Realtors complain about ‘low-ball’ appraisals

By Buck Wargo

Friday, June 5, 2009 | 2:05 a.m.

Despite a 77 percent increase in existing home sales this year, some Realtors are complaining that low-ball appraisals are stifling sales.

First-time homebuyers and investors are leading the sales charge with home prices at their lowest in a decade, but Realtors contend that several appraisers are setting values that are much lower than they should be — and that those appraisals are killing sales.

Some call it an overreaction to the housing boom when some appraisers were accused of inflating prices on certain deals, prompting banks to lend more money than the property was worth. Appraisers contend they are setting prices based on what’s being paid in the market.

Mark Stark, owner of Prudential Americana, said he thinks appraisers are focusing too much on projecting what values will be instead of what they really are.

“The appraisers are being very conservative,” Stark said. “They are trying to cover themselves.”

What’s happening with appraisals has been felt the most in listings by homeowners who may, for example, have bought their home for $300,000 and are now selling it for $220,000, Stark said. If the appraisal came in at $205,000, that would force the seller to lower the price or the buyer would have to come up with $15,000 to make up the difference because the bank would loan only up to the appraised value, Stark said.

“The owner would rather tell them to drop dead than cut their price another $15,000,” Stark said. “I would say it is not causing us to lose all of these sales, but it is affecting 20 to 25 percent of the sales.”

About two-thirds of the existing home sales have been lender-owned properties.

Julie Burkart, an appraiser with Southwest Appraisal Service in Las Vegas, said everyone is surprised by the decline in values and suggested that the drop is not appraisers trying to cover themselves. They are basing their decisions on the data they have, she said.

“They are not worried about covering themselves if they are doing a good job,” Burkart said. “There are a lot of people out there who think their homes are excluded from the price drops, but they are not.”

But Mark Madsen, communications director for Raintree Mortgage Services, suggested some appraisers don’t want to come in too high with the values so that they can keep working.

“I think appraisers are scared to get blacklisted,” Madsen said. “If the appraisals are too high, then banks may no longer accept appraisals from that person,” Madsen said.

The issue of low-ball appraisals has been an ongoing concern of homebuilders, who said it has cost them sales. It has gotten to the point where appraisers aren’t even adding value to a home if it uses solar energy, said Monica Caruso, Southern Nevada Home Builders Association spokeswoman.

Low-ball appraisals are not having the same effect on foreclosure properties because banks don’t have an emotional attachment to a property, Stark said. Banks realize they have to lower the price if the appraisal comes in less than the agreed price, and the buyer isn’t willing to pay a greater down payment.

That, however, has created problems for some buyers who bid over the list price for a bank-owned home, only to lose out to someone who may have offered less, but was willing to pay cash, Stark said.

“The buyers are blaming us and asking what funny business is going on when banks are accepting an offer that’s $20,000 less,” Stark said.

He said he understands that appraisals are not an exact science, and it’s difficult to get the value down to the penny, but that doesn’t lessen his concerns.

“I am not trying to beat up on the appraisal system, but the pendulum has swung too far,” Stark said. “Maybe, they need to go after the problem with a scalpel.”

Nancy Tucker, a Realtor with Coldwell Banker Premier, said some of the fault lies with banks selling foreclosure properties. Lenders are listing initial prices that are well under the market value as a way to generate multiple offers.

The lender accepts the highest offer and other buyers fall by the wayside, Tucker said. But when the appraisal is completed for the home, it is well under the price agreed to by the lender and prospective buyer. That is forcing deals to get redone when there is no other competition left, she said.

The appraisers see the discrepancy between the list price and winning bid and that has an impact on them, Tucker said.

“I don’t have a problem with the appraisers,” Tucker said. “I don’t think it’s their fault. They can only go with what the comps are.”

Some are complaining new guidelines will slow the sales process and hurt the quality of appraisals. The guidelines went into effect May 1 and require that all appraisals for Fannie Mae and Freddie Mac mortgages be ordered through a third party. The new guidelines don’t apply to Federal Housing Administration mortgages, which are the bulk of the market, but some suggest that may happen in the future.

Stark said the new policies are a concern because there is no guarantee of appraisers’ quality of service because they are selected from a list rather than by the lender.

“You wouldn’t let a doctor operate on you if you didn’t know the quality of service he provides,” Stark said. “You have no say.”

Burkart said the intent of the new guidelines is to remove pressure that loan officers may have been putting on appraisers.

But the management companies selecting the appraisers are asking them to work for less and that is cutting out some of the better ones who are refusing the work. The ones left may be less experienced and that will cause further reviews and slow the sales process.

“This is not an easy market to work in, and if you don’t have a lot of experience, you could be in trouble,” Burkart said.

Las Vegas appraiser Scott Dugan said he’s worried about these third-party management firms getting too much power. By cutting fees for appraisers, that is going to mean less competent people doing the work and that will create problems, he said.

Madsen said he expects the new rules to push back closings by two to three weeks.

“With the amount of inventory we have out there, it is not good to slow it down,” Madsen said.

Tucker said the rules have pushed back her closings from about 30 days to 45 days.