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MORTGAGE NEWS

Higher Appraisal Valuations Stimulating the Housing Market

Written By:
May 28, 2013 at 2:06 AM

The housing market seems to pass one hurdle after another as it continue on it road to recovery. Late last year, it seemed as though “low-ball” appraisal would curtail real estate sales transaction. Today, data show that more appraisers are valuating homes at higher prices, which allows for more real estate sales transactions to go to the closing table and property to exchange hands.

After the housing market crashed, it became a buyer’s market, and sellers received unreasonably low offers that were far below the home’s selling price. The importance of getting higher valuation cannot be overestimated.

For example, a home that cost $250,000, and required a 20 percent down payment of $50,000, the borrower would need a mortgage amount of $200,000. However, if the appraised value comes back at $225,000, the bank will only give the buyer a mortgage for $180,000. Such a scenario makes the home too costly for many home buyers.

Appraisals Come Under Fire

In September 2012, the NAR released the results of a survey that showed real estate appraisals that valued homes below the sell prices forced the cancellation of about 11 percent of sales transactions-- of the respondents. Buyers renegotiated 15 percent of the deals to a lower sales price.

One Seattle-based real estate agent Michael Ackerman states that between 2008 and 2010, over one-third of sales transactions fell below the sell price. The situation got so bad that Ackerman remove the keys from the key boxes, which required appraiser to call him to gain access to subject properties.

Ackerman would showed up with the keys and a “packet of comparables” and explanations of the data he used to price homes.

Many of the issues were attributed to appraisers who were not familiar with neighborhoods. In addition, it appraisers commonly used the comparables of distressed property sales—foreclosures and short sales, without making the required modifications to the necessary values.

The development of a seller’s market in many regions of the country has created bidding wars and boost home prices above recent comparables.

Why Appraisal Valuations Are Higher

According to the National Association of Realtors (NAR) chief economist Lawrence Yun, escalating home prices coupled with a tight inventory of homes have placed upward pressure on home values. Consequently, many appraisers are placing values on these homes that exceed the selling price.

Of the 15 sales transactions he has closed so far in 2013, Ackerman says that “none of the appraisals have come in below the selling price."

Prices have increased 15 percent over the last year in Jacksonville, Florida. One real estate broker found the trend toward higher appraisal valuations extended to FHA finances transactions as well. Generally, FHA insured mortgages carry more stringent appraisal guidelines. The appraisal came in $5,000 higher than the selling price.

New regulations for appraisers

Along with bankers, appraiser received a significant share of the blame for the housing bubble. Many appraisers claim they were pressured by mortgage lenders to provide higher property valuations helping to close transactions and get borrowers approved for bigger mortgages.

Subsequently, Fannie Mae and Freddie Mac introduced new guidelines called the Home Valuation Code of Conduct of 2009. Now, lenders must hire a third-party appraisal, management firm. In addition, the code of conduct prohibits the lender from discussing the appraisal valuation process with the lender.

The location of a property has the most impact on valuation. It is followed by other elements like size and condition says Gilbert Valdez, owner of Coast Appraisal Network in Orange County. Up to homes to do not return as much as sellers expect, said Valdez. He also says that the “price gap” between distressed properties and standard transactions has been narrowing.

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