I'm sure we've all been there. We are just DREADING giving our clients, or the business partners we're working with, some bad news. Maybe their loan got denied, or the property needs extensive repairs, making it currently "unlendable".
Well, I just had to give the Realtor and my borrowers some less than thrilling news. I have a VA purchase transaction that I have going and I just received the appraisal report and Notice of Value. Very disturbing news as the value came in $100,000 less than the asking price.
In analyzing the report, there were comments from the appraiser that the "Tidewater Initiative" was enacted. In all honesty, I had never heard that term before, but a quick Google search on the subject informed me that a VA appraiser is required to contact the listing agent for comparable sales, should he/she feel that the value will come in less than the contract price.
Of the six comparables the listing agent provided, only two were sales...the rest were current listings. (Obviously, more weight is going to be put on actual sold properties). So, Mr. Appraiser utilizes one of the comps the agent provided, the remaining comps (6 total) were obtained by the appraiser.
When the dust settled, value was $100,000 less than the purchase price. Now, I'm not an appraiser (nor do I play one on tv), but based on the comps and adjustments he used, the report really doesn't seem that out of line. Not to mention, the current owner purchased the property in the summer of 2006...the HEIGHT of the Real Estate market. It's not uncommon at all to see a 25-35% drop in value from the height of the market. In this case, it was a 33% reduction. Based on the contract price that was negotiated, it would have only been a 14% reduction from the 2006 sales price.
I was really hoping that buyer and seller could "play ball" and possibly renegotiate. Was informed there was a backup offer, so most likely, the seller will bail from any additional negotiations on this deal. I certainly hope the agent informs and educates the sellers that there is still the possibility of a significant risk in appraised value on any new negotiated sale.
© Karen Burket - Bank of Oregon