Appraisals Weigh Down Housing Sales
August 26, 2011
Finance expert William Maxwell is concerned about the appraisal of homes in America, including his own. In August 2010, Mr. Maxwell's home was appraised at $790,000 as part of a mortgage refinancing. Yet this past spring, when he tried to sell the four-bedroom home for $756,500, the appraisal commissioned by the buyer's lender, Bank of America Corp., came up with a value of $730,000. Mr. Maxwell said the appraisal killed the sale. Mr. Maxwell claims that weak appraisals are "driving down the real estate market" and now he is appealing his home's valuation to the state regulator, reports the Wall Street Journal.
Disputes over valuations are rising.
- The National Association of Realtors said that 16 percent of realtors surveyed reported a cancellation in June of this year, and chief economist Lawrence Yun blamed the unusually large number on low appraisals.
- In June of 2010, only 9 percent of those surveyed reported a cancellation.
- A survey by the group earlier this year found that 10 percent to 12 percent of members had a contract canceled last year as a result of a low appraisal; 10 percent to 13 percent had a contract delayed; and 16 percent to 20 percent reported that the sales price was negotiated lower due to a low appraisal.
The most basic of economic reasons -- excess supply of homes on the market and weak demand -- means that there are going to be low valuations of homes. However, it is also true that the housing bubble that burst a few years ago was inflated, in part, by overly generous appraisals. The current relatively low appraisals are undermining the housing recovery. Today, many banks also are using less-experienced appraisers who often don't appreciate factors that make a home worth more. Additionally, valuations are being heavily influenced by distressed sales priced at a discount to the rest of the market.
Source: Mitra Kalita and Carrick Mollenkamp, "Judgment Call: Appraisals Weigh Down Housing Sales," Wall Street Journal, August 12, 2011.
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