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Low-ball appraisals are hurting home sales, real estate agents and home sellers complain. In recent months, low housing inventories in many markets have sparked bidding wars on some homes. The bidding wars have helped push up home prices higher than recent comparable sales, agents say. But a low appraisal then threatens to derail the deal, they add.
Appraisers have faced criticism over their property valuations in recent years, and have been accused of using foreclosures and short sales as comparable sales—without adjustment.
However, appraisal firms say the idea that appraisers are suppressing home sales is misguided and unfounded. Appraisers say they’re misunderstood—they don’t set the value; they reflect it.
“We often hear from real estate agents, homebuilders and others that appraisals are ‘killing deals,’ and/or holding back the economic recovery,” Sara Stephens, president of the Appraisal Institute, testified to Congress earlier this year. “These accusations are unfounded and misguided. Appraisals are not meant to simply support contracts—they are obtained to help lenders assess their overall risk. Fundamentally, it does neither the borrower nor lender any good to enter into a mortgage for more than the value of the property.”
One in three real estate professionals surveyed in September say they’ve had problems relating to home appraisals in the last three months, with some saying contracts have even been canceled because the appraisal came in lower than the negotiated upon sales price.
Some real estate professionals are seeing their clients’ appeal of appraisals pay off. Patti Zermeno, a real estate professional with Century 21 Award in Rancho Santa Margarita, Calif., advised her seller to appeal the appraisal of a four-bedroom, three-bath home in Corona, Calif., which had a contract price of $565,000. The appraisal, however, came in at $450,000. The lender granted a second appraisal—which raised the value to $465,000—amounting in a $15,000 bump from the first appraisal.
“We were able to close at $500,000 with the seller reducing his price and the buyers increasing their purchase price," Zermeno said.
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