The toughest part of the job of a mortgage professional is determining the value of a client’s home, and whether or not the purchase or refinance should proceed as planned. There is nothing worse than an appraisal coming in light, too light to do the deal. No one wins here.
The borrower doesn’t get his house or his refinance if that is the deal on the table, and the mortgage guy doesn’t get paid for the work he has done to this point because the loan process just got killed.
Nothing can kill the value of your perfectly good home faster than a half dozen foreclosed homes in your neighborhood; or can it? That seems to be the big question nowadays with so many bank owned homes.
All across the country reports are coming in from agents and builders about deals being killed by appraisals.
The National Association of Realtors states that nearly 1 in 4 of its members reported losing a sale due to a botched appraisal. The National Association of Home Builders say low appraisals are sinking nearly a quarter of all new home sales. They contend that it is unfair to compare distressed homes with new ones.
Nearly 40% of all home sales in 2009 were foreclosures or short sales (meaning the property sold for less than the mortgage).
It is becoming increasingly difficult for appraisers to determine the value of a house when there are no comparable sales other than foreclosures. It is becoming harder for lenders to put together a deal that will fly due to newer rules governing appraisers and lenders.
Prior 2005 it was common practice for loan officers to find their own appraisers, and to find one that will take a look at the home first to see if comps will support the home value needed by the lender to do the deal. If I needed $400 thousand on an appraisal to do the deal I wanted I would find an appraiser that would give me the price I needed. If all I could get was $380 thousand then at least I knew where I stood and I would restructure my deal and resell it to the borrower, if possible. This way I was never blindsided three weeks into the process.
As you can guess, these practices allowed a great deal of collusion between lender and appraiser just to get the deal done. Today the loan officer is taken out of the loop and too often is shocked when an appraisal comes in low enough to kill the deal.
Is a foreclosed home worth less than a non bank owned home?
A recent study by of foreclosure and non foreclosure homes found that in areas where a good share of the market is made up of bank owned homes, non foreclosed homes were values at as much as 30% higher that their bank owned neighbors.
Las Vegas has the nation’s highest percent of foreclosed homes, about 50%, and it was found that those homes sold for an average of 23% less than other types of properties.
That doesn’t mean that markets where there are many foreclosed homes don’t weigh down the price, it is just hard to determine how much. This is where the pain comes from when lenders keep getting deals shot down because of these.
So it seems that foreclosed homes do drive down the value of non bank owned-properties. That means that you can live in one particular area of Vegas and find that those home values can be down twice as much as another similar area with little to no foreclosed homes.
Unfortunately, when it comes to the all important question of appraisals, it leaves a lot of room for interpretation.
Good luck and happy reading.
Add your Comment
or use your BestCashCow account