Lorrie Beaumont’s home appraisals are rarely lower than the buyer’s purchase offer. When one of her appraisals does fall short, lenders usually ask Beaumont to rethink her appraisal.
Beaumont, a Westwood-based appraiser who’s been in the business for 18 years, said she always reviews the appraisal and talks with brokers.
“I always look at it twice,” said Beaumont, a member of the American Society of Appraisers. “You never know when you’ve missed something about a property.”
For the most part, Realtors, homebuyers and home sellers in Massachusetts have not had to worry about homes being appraised for less than the purchase price.
However, if the economic tide turns, more residential real estate deals could fall apart because of lower-than-expected appraisals, warn those in the real estate business.
“It has not been as big a factor in this market as it has been in other markets,” said Donna Wood, one of the broker/owners of The MacDonald Wood Real Estate Group in Duxbury. “We’re in a market where for the most part, at least in Southeastern Massachusetts where we do business, the market is still appreciating.”
The “pendulum will swing” from a sellers’ market to buyers’ market if buyers perceive there is a bigger supply of houses, Wood said.
If that happens, appraisers and buyers may start balking at high home prices.
“As inventory rises, people begin to question values,” Wood said.
That hasn’t been the case lately in many Massachusetts communities, where the lack of available homes is driving the market and prices beyond the reach of many buyers.
Wood said there is such a low inventory of homes in certain price ranges that multiple offers are still coming in for some homes.
She said many agents have worried that with multiple offers coming in – especially offers that are much higher than the list price – the appraisals might fall short. That hasn’t happened yet.
“They’re appraising at the purchase price,” Wood said. “That seems to be what we’re seeing.”
Phyllis K. Sagan, owner of Sagan Agency Realtors in Swampscott, has seen a pattern similar to that described by Wood.
She said appraisers look at the same comparables she does when she is doing a market analysis of a property, including location, square footage of living space, lot size and various amenities.
In most real estate transactions, the appraisals come within the purchase price range, Sagan said. When they don’t, appraisers will contact Sagan and ask why she feels the asking/purchase price is fair.
“Very often the appraisers are not familiar with the multitude of buyers that are out there, and that pushes the price of the property up,” Sagan said.
Sagan said appraisers are savvy, but buyers today are just as savvy.
“They know the statistics,” she said. “They can go online and see what the house compares to.”
No Compromise
If a lender refuses to give a mortgage because of a lower-than-expected appraisal, it’s usually up to buyer to decide whether to put down more money.
Over the last few years, buyers have tended to use more of their own money up-front, said Sagan, but sometimes a seller might lower a price if there is something wrong with their property.
Except in refinancing deals, appraisers usually know a homebuyer’s offer because they have access to the purchase-and-sale agreement, said appraiser Beaumont.
For a refinancing, appraisers only have an owner’s estimate of property value, she said.
While Beaumont said she is always willing to reconsider her appraisals, she usually sticks with her original appraisal.
There have been instances when Beaumont has appraised a property at lower than the purchase price and then hasn’t been asked by a lender to do other appraisals for a while, she said.
“I won’t compromise myself and come up with some figure that the bank wants,” she said. “I’d rather lose the clients.”
An appraisal might be lower if there is a property feature that could negatively affect the home’s value, she said.
For example, if a house is located near a gas station, the property may not be considered a desirable location because of the traffic the station will attract, Beaumont said.
What some buyers might consider a positive feature, others may not, and that could lead to the difference in appraisals and actual purchase offers, she said.
“One sale price does not a market make,” she said.