This last week was the week of appraisal challenges.
In the past, a home would go under contract and your biggest challenge would be the inspection.
The due diligence, period which was confined to a limited time period was a limbo period, where the buyer could terminate at will. Once this period ends, you could feel a deep sense of relief.
The good news was that this is a limited time period and the inspection occurs during the first week or two of the contract. This allows the seller to start making moving plans as soon as the due diligence period ends.
This is no longer the biggest challenge. Now the due diligence ends and the buyer and seller have to wait until the appraisal is done to know whether they have purchased or sold the home.
The appraisal time period is usually the same time period as the financial contingency. This was not a problem in the past. Most homes appraised. Today it is a roll of the dice. You may have a home priced correctly and have the homes that sold to support that price and still have to deal with a home not appraising.
Value has always been established by what a seller will sell for and a buyer is willing to pay for a home. That is no longer true. Value is now established by what an appraiser determines the value to be.
Three classic examples of recent home appraisals, the impact of the appraisals and how each was handled:
Home No. 1: Located in a very desirable community where the neighborhood has two different price points. The neighborhood was developed and then several years later a second phase was developed. These homes for the most part were larger and had newer floor plans and more updated amenities. This home appraisal required an appraiser who could think outside the box.
The sold homes had to come from other neighborhoods outside this one and had to be built about the same time as this home and of similar quality. The appraiser listened and used similar homes from outside the neighborhood and the home appraised for the sales price.
Home No. 2: Located in a neighborhood where there are many homes that have sold that are comparable to this home. The home is in excellent condition. It had been maintained beautifully and is very desirable. The appraiser went outside the community and used a home that was much older and did not have the amenities of this home. The appraiser also used two short sales while several conventional sales could have been used. These short sales drove the price down. The home did not appraise for sales price.
This could have been the end and the buyer and seller would have lost their opportunity. The seller was buying another home so that meant the seller could not move forward with their purchase.
Two transactions in a declining market would not take place. I challenged the appraisal and the lender allowed me to do so. I presented the reasons the solds used to compare were not accurate. I showed the sold homes that supported the price.
I also was able to show the square footage used was not correct. The lender (unlike most) listened and passed the challenge to the appraiser. The appraiser was willing to admit he could be off and reversed his pricing. The home appraised and all can move forward. Now there is another strong sold for the neighborhood.
Home No. 3: Located in a very desirable community had multiple offers. Several buyers were establishing the value of this home. These offers were all very competitive.
The appraiser again used homes that were outside this community. They were also different style and bottom line the home appraised for approximately $50,000 under the sales price. Multiple buyers had determined a value much higher, and yet the home did not appraise. The deal fell through and once again our economy dependent on inventory moving, came to a halt. This home price could not be a catalyst to improve our declining market.
For the most part this is not the appraiser’s fault. Lenders have been forced by the government to keep an arms length from the appraiser. This means appraisers from outside the community with no knowledge of the area in many cases are selected to do appraisals in our community.
New on the market this week.
Editor's note: Nancy Minor is a Realtor with . Her office is located in Peachtree Corners.
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