How Many Sales are Lost Due to Low Appraisals? Depends Who You Ask

By
Real Estate Agent with Atlanta Communities Real Estate Brokerage

low appraisalsThe issue of “low appraisals” and deals being “lost” in the Atlanta real estate market because of poor appraisal quality is one that isn’t going away anytime soon. Agents continue to share stories of seemingly solid Atlanta real estate agreements gone bad as a result of an appraisal that failed to support the contract price. The consequences are not pleasant and some deals will fall apart, other times sellers accept less to get the deal done, buyers add cash to increase the down payment or agents might give up part of their commissions. While the idea of challenging an appraisal may seem logical, most often it is a fruitless endeavor as underwriters tend to be inflexible.

The issue of low appraisals in improving markets, like many in Atlanta, can be especially troublesome as appraisals tend to use historic data (sales). Those will lag behind current active and pending homes and trying to support what appears to be an improving market with older, lower valued sales can be a bear. This has lead to an entire new discussion, one that asks are appraisers scared to report rising home prices?

Well when it comes to how much of a problem low appraisals are, there’s a disconnect between agents and appraisers. Many realtor organizations have stated that the “failure” rate of purchase appraisals runs as high as 55%-60%. Informal agent opinions expressed mainly through blogs, newsletters and surveys tend to show issues between 15% to 35% of the time. Appraisal Port just completed a survey of appraisers to get an opinion from them. There doesn’t seem to be the same view from the appraisal side.

Their survey polled 5,329 appraisers nationwide and asked “Considering the last 5 appraisals, how many came in below contract price?” As noted in the chart, 39.1% of appraisers said none and another 29.5% said one. That’s a relatively high 68.6% “uneventful” rate; on the other side 11.2% reported issues with three to five assignments. Of course variables come into play as we all know that real estate is unique with location and no two contracts are the same. Data supports appraisal issues likely occur about 15%-20% of the time – and that doesn’t necessarily mean a dead deal, just something else to negotiate.

No doubt issues exist and will continue to exist, micro management from Washington has done nothing but hurt the industry as well as the recovery…but that’s another topic.

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Rainmaker
357,096
Kat Palmiotti
Better Homes & Gardens Rand Realty, Monroe NY Real Estate, 914-419-0270 - Monroe, NY
The House Kat

Low bank appraisals seem to be an issue everywhere, and yes, they can definitely cause deals to die.  

Oct 10, 2012 07:34 AM #1
Rainmaker
844,838
Jeffrey DiMuria 321.223.6253 www.SpaceCoastHomesNow.com
Fontaine Property Group - Melbourne, FL
Your Space Coast Real Estate Expert!
It seems to me that clients with great credit are having an easier time with appraisals...is this based on instructions from the bank? Should credit affect appraisal? I don't think so.
Oct 10, 2012 07:39 AM #2
Rainmaker
233,581
David Grbich
Ventana Coastal Properties - www.FindCARealEstate.com - San Juan Capistrano, CA
Orange County Real Estate - 949-500-0484

Low appraisals can kill a deal - buyers need to come in with a larger down payment or sellers need to lower their price or move on to the next buyer. Sometimes it's unfortunate as there is certainly variance in what a home should appraise for and if an offer price falls within the variance it is unfortunate that it "may" not appraise. I do believe that most apppraisers ask what the purchase price is and genreally try to make it come in provided that the comps and condition can warrant it. Regards Dave

Oct 10, 2012 07:45 AM #3
Ambassador
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Doug Rogers
Bayou Properties Realty - Pineville, LA
Your Pineville Louisiana Agent

We are running into many mandated repairs. By the time the seller replaces the 1) roof 2) furnace 3) and repainted the exterior they could have commanded a higher price. The problem is most of this occurs on entry level homes (under 100k) and these folks typically have limited funds.

Oct 10, 2012 07:46 AM #4
Rainmaker
574,658
Wayne Johnson
Coldwell Banker D'Ann Harper REALTORS® - San Antonio, TX
San Antonio REALTOR, San Antonio Homes For Sale

Hank-I don't know how accureate my information is but I've been told that appraisers have to include absorption rates into their reports. So if supply in an area is high, the value of the home being appraised is reduced due to the supply situation.

Oct 10, 2012 08:33 AM #5
Rainmaker
128,846
Hank Miller
Atlanta Communities Real Estate Brokerage - Alpharetta, GA
Broker & Certified Appraiser

Never heard of a buyer's credit impacting an appraisal - that's a new one. If that has occured it seems to be well out of line.

FHA appraisals typically have issues with required repairs, most conventional loans done "as is" might have some but those are typically easier than FHA deals. And yes, mandated repairs can certainly add an unwanted hurdle.

If appraisers go back to basics - "the market is the best indicator of value" - then unless something is really whacky you'd think arm's length contracts should be considered "that best indicator". Issues arise with underwriting - and what appraisers have been forced to deal with.

Absorption rates, area trends, REO levels....are all brought into the picture with the 1004 market conditions amendment, so they look not only at the specific data associated with the subject, but the general data associated with the defined competing market area.

 

Oct 10, 2012 08:40 AM #6
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Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi Hank - There's another side to this issue - how different would these results have been if the initial pricing on the home was more accurate? We see over-priced homes come on the market and go under contract every day. And we see relatively few appraisals we would call badly done, though it does happen. Generally, the homes that don't appraise don't surprise us much.

Oct 10, 2012 09:47 AM #7
Rainmaker
128,846
Hank Miller
Atlanta Communities Real Estate Brokerage - Alpharetta, GA
Broker & Certified Appraiser

Dick - trust me, I agree completely and agents are always quick to point fingers everywhere else. I think the spring market is going to be a bear in this regard. The 30 second attention span of the average American will result in sellers expecting a 10%-15% bump come spring "because they said on CNN that housing has recovered".

Get ready...

Oct 10, 2012 10:01 AM #8
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Rainmaker
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Hank Miller

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