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

By
Real Estate Team Leader 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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Topic:
Real Estate Sales and Marketing
Location:
Georgia Cobb County
Groups:
Appraisers
"Whacked"!!!
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Ambassador
599,462
Doug Rogers
Your Pineville Louisiana Agent
Bayou Properties Realty

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.

October 10, 2012 07:46 AM
Rainmaker
510,440
Wayne Johnson
San Antonio REALTOR, San Antonio Homes For Sale
Coldwell Banker D'Ann Harper REALTORS®

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.

October 10, 2012 08:33 AM
Rainmaker
113,569
Hank Miller
Broker & Certified Appraiser
Atlanta Communities Real Estate Brokerage

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.

 

October 10, 2012 08:40 AM
Ambassador
1,030,074
Dick Greenberg
Northern Colorado Residential Real Estate
New Paradigm Partners LLC

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.

October 10, 2012 09:47 AM
Rainmaker
113,569
Hank Miller
Broker & Certified Appraiser
Atlanta Communities Real Estate Brokerage

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...

October 10, 2012 10:01 AM
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Rainmaker
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Hank Miller

Broker & Certified Appraiser
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Additional Information

The HMT blog is written by Hank Miller of The Hank Miller Team. He is a licensed broker and certified real estate appraiser in the state of GA. Since 1989, real estate has been his full time occupation and Hank consistently ranks at the very top of Atlanta area agents in overall production. He is known as much for his attention to detail as he is for his candor.