RISMEDIA, June 22, 2009-(MCT)-Less than a week after putting his newly renovated house in Idylwood, Texas, on the market, Derrick DeCristofaro accepted a full-price offer of $242,900 on the 1940 bungalow.
But the appraisal on the 1,780-square-foot home came in at just $206,000. The buyer couldn’t come up with enough cash to make up the difference and DeCristofaro wasn’t willing to drop the price, so the deal fell through.
On top of already sluggish home sales, are appraisals becoming the newest threat to the local housing market?
Real estate experts said sales are collapsing because appraisers are being more conservative and valuing homes for less than what buyers have agreed to pay. Some owners can’t refinance because appraisers say their homes are worth less than they had counted on.
In DeCristofaro’s case, the low appraisal affected the would-be buyer’s ability to get a mortgage for the contracted price.
“Their lender naturally wouldn’t approve that,” DeCristofaro said.
His house is under contract again to a backup buyer, but because of new rules regulating appraisals, and a more conservative lending environment in general, DeCristofaro is worried about the new sale closing as well.
“It’s shocking. If we just pulled a buyer out of thin air, it would be a different story, but we had multiple offers coming in. It seems strange the lenders wouldn’t support that,” said DeCristofaro, an interior designer who is an investor in the home, which has two other owners.
Real estate broker Robert Searcy has seen a number of sales fall through because of low appraisals.
And that has the potential to hurt property values, too, he said.
“The biggest challenge isn’t the economy, or buyers who can’t qualify for loans. It’s appraisers coming in with ridiculously low appraisals,” said Searcy, who is listing DeCristofaro’s house.
Part of what’s at issue is a new rule that went into effect May 1 prohibiting loan officers, mortgage brokers and real estate agents from selecting appraisers.
New rules for lenders
The rule falls under the new Home Valuation Code of Conduct, the result of an agreement between Freddie Mac, Fannie Mae, the Federal Housing Finance Agency and the New York state attorney general to enhance the independence and accuracy of the appraisal process. It applies to lenders that sell single-family mortgage loans to the government-sponsored enterprises.
The rule was meant to prevent inflated appraisals like those that proliferated during the housing boom.
Houston appraiser Chris Catechis said there were a couple of times in recent years when he felt pressure from mortgage brokers to “hit a value” on a property. If it didn’t, they threatened to take their business elsewhere, which is what he said he advised them to do.
While the appraiser, a partner in Catechis, Campbell & Associates, understands why the new rules were implemented, it has cost him business.
Lenders are now using more appraisal management companies when they select appraisers. These companies often charge a fee to the lender and pay an outside appraiser like Catechis a portion of that fee.
Unfamiliar with the area
One of the unintended consequences of this system, however, is the chance that a management company will hire an appraiser who isn’t familiar with the neighborhood where the house is being evaluated, said Catechis.
“When you have appraisers coming from different parts of town and not knowing areas, they aren’t doing justice to the people that are trying to refinance or sell,” Catechis said. “It really skews the whole appraisal process.”
The appraisal business, in general, has become more difficult in today’s residential real estate market because there are fewer sales — many of which are foreclosures.
Some OK with caution
Catechis said he’s now often required to get two comparable sales that took place within the past 90 days. If there are none, he’ll have to look at similar subdivisions nearby.
“There’s a lot more detail involved in an appraisal for a lesser price,” he said.
Not everyone is as concerned about appraisers taking a more cautious tack.
David Zugheri, of Envoy Mortgage in Houston, said he hasn’t seen a high percentage of homes for sale not appraising.
While the industry is more conservative, “if the value is less than the sales price there’s a strong case that the value really is less than the sales price,” he said.
Copyright © 2009, Houston Chronicle
Distributed by McClatchy-Tribune Information Services.
