Low home appraisals hold down area values

  • Article by: JIM BUCHTA , Star Tribune
  • Updated: June 11, 2012 - 11:34 AM

Agents throughout the Twin Cities see them as killing deals and stifling a more significant housing recovery.

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azrielaJun. 10, 12 2:32 AM

Perhaps I don't understand all of the possible issues here, but it sounds to me as if realtors are whining because they're getting realistic and conservative appraisals instead of artificially inflated appraisal numbers? After all, if there is strong disagreement with an appraisal they can do as the one person did and appeal it by providing proof of their own numbers. Otherwise, this protects not only the banks, but the home buyers as well. What many people forget is that the realtor is representing the home seller, not the buyer, and the realtor and the home seller make more profit with higher appraisals.

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krz007mnJun. 10, 12 8:27 AM

This is an unusual situation where, in fact, both sides are right. Yes, a house is worth what a willing buyer will pay for it but appraisers can only verify a value based on what the market statistically shows.

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rketterlingJun. 10, 1210:29 AM

The real problem is the appraisers are being hired from as far as 60-90 miles outside the home location. When this is done the appraiser does not know the location and cannot competently appraise the home. Neighborhoods have different values and an appraiser needs to know the neighborhood he or she is appraising. This requires more work on their part and many of them are not willing to put the time and effort into finding the best comparable for the home. Most banks don't give much to appraisal disputes and the majority of them are never won. In the end the appraiser gets paid, moves on and the market gets held down by lazy and incompetent appraisers.

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jbpaperJun. 10, 12 1:19 PM

One of the problems is, even with their formulas and comparables, an appraisal is just really one person's opinion. I had one done few years back and thought it was low. I had some people over about a month later and the appraisal came up. Everyone agreed with the issues I had with the appraisal, including an real estate agent and an appraiser (doesn't work in this area).

There were two main issues with the appraisal, one was the negative comments about a remodeling project. Not one person agreed with his comments. The other was with one of the comparables. He put the location as similar+ and put down a $5000 adjustment. While the other house was in a slightly better neighborhood overall, it was the second house off a busy 4 lane road (Lake St) and had a commercial property across the street. No one thought that location was worth an extra $5000.

However, in the end I really don't think it would have made a huge difference in the appraisal value. It might have been a couple thousand higher but that's about it.

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FrankLJun. 10, 12 2:06 PM

A year ago when we refinanced, I was extremely upset at the poor quality of the appraiser. Very shoddy work. Since we were only refinancing 25% of the homes value, the appraisal didn't matter, but the work reflected a bias an appraiser who didn't understand the market. For example, only one comparable was a real transaction and that was 12 miles away in a different suburb and state. The details were not accurate. Our house is mainly real hardwood floors or tile. The appraisal described it as 20% carpet and the rest of house as "other". An in-law suite complete with kitchen, laundry and bathroom was listed as a rec area with a wet bar. My 1800 sqft detached garage that is heated and insulated was called a storage shed. And on and on it went. It was obvious to me this appraiser had no clue of how to value anything beyond a 1950s starter home in Richfield.

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allforone14Jun. 10, 12 3:45 PM

Here's an appraisal story for you. In 2010 I attempted to refinance my Hamline area St. Paul duplex. The appraisal came in at $230,000, which was fine, but I was unable to complete the refinance for other reasons. At $230,000 I was underwater but not by too much. Fast forward to the present. I am again attempting to refinance and just received the results of my appraisal. $165,000. It's hard to imagine how that's possible. I hate to say it but if that's the case I have to consider the strategic default.

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swmnguyJun. 10, 12 4:42 PM

I'm a little confused by this story. A seller wanted to spend "$385,000 for a house listed at $379,900. The sellers accepted that offer, but the appraisal came in at $10,000 below. The deal closed only because both sides split the difference with a recorded price of about $374,950."

Was the buyer putting down a $0 down payment? Why would the deal be scotched by an appraisal $5000 less than the asking price, or $10,000 less than an agreed-upon sale price?

Last time I bought a house, 3 years ago, I was selling my first house, and had $100,000 to put down. I agreed to pay $226,000. All I was looking to finance was $126,000. My appraisal came in at...[drum roll please] $226,000, which was one of the more ludicrous things I've ever seen. But it didn't matter to me or my credit union, since I was putting down almost 45%. I got the feeling if I put down 10% even, they wouldn't have cared. Just so the amount they were lending me was equal or less than the amount of the appraisal.

Are people trying to borrow 100% and then getting upset when their appraisals don't match up? Isn't that the kind of collusion and leverage that got us into all this mess in the first place?

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go220mphJun. 10, 12 4:46 PM

Appraisals are supposed to reflect the true market value at the time of the appraisal. In the case where there are multiple offers on the property those multiple offers show the BEST data as to what the market value really is. Instead, appraisers are using old, or worse inaccurate comparable sales, including using distressed sales without proper adjustment. Comparable are supposed to be legitimate arms length transactions where neither borrower or seller are unduly influenced by outside pressures. Foreclosure sales are not comparable sales. Market data thru the downturn has shown a clearly defined lower value to distressed sales - as much as 15% compared to the non-distressed sales that occurred during that time. Yet appraisers still use distressed sales without adequate adjustment resulting in low appraisals as shown in this story, thus significantly harming homeowners and the real estate market as a whole all over again by their improper actions. They try to hide behind the excuse that banks, govt etc are making them b conservative - which is not true. The lenbders and government expect them to do ACCURATE appraisals - not conservative ones.

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wildfoxJun. 10, 12 4:55 PM

What this says is once again the banks are holding on to money and letting their cash rich friends buy up all the houses at a low rate and sit on them. Then when the banks decide to start lending they can make more money of the backs of the middle class. If anyone thinks inspectors, appraisers, banks and real estate companies are not in this together you are being duped.

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northrnlitesJun. 10, 12 5:02 PM

What the article fails to mention is that when the laws changed it unfairly balanced the system towards appraisers. They were now having to pay a third party part of their fee. All the reputable appraisers left the business, so what remains is poor quality appraisers willing to work for much less. The law also protects them from communicating with agents and mortgage consultants, so when you do have a bad appraisal, they will never admit it or change it. Borrowers are forced to pay much higher fees, while the Appraisal management co.'s make a killing. The market will never be able to recover with this broken system.

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