New Bumps on the Appraisal Road
First, the good news. The real estate market definitely is waking up from a long, lazy slumber. Look around. The signs of renewed vigor are everywhere. The bad news is this – the market is still in low gear. One reason for the lagging sales pace is tight credit. Another less obvious but equally detrimental reason lies in the appraisal realm. Specifically, the steady increase in the number of under-value appraisals. An unexpectedly low assessment of a property’s value can blast an exquisitely-crafted contract right out of the water. And all those weeks or perhaps months of wheeling-dealing negotiations go right down the proverbial drain.
Now don’t press the panic button yet. More than likely, your finely-wrought contract is safe from the ravages of under-valuation. A recent survey revealed that 65% of the Realtors polled did not experience contract setbacks resulting from low appraisals. The survey covered activity over a three-month period. Nevertheless, the remaining 35% of those questioned claimed that due to low valuations, recent contracts either were cancelled, delayed, or re-negotiated to a lower price. So even when a contract isn’t lost, a precious commodity known as time very well could be.
The core of the problem isn’t the appraisers. Most are acceptably skilled at their craft. The real cause is rooted in the changes shaking things up in the appraisal process itself. We’re talking jarring new policies such as deploying non-local appraisers who lack area knowledge. And let’s not forget the super-stringent requirements pushed into the process by the almighty banks. Facing an onslaught of unfamiliar obstacles, the appraisal industry can’t help but lag behind the outrageous pace of change.
On the plus side, the appraisal industry is making encouraging headway in its efforts to get a grip on changing market conditions. But until more progress is made, buyers, sellers, and agents must acknowledge and prepare for bumps on the appraisal road. And they absolutely must communicate loud and clear any concerns about valuation errors. Even if it means demanding, I mean, asking for appraisal #2.
Any thoughts or questions about this whole appraisal issue? I’d love to hear from you, so feel free to reach out in my direction. Or just fire your questions and comments into the comment box below. There’s always a vacancy.
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