Appraisals Increasingly Becoming ‘Deal Killers’
Appraisals are increasingly being blamed for preventing deals from making it to the closing table. In a common scenario playing out across the country, sellers are accepting buyer offers to later have an appraisal come in at a dramatically lower amount, which threatens to derail the entire deal. Unless the seller comes down in price or the buyer puts down more money, the deal often fizzles.
“The appraisers have so much power to kill deals,” Jennifer Snyder, president of the St. Paul Area Association of REALTORS® in Minnesota, told the Pioneer Press.
Appraisers determine a property value by evaluating over the past six months sold transactions, current listings, and pending sales. But some critics argue that appraisers are giving too much weight to foreclosed properties in their comparables. While appraisers once rarely factored in short sales and foreclosures, appraisers would be negligent not to do so now, said Paul Sellwood, owner of Real Estate Appraisal Services in White Bear Lake.
“We’re not playing God and saying what is your property worth,” says Neal Harrah, owner of Regional Appraisals Inc. in Lakeville, Minn. “We’re offering an opinion based on current data out there.”
Real estate pros are educating sellers more about the appraisal process, realizing that sellers will need to consider the appraisal process more than they ever have and how it can threaten the sale. For example, one of Snyder’s clients had an appraisal come in $10,000 under the buyer’s accepted offer. To save the deal, the seller agreed to drop the home’s price to offset the difference.
In another incident, a buyer offered $110,000 for a condo in St. Paul, Minn., which was then appraised at $65,000. That deal was able to survive, thanks to a buyer who had deep pockets and was willing to put up more money, but the agent says with a normal buyer, it would have never gone through.
Source: “Appraisals: The New Deal Breaker in Real Estate,” Pioneer Press (Jan. 24, 2011)