CALIFORNIA REAL ESTATE APPRAISERS IN A QUANDRY
INDUSTRY NEWS, REAL ESTATE PRACTICE, SHORT SALES, TIPS FOR BUYERS, TIPS FOR SELLERS
August 25th, 2008
The recent turbulence in the real estate market has left appraisers caught in the middle of 
cautious lenders not wanting a repeat of the recent subprime meltdown and buyers and sellers trying to close a sale. Appraisals are being closely scrutinized by loan underwriters who are more frequently rejecting values as being too high. This was a rarity in the past but today is happening in some markets on 1 out of 10 deals. The comparable sales appraisers use must have closed within the past 30 days unlike the past when 1-3 months was common and using 3-6 month old sales data was not unheard of.
Some appraisers are attending daylong seminars to learn how to adapt to the current market and better evaluate the raw data used to arrive at a value. Buyers, sellers and lenders count on appraisers to read a market accurately and not over- or undervalue a property. With so many properties being sold under “duress” and other properties being sold that are not in distress can create a two-tier price level for the same neighborhood. Short sales and foreclosures really don’t conform with the definition of “fair market value“.
The problem for appraisers is exacerbated by a slow down in the number of sales taking place leaving them fewer possible comps for a particular appraisal. Lenders require the sales to be in a close proximity of the subject property. This compresses the potential comp pool further making appraisals even more difficult and complicated. Thus far, I haven’t had any major problems with appraisals not making value in the Redding/Shasta/Tehama County areas.
Appraisers are also spending more time adjusting values for concessions made by builders and individuals. These come in the form of closing cost credits and extras thrown in to make a deal. These must be subtracted out to get to the real market value. This is called market equivalent price.
In light of the current difficulties in the real estate market, there are things buyers and sellers can do to weather today’s real estate appraisal challenges. Buyers should not remove their loan or appraisal contingencies until full underwriting approval has been granted, free of any conditions regarding the property, appraisal or credit documentation. Sellers need to contemplate what decision they will make should the appraisal come up short. Typically, a buyer would have to make up the value shortage in cash. The buyer could also ask the seller to reduce the price to the appraised value in lieu of canceling the deal altogether.
Appraising is both an art and a science. Raw numbers must be crunched to arrive at a value conclusion influenced by subjectivity unique to each appraiser. Theoretically, appraisers should value a particular property at the same point in time in a narrow value range. In reality, I have found fringe appraisers that can push values much higher than fair market value to satisfy a loan officer, real estate agent, buyer or seller. The return to proper underwriting guidelines naturally means a closer look at appraisals, one very important leg holding up a real estate transaction.
I offer free, no obligation, comparative market analysis of your real estate holding. Contact me if I can be of service:
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
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