A general dissatisfaction regarding appraisals is seen across the landscape in America through the myriads of seething Real Estate agents, closing attorneys, and mortgage consultants. Minimal appraisals, often by a non-local appraiser, are killing contracts at the last moment.
Due to a rash of recent appraisals coming in lower than the contract price, real estate transactions are requiring either a renegotiation, thereby guaranteeing a delay to get to closing, or a backing-out on the deal. If the contract price does not match the appraisal, then the buyer has to come up with more cash to close the transaction to make up the amount that the lender will not fund.
According to the NAR, the problem has began to spike following the implementation of a new appraisal rule arising from the New York State Attorney General’s lawsuit against Federal Housing Finance Agency, the regulator of Fannie and Freddie. If lenders want to sell the newly originated loans to Fannie or Freddie, then the loan must abide by the new rule that favors using Appraisal Management Companies (AMC), many owned directly by large banks
Many of the properties that we see, once under contract and in the closing process, are being appraised against non-comparable property sales. Homes that are not “distressed sales” are being compared to “distressed homes,” and improvements and upgrades to the subject home are not being considered. This is due to a lack of good comparables that exists today due to a reduction in the number of homes sold in the past year.
The NAR says the appraisal problem is serious. “Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales,” he says. “In the past month, stories of appraisal problems have been snow balling from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”
NAR President Charles McMillan says appraisals are one of the key issues. “To maximize the potential for a housing recovery and subsequent economic recovery, we need realistic appraisals that are based on proper comparisons and done by a local specialist,” he said.
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