Weak Appraisals Hamper Home Sales, Experts Say
Weak appraisals are “driving down the real estate market” and “borders on buffoonery,” says William Maxwell, an expert in finance and professor at Southern Methodist University’s business school, who has seen his own Dallas property fluctuate in appraised value by $60,000 in just a year.
While the sluggish economy has pushed home values down the last few years, some real estate professionals and economists say that low-ball appraisals are pushing values down even more and undermining a housing recovery, The Wall Street Journal reports.
The National Association of REALTORS® reported that 16 percent of real estate pros surveyed in June reported a cancelation in a sale, mostly due to a large number of low appraisals.
Erin Wanner, a sales executive with Stirling Sotheby’s International Realty in Orlando, Fla., told The Wall Street Journal that one of her deals fell through when an appraisal came in 40 percent lower than expected for a 7,000-square-foot custom-built lakefront home; the home was under contract for $650,000 but the the appraisal came in at $380,000.
Some real estate professionals are accusing lenders of pressuring appraisers to come in with lower estimates and for basing their valuations largely on nearby distressed sales that often sell at discounted prices. That has prompted at least four states — Illinois, Nevada, Missouri, and Maryland — to consider legislation that would prevent appraisers from using distressed sales when conducting their valuations.
But the Mortgage Bankers Association says more conservative appraisals are needed. The trade association says it’s a way to protect the banks from future problems with investors who buy mortgages.
Source: “Judgment Call: Appraisals Weigh Down Housing Sales,” The Wall Street Journal (Aug. 12, 2011)