A surge of low-ball appraisals threatens to tank what’s left of the tattered home sales market, both here in the Bay State and across the country.
Just over half of all agents polled by the Massachusetts Association of Realtors in a recent survey reported that sales in their offices have taken a hit as a result of rock-bottom appraisals. That’s actually worse than the national numbers, which are already disturbingly high.
As many as 16 percent of all home sales fell through in June, up from 9 percent in June 2010, the National Association of Realtors recently reported. And low-ball appraisals were the main culprit, the trade group contends.
Sadly, home appraisers have become the easy fall guys for this. But it doesn’t take a rocket scientist to figure out the real bad guys here – skittish bankers who have become increasingly allergic to all things real estate since the dark days of September 2008.
“‘I can never get in trouble for too low of an appraisal, but I can get in trouble if I come in too high,’” Gary Rogers, a broker with RE/MAX On the Charles in Waltham, recalls being told by one fed-up appraiser. “The appraisers are running for cover.”
After doling out mortgages like so many poker chips during the bubble years – a time when no appraisal ever came in too high – banks and other lenders today have become completely paranoid about mundane levels of real estate risk. Now no appraisal report can come in too low, and the appraisers full well know it.
Horror Stories
A growing number of stories are now emerging of home sales torpedoed at the last minute after bizarrely low appraisals that defy conventional real estate logic.
Laurie Cadigan, MAR’s president and broker owner of Barrett & Co. in Concord, had a sale of a colonial in Concord fall through after the appraiser brought in by the bank pegged the value at $700,000. The house was on the market for $829,000 and the seller had multiple offers before moving ahead with a buyer.
Turns out, the appraiser used comparable sales that didn’t match up at all, including a tear-down in another part of town.
The house went on the market again and quickly got interest from a new buyer with financing from another bank. A second appraiser, using a different set of comps, came to a much different conclusion, pegging the value at slightly above the $829,000 listing price.
“It’s frightening,” Cadigan said of the huge gap between the two different assessments.
Rogers, the RE/MAX agent in Waltham, recently suffered a serious appraisal shock of his own.
Things appeared to be going swimmingly for his client, who was trying to sell her childhood home in the Warrendale section of Waltham. Perched in a quiet, “Leave it to Beaver” type neighborhood, the 1930s era, three-bedroom, two-bath colonial got three offers.
Rogers’ seller settled on a $448,000 offer – with a two car garage, an unusual feature in the neighborhood, helping seal the deal.
But the appraisal, when it came in, threw a monkey wrench into the whole process, pegging the house’s value at only $430,000.
Irate, Rogers took a closer look and discovered the comps used included the sale of a Cape-style home nearly a mile across town in a commercial district, far from the cozy Warrendale neighborhood. He protested to the bank, to no avail.
In the end, the buyers, a young couple just starting out, coughed up an extra $9,000 while the sellers dropped their price by $8,000.
“It just boggled my mind there was no recourse on this,” Rogers fumed.
And Lori Nery, broker owner of Coastal Realty in New Bedford, said she has encountered a couple appraisal surprises, too.
Selling a house in Dartmouth, she knew she was in for trouble when the appraiser showed up from Boston and seemed surprised to find out the house in question was near the ocean.
Never having been to Dartmouth, he had seen fields on his drive in and was under the impression the coastal town was a rural town farther inland.
Paranoia Runs Deep
Appraisers often appear to be “pulled out of a hat,” Nery noted. “If you are a mile from the beach, that is great in our area. He just took it as an area with farms. He really didn’t do his homework.”
Even agents who say they have not run into a problem yet, like Lesley Palmiter, a sales associate in the Newton office of William Raveis, are scrambling to stay ahead of potential appraisal problems before they hit.
“It’s a big problem,” Palmiter said, adding “it hasn’t happened to me, knock on wood.”
And if the numbers and horror stories look bad now, just wait. Things are likely to get worse before they get better.
Locally, the trend of deals falling through thanks to rock-bottom appraisals has been a factor since the recession hit in 2008. But the paranoia on part of lenders, if anything, appears to be worsening.
Banks and other lenders are running scared again, with the turmoil in Washington and the roller coaster ride on Wall Street stoking fears that another 2008-style financial crisis may be brewing.
About 20 percent of agents surveyed by MAR reported three or four sales in their offices having been skewed or cancelled because of low-ball appraisals. Roughly another 9 percent have seen as many as five to 10 home sales go south after lower than expected appraisals, while another 4 to 5 percent have seen 10 or more deals blown up.
“I don’t see the pendulum coming back at all,” MAR’s Cadigan said.
