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Are New Appraisal Rules Derailing Home Sales?

  • June 25th 2009

by Mark Wellborn

Are New Appraisal Rules Derailing Home Sales?: Figure 1

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.

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