking up, finding comparables for homes selling in the $400,000 to $600,000 range, which is still relatively slow in many communities, might be as difficult, or worse, as in the low end of the market.
To account for the new market landscape, buyers, sellers and Realtors are now taking steps they didn’t previously to prevent the nightmare scenario of a sale doomed at appraisal.
That includes paying for their own appraisal of a property before they enter into an agreement and the bank gets involved. While it’s an additional expense, that pre-appraisal can guide a seller to what they should expect to get for their home and protect the buyer.
Real estate agents are working more closely with appraisers than before, pointing out updates, features and amenities of properties with a pending sale, while explaining the factors that may have caused a similar property down the street to sell for less.
“You are never going to get a perfect match and that’s why we have to call a lot of Realtors to find out what the [potential comparable properties] were really like,” said Susan Kelly, owner of Appraisal Solutions in Lincoln. •

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