Christopher and Susan Capetz put their St. Petersburg home on the market in April after spending $11,000 on a roof and an air conditioner.
In July, they gladly accepted a $142,000 offer. But the sale fell through after the appraisal came in at just $130,000.
The Capetzes fault the appraiser.
"It all hinges on one person," said a disappointed Christopher Capetz. "What if that person was in a bad mood that day? It seems like a broken system. It's a roadblock."
Experts say the Capetzes' experience is a cautionary tale. Appraisals routinely come in under the negotiated sales price, often driven down by the glut of foreclosed houses and short sales with rock-bottom prices.
And like the Capetzes found out, would-be sellers should think twice before pumping cash into upgrades or a remodeling project. There's no guarantee that appraisers will value them as highly as buyers and sellers, a fact that scuttles deals.
Frank Gregoire, a St. Petersburg Realtor and appraiser who headed the Florida Real Estate Appraisal Board for eight years during the housing boom, advised sellers to stick with new paint and carpet.
"If you make a major improvement, you should expect to enjoy that improvement. Don't treat it as an investment," he said. "It's unlikely you'll get what you paid for it."
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The National Association of Realtors says low appraisals are killing deals across the country. An August survey of the group's members found that 11 percent saw contracts collapse and an additional 13 percent saw prices negotiated downward because of low appraisals.
Distressed sales take only part of the blame for declining home values.
Homeowners, buyers and real estate agents point an accusing finger at appraisers. They helped create the housing boom, the critics say, by working with mortgage brokers and real estate agents to deliver unrealistically high appraisals.
The subsequent crash led to new federal regulations that prohibited lenders from dealing directly with appraisers. An unintended consequence, according to critics: The appraisal process has become far less thorough.
Appraisal management companies now dominate the business. They act as a third party by assigning jobs to appraisers. Critics fault the process because many appraisers are not familiar with the neighborhoods in which they work.
The firms also maximize profits by using the cheapest, quickest appraiser for a job. As of March, about 7,500 appraisers held active licenses in Florida; 6,000 others are inactive.
The companies might charge $400 to $500 for the work but pay the appraiser half of that or less. In earlier times, the appraiser would get all or most of the fee.
Home prices have declined sharply since their July 2006 peak in the Tampa Bay area, and appraisers are drastically reducing their opinions of property values.
It's now common for homes sold for a song in foreclosure sales to strongly influence the appraisal of homes where owners have spent thousands on upgrades.
The Capetzes know that all too well.
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The couple paid $207,000 for the four-bedroom, two-bath, 1,495-square-foot house in 2005. They put the home on the market in April for $150,000.
Typically, lenders require appraisers to compare three previous sales to the home being valued. If the neighborhood has many distressed properties, lenders often require the appraiser to include two current for-sale listings, too.
A Fort Myers-based appraiser, Christopher Forrey, assessed the Capetz home.
The couple contend that:
• Forrey used lesser quality homes with lower sales prices to help come up with how much their home was worth.
• He ignored more expensive homes, ones similar to the Capetzes' home, solely because they were recently sold by investors, not homeowners.
• Those investor homes also had similar upgrades to the Capetzes' home that he could have used to give fair value to those upgrades.
Forrey declined to comment on his appraisal.
Julie Jones of Re/Max Metro in St. Petersburg represented the buyer. She said appraisers are not giving consideration for owner occupants who maintain their homes or have made improvements that add value.
She doesn't understand why Forrey excluded the investor properties, because the houses had upgrades similar to the upgrades the Capetzes made.
"The homes he compared did not have these updates," Jones said.
Fran Oreto of Port Richey, chairwoman of the Florida Real Estate Appraisal Board, said appraisers have to use distressed sales if an area is bloated with them.
Appraisers, she said, should check for nondistressed properties most similar to the home being appraised and include them. No two appraisals are the same, as lenders set requirements for which previous sales can be used in the evaluation, Oreto said.
Appraisers shouldn't be faulted for derailing sales, she added.
"We're not out to blow deals," Oreto said. "We're all in this boat together. If all we have is short sales and foreclosures to work with, then that's all we can do."
Until the housing market improves, homeowners are faced with the decision to either upgrade their properties or sell them as is. Another choice could be to not list them for sale until the market improves.
Leslie Griffin, managing broker at Prudential Tropical Realty in South Tampa, urged homeowners to utilize consumer websites like www.remodeling.hw.net to estimate how much return they will gain on remodeling projects.
These days, she cautions homeowners against spending thousands of dollars on renovations if they plan on selling.
"There's no way they'll get a dollar-for-dollar return in a depressed market."
Mark Puente can be reached at email@example.com or (727) 893-8459. Follow him on Twitter at twitter.com/markpuente.