loading...

Are New Appraisal Rules Derailing Home Sales?

by Mark Wellborn

image

Are property appraisals that are based on valuations from months ago derailing home sales that are on the verge of closing?

In her Local Address blog, Elizabeth Razzi writes that is exactly what is happening:

“There’s a Catch-22 that always arises when home prices start to increase near the end of a recession. Even though buyers are willing to pay more, appraisals often come in lower than the agreed-upon price because they’re based on comparable sales from three to six months earlier, when prices were bottoming. Real estate agents and mortgage brokers say it’s happening now, and that it’s disrupting sales.”

Razzi notes that one of the reasons that things may be worse than in years past is because of new rules from Fannie Mae and Freddie Mac that prevent brokers from ordering an appraisal directly from the appraiser. Instead, they have to go through the lender, who uses management companies to find individual appraisers who are often inexperienced and can make costly mistakes in the appraisal.

We have heard of at least two sales so far that have fallen through because of incorrect appraisals. We suspect there are more out there.

This article originally published at https://dc.urbanturf.com/articles/blog/are_new_appraisal_rules_derailing_home_sales/1071

7 Comments

  1. Mike Kiefer said at 4:02 pm on Thursday June 25, 2009:

    Great article…..I am in the middle of a sale that has just collapsed because of this very issue.

  1. Paulie said at 4:23 pm on Thursday June 25, 2009:

    I think the reverse is true - the appraisal process is preventing agents from hyping buyers into purchases above market value. This quoted blog suggests that the appraisals are wrong, because they are based on months old valuations. I would proffer that the market has not changed fundamentally the market of 3-6 months ago. The realtors and home sellers would like to get buyers to believe this, but the reality is not supporting this marketing effort.

    I applaud appraisers who are choosing not to contribute to irrational exuberance this time around.

  1. Lauren said at 1:28 am on Friday June 26, 2009:

    I agree with Paulie; I think it’s good that caution has returned. Especially with low downpayment loans, it’s risky for banks to lend in a declining market, which DC still is.

  1. Abril said at 11:16 am on Friday June 26, 2009:

    Hi,

    We have just added your latest post “Are New Appraisal Rules Derailing Home Sales?” to our Directory of Mortgage. You can check the inclusion of the post here. We are delighted to invite you to submit all your future posts to the directory and get a huge base of visitors to your website.

    Warm Regards

    Mortga-ge.info Team

    http://www.mortga-ge.info

  1. CondoAuthority.com said at 11:49 am on Friday June 26, 2009:

    A purchase price that is WAY higher than the appraised value is one thing, but if a buyer is willing to pay $5,000 more for a home that is right for them, even though comparable sales suggest the price should be slightly lower, they should be able to do so.  Otherwise, how will prices ever rise?  If the buyer is under no duress, why can’t they pay a little more for the home they want?  Every piece of real estate is unique.  And, this is a home we’re talking about, not a widget that came off an assembly line.

  1. Paulie said at 2:02 pm on Friday June 26, 2009:

    CondoAuthority - A buyer can overpay for his real estate. No one is stopping them - unless they are borrowing the money, in which case an appraisal must be based on fair market value, and not include overpayment. The bank can loan against a fair market value, if a buyer is willing to pony up the cash difference, and thereby remove the risk to the lender.

  1. Lauren said at 4:10 pm on Friday June 26, 2009:

    Paulie, I think that’s well said.

    CondoAuthority, keep in mind the house is the collatoral for the loan, so the bank needs to make sure it’s actually worth the amount they’re lending. This is especially important with FHA loans that might only have a 3.5% downpayment, and house prices are falling at a rate faster than 3.5% a year. And yes, every property is unique and appraisals are not an exact science, but in a declining market it’s best to be conservative and err on the side of under-appraising.

Comments are closed.

DC Real Estate Guides

Short guides to navigating the DC-area real estate market

We've collected all our helpful guides for buying, selling and renting in and around Washington, DC in one place. Visit guides.urbanturf.com or start browsing below!

Northern Virginia

Profiles of 14 neighborhoods across Northern Virginia

Ballston
Looking to Give People A Reason to Stay Past 6pm
Clarendon
Happily Straddling the Line Between City and Suburb
Columbia Pike
Arlington’s Neglected Stepchild is Getting a Makeover
Crystal City
Turning Lemons into Lemonade
Lyon Village
Developing An Air of Exclusivity?
Rosslyn
Hitting Its Growth Spurt
Shirlington
An Urban Village Hitting Its Stride
Del Ray
Virginia’s Small Town Near the Big City
Eisenhower Avenue
The Vibrancy Might Take a Few Years
Huntington
The Quiet Neighborhood By the Beltway
Old Town
Mayberry By The Potomac
Parkfairfax
132 Commerical-Free Acres
Downtown Falls Church
Staying the Same in the Midst of Change
Tysons Corner
Radical Change Could Be On The Way

See more Northern Virginia »

Maryland

Profiles of 14 neighborhoods in suburban Maryland

Annapolis
Small-Town Living in the State Capital
Bethesda
Bedroom Community Gets Buzzing Cache
Cabin John
In With The New While Maintaining the Old
Chevy Chase
Affluence, Green Lawns and Pricey Homes
Downtown Silver Spring
Experiencing a Resurgence After a Bumpy History
Potomac
A Suburb on Steroids
Rockville Town Square
Despite the Dynamism, Still Somewhat Generic
Takoma Park
More Than a Little Bit Quirky
Wheaton
A Foodie Magnet on the Verge of Change
Capitol Heights
Kudzu, Front Porches and Crime
Hyattsville
Glass Half Full or Half Empty?
Mount Rainier
Artists, Affordable Homes and A Silo Full of Corn
National Harbor
A Development Rises Next to the Potomac
Riverdale Park
A Town Looking For Its Identity

See more Maryland »

Northwest DC

30+ neighborhood profiles for the city's biggest quadrant

16th Street Heights
DC's Sleeper Neighborhood
Bloomingdale
Where (Almost) Everyone Knows Your Name
AU Park
One of DC’s Last Frontiers Before the Suburbs
Brightwood
DC’s Northern Neighborhood on the Cusp
Burleith
DC’s 535 House Neighborhood
Cathedral Heights
Do You Know Where That Is?
Chevy Chase DC
Not to Be Confused With the Other Chevy Chase
Cleveland Park
Coming Back After A Rough Year
Columbia Heights
DC’s Most Diverse Neighborhood, But For How Long?
Crestwood
An Island of Serenity East of the Park
Dupont Circle
The Best of DC (For a Price)
Foggy Bottom & West End
Where the Institutional Meets the International
Forest Hills
Ambassadors and Adventurous Architecture
Foxhall Village
350 Homes Just West of Georgetown
Friendship Heights
A Shopping Mecca With a Few Places to Live
Georgetown
History, Hoyas and H&M
Glover Park
One of DC’s Preppier and More Family-Friendly Neighborhoods
Kalorama
A Posh View From Embassy Row
LeDroit Park
A Quiet Enclave in the Middle of the City
Logan Circle
Trendy Now, But Not By Accident
Mount Pleasant
Sought-After Homes Surround Main Street in Transition
Mount Vernon Triangle
From Seedy to Sought-After
Palisades
The Long, Skinny Neighborhood at the City’s Northwest Edge
Park View
It’s Not Petworth
Penn Quarter/Chinatown
DC’s Go-Go-Go Neighborhood
Petworth
Getting a Vibrancy of Its Own
Shaw
The Duke’s Former Stomping Ground
Shepherd Park
DC’s Garden of Diversity
Spring Valley
A Suburb With a DC Zip Code
Takoma
Not To Be Confused With Takoma Park
Tenleytown
Not Quite Like Its Neighbors
U Street Corridor
The Difference a Decade Makes
Woodley Park
Deceptively Residential
Adams Morgan
No Longer DC’s Hippest Neighborhood, But Still Loved by Residents

See more Northwest DC »

Southwest DC

The little quadrant that could

Southwest Waterfront
A Neighborhood Where A Change Is Gonna Come

See more Southwest DC »

Northeast DC

Profiles of 10 neighborhoods in NE

Brookland
New Development Could Shake Up Pastoral Peace
Deanwood
A Little Bit of Country Just Inside the District’s Borders
Eckington
Not to Be Confused With Bloomingdale
Fort Totten
Five Years Could Make a Big Difference
H Street
A Place To Party, and To Settle Down
Langdon
The Northeast Neighborhood That Few Know About
Michigan Park
A Newsletter-On-Your-Doorstep Community
NoMa
Evolving from a Brand to a Neighborhood
Rosedale
Ripe for Investment Right About Now
Trinidad
The Difference 5 Years Makes
Woodridge
Big Houses, A Dusty Commercial Strip and Potential

See more Northeast DC »

Southeast DC

6 neighborhoods from Capitol Hill to East of the River

Capitol Riverfront
Still Growing
Hill East
Capitol Hill’s Lesser Known Neighbor
Congress Heights
Gradually Rising
Hillcrest
Notable for Its Neighborliness
Historic Anacostia
Future Promise Breeds Cautious Optimism
Eastern Market
A More European Way of Living

See more Southeast DC »

Upcoming Seminars ▾