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Published Jun. 26, 2012

WASHINGTON - Growing numbers of mortgage loan officers and real estate agents say appraiser reluctance to report local appreciation is becoming a significant complication in sales transactions. In a new poll of its members, the National Association of Realtors found that 33 percent of them reported appraisal problems inMay.

Even appraisal experts concede this is a troubling issue. Frank Gregoire, former chairman of the Florida Real Estate Appraisal Board and an appraiser in St. Petersburg, says many appraisers are reluctant to make the upward adjustments they know to be justified because they fear criticism that they are potentially overvaluing the property - exposing lender clients to "buy-back" demands by Fannie Mae or Freddie Mac or to future litigation.

"Even if they have the (local) data to support" adjustments reflecting positive trends that affect value - pending home sales and new listings of similar houses at higher prices, for example - "they take the easy way out" and go with a lower valuation to avoid upsetting hyper-cautious reviewers at the appraisal management companies that now control the bulk of all home real estate appraisal assignments, Gregoire said.

One appraiser in his area recently assembled strong supporting data to make an upward adjustment to a valuation based on recent sales activity on comparable houses. When he delivered the report to the appraisal management company that hired him, however, an official of the firm sent it back with instructions to "revisit" the upward adjustment - in other words, to get rid of it.

Joseph Petrowsky, owner of Right Trac Financial Group Inc., a Manchester, Conn.-based mortgage company, says too often valuations in upward-trending markets "aren't catching up with the new values, let alone a property that was involved in a bidding war." He cites a series of recent loan applications where the appraisal was thousands of dollars below the agreed-upon contract price, endangering or blowing the deals.

"Appraisers are scared to death" to report rising values, said Petrowsky. "They feel they have to (deliver) appraisals they know should be higher." Much worse is the impact on sellers and buyers. When an appraisal comes in much lower than the agreed contract price, the buyers typically need to revise their loan request by increasing the down payment - which may not be feasible - or renegotiating the contract price with the unhappy seller.

Buyers and sellers can guard against this problem by making sure real estate agents on both sides of your transaction have assembled accurate data on "comparable" sales or pending sales that demonstrate how the market has changed in the past six months or less. Then make sure the appraiser sees the data.