Further Adjustments in the Lending World

Once upon a time, inflation settled naturally into the housing market.  There was also a time when the next home sold on almost any street would sell for a little bit more--just because. No one minded because we are geared to profit, cost of living  increases and healthy inflation.  But now,  the garage has to be bigger or granite has to be in place of the old Formica tops. 

 Thanks to the lending sins of the past, there are many regulations governing the elements of appraisal. Lenders rarely know who the appraiser is. This is to prevent communication and influence.  Appraisers used to rely on real estate agents for assistance in providing comparable sales. That was particularly true where the appraiser pool originated in communities far away. Now, they will take input but must do their own research.

 It used to be that there could be discussion about a valuation where something was missed--like an infinity pool instead for a typical in-ground pool or a particularly popular school district or historic area. An appraisal review was common and often adjusted when warranted.

 It used to be that homeowners could count on the their home hedging against inflation and reasonable increases occurring from sale to sale.

 Recent experiences have shown that the rules governing appraisers and their work have so tightened there is little room for discussion and valuation increases.

 Cases in point. A recent sale of a tract home stated the home had “no patio.” In fact, the seller had meticulously built a patio and entertainment area that cost over $30,000. A appraisal rebuttal simply asked for value to be added for the improvement, but the appraiser stood by his appraisal and the house had to sell as if there was no patio. This hurt the comparables for the neighborhood. The buyer acknowledged the error and agreed to pay an additional $10,000 in cash for the home.

 In another situation, an appraiser would not go to an adjacent tract of condos (located across the street and built three years later by the same builder) to help establish value for a unit highly graded. She would only look to homes within the existing tract.

 The resulting challenge is when an appraisal falls short, there is a new negotiation. If the seller is unwilling to adjust the sales to price the meet the appraisal amount, the buyer has four options.  One--pay the difference in cash; two--ask the seller to meet in the middle; three--ask the seller to carry the difference in the form of a second trust deed with lender approval, or four--the buyer can cancel. If the seller does not reduce the sale price to the appraisal amount and the deal stays together, buyers will feel they over-paid for the property even though they love it

 In another recent transaction, sellers listed their very desirable condo at $10,000 over the last sale. Buyers loved it and knew they were competing so they offered $5,000 over asking price. Appraisal came in the same price as the last sale--$15,000 less that the sale price.