Low Appraisals Jeopardize Deals

March 2, 2011

Ten percent of real estate professionals say they’ve had sales canceled because appraisals came in below the price the buyer agreed to pay, according to a National Association of REALTORS® survey conducted in January. What’s more, another 15 percent say contracts had to be renegotiated because an appraisal came in too low.

Home builders say low appraisals are killing deals for them too. One-third of home builders say low appraisals have jeopardized sales for them (up from 26 percent in 2009), according to the National Association of Builders.

When appraisals come in low, sellers have to drop the sales price or buyers have to come with more cash, or the deal gets killed.

Appraisers and lenders say it’s not faulty valuation practices that cause low appraisals, but falling home prices. U.S. home prices are 30 percent below their 2006 peak during the housing boom.

Foreclosures and a new appraisal rule for lenders are other factors contributing to low appraisals, housing experts say. A new appraisal rule that went into effect in 2009 aims to lessen lenders’ ability to influence appraisers but has led to more outsourcing of appraisals to firms that may not be as familiar with the neighborhoods in that area.

"You get people from one end of the state appraising stuff in the other end," says Don Hammer, manager of Realty Executives in Paradise Valley, Ariz., who says half of all the canceled sales in his office have been appraisal related.

Source: “What’s Behind Home-Sales-Scuttling Low Appraisals?” USA Today (March 1, 2011)