{"id":8292,"date":"2012-04-24T08:06:45","date_gmt":"2012-04-24T13:06:45","guid":{"rendered":"http:\/\/www.amybergquist.com\/blog\/?p=8292"},"modified":"2012-04-24T08:06:45","modified_gmt":"2012-04-24T13:06:45","slug":"the-evolution-of-appraisal-risk","status":"publish","type":"post","link":"https:\/\/www.amybergquist.com\/blog\/2012\/04\/24\/the-evolution-of-appraisal-risk\/","title":{"rendered":"The Evolution of Appraisal Risk"},"content":{"rendered":"

Real estate appraisals have been a hot button issue over the past few years. <\/p>\n

First, appraisers were implicated as a contributing factor to the real estate bubble in the mid 2000s. The line of thinking was that they were focused less on the accuracy of their results than on their next deal.<\/p>\n

\"GardenNext, the government responded by clamping down on the appraisal process to prevent lenders and real estate agents (who were both also implicated in the bubble) from exerting undue influence. Lenders have to hire appraisers indirectly through an appraisal management company. And although real estate agents have to let the appraisers into a home, we aren’t supposed to talk to them.<\/p>\n

Then the real estate market headed south, with a dramatic decline in market activity (number of transactions)<\/a>, and a more gradual decline in prices. Appraisal risk became an important consideration when selling real estate in this new environment.<\/p>\n

Would the home successfully appraise to the contract price? If no comparable properties sold within the past 6 months, then the appraiser was in a difficult position. Even if they were able to identify a value by making adjustments to not-really-comparable homes, there was still the risk that the bank’s underwriters would reject the appraisal. We saw this happen to our clients.<\/p>\n

Sellers often had to reduce their price if a home didn’t appraise. Buyers were few and far between for a while, and sellers often felt they had to do whatever it took to keep a deal together. Since mortgage companies would require buyers to contribute more cash to the deal (in order to preserve the lender’s loan-to-value), and buyers were very reluctant to “overpay,” the easiest answer was to reduce the purchase price to the appraisal value.<\/p>\n

With buyer activity heating up in some towns<\/a>, appraisal risk is evolving. Multiple offer situations are becoming more common and buyers seem willing to pay a premium for thoroughly updated, rarely available homes. It’s classic economics – supply is low and demand is high, so prices go up.<\/p>\n

The new wrinkle is that even if a listing agent has three bids at essentially the same price for a home, the appraisal may come in much lower because the historical data isn’t there to support a new, higher, price. In a regional real estate environment with flat or falling prices, how will the appraisers account for pockets of rising prices?<\/p>\n

One development we’re seeing is buyers taking on the appraisal risk in order to get the home under contract. They’re willing and able to bring additional cash to the deal in order to keep the lender happy just in case the appraisal doesn’t work out in their favor. Not all buyers have the cash, but those that do can sweeten their bid a little bit by dropping the appraisal clause from the offer.<\/p>\n

It’s an interesting development, and something we’ll continue to monitor to see how appraisals continue to evolve.<\/p>\n","protected":false},"excerpt":{"rendered":"

Real estate appraisals have been a hot button issue over the past few years. First, appraisers were implicated as a contributing factor to the real estate bubble in the mid 2000s. The line of thinking was that they were focused less on the accuracy of their results than on their next deal. Next, the government responded by clamping down on the appraisal process to prevent lenders and real estate agents (who were both also implicated<\/p>\n

Continue Reading<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1568,1585,1591],"tags":[1715,4010,2520,3520,4025],"class_list":["post-8292","post","type-post","status-publish","format-standard","hentry","category-buying","category-mortgages","category-selling","tag-appraisal","tag-buying","tag-mortgage","tag-risk","tag-selling"],"_links":{"self":[{"href":"https:\/\/www.amybergquist.com\/blog\/wp-json\/wp\/v2\/posts\/8292","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.amybergquist.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.amybergquist.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.amybergquist.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.amybergquist.com\/blog\/wp-json\/wp\/v2\/comments?post=8292"}],"version-history":[{"count":15,"href":"https:\/\/www.amybergquist.com\/blog\/wp-json\/wp\/v2\/posts\/8292\/revisions"}],"predecessor-version":[{"id":8310,"href":"https:\/\/www.amybergquist.com\/blog\/wp-json\/wp\/v2\/posts\/8292\/revisions\/8310"}],"wp:attachment":[{"href":"https:\/\/www.amybergquist.com\/blog\/wp-json\/wp\/v2\/media?parent=8292"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.amybergquist.com\/blog\/wp-json\/wp\/v2\/categories?post=8292"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.amybergquist.com\/blog\/wp-json\/wp\/v2\/tags?post=8292"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}