Late and Low: Appraisals Are Creating Major Problems.
March 9, 2021
The Biggest Hurdle.
Due to a combination of a crush of refinances working their way through the system and a shortage of qualified local appraisers, home appraisals have rapidly become the biggest roadblock in getting home sales closed in today's market. Regardless of which side of the transaction you are on, this is likely going to impact you in a negative way, so it's important that you set your expectations appropriately.
The most acute pain being felt by this logjam is timing. In a normal market, the appraisal on a property is usually conducted within a week of when a contract is accepted. But because of the shortage of appraisal slots available, these are now taking place 2-3 weeks after the home has been put into contract. This obviously makes the notion of closing an escrow in 30 days very unlikely, and closing any faster than that a virtual impossibility. Two of my listings that are supposed to close in the coming weeks will both be late solely due to appraisal and bank delays, and as we are finding out, yelling at a bank only results in losing your voice.
In order to alleviate the backlog, lenders are reaching well outside our local area to bring in more appraisers. But this in itself creates a whole set of problems since out-of-the-area appraisers cannot possibly understand the nuances of our local market (it's the same caution I've issued about working with agents who are not from this area), and this manifests itself in ridiculous appraisal values.
A case in point: One of my clients has a gorgeously updated 4BR home in the San Carlos hills that they are in the process of refinancing. It sits on a nearly 9,000 square foot very usable lot with jaw-dropping bay views. There is a very similar house just around the corner at 3169 La Mesa Drive that has only three bedrooms, but has sold twice in the past in the past two years for $2.425M and $2.8M most recently. The refinance appraisal my client's home came in around $2,000,000. I understand that refinance appraisals can be on the conservative side, but to miss by $800,000…. or more??
What happened here? The bank assigned this file to an appraiser from out of the area. Of the 5 comparable properties he used, one was not even in San Carlos, and two were not in the same school district!! Both of these are factors that play a HUGE role in valuation. Just look at how homes are valued in Mountain View and Los Altos. Two similar homes can be literally a block apart from each other there, with one being in the Mountain View School District and the other in Los Altos. The price difference between those two homes is likely several hundred thousand dollars, solely because of the school district they are situated in.
What Can You Do?
If you're either buying or selling your home in this market, you need to plan accordingly because this problem is not going away any time soon. A very reputable local appraiser that I know is currently booked out until the first week of April, and the new appraisal orders keep pouring in. Here's what you can do to protect yourself:
- Set your timing expectations correctly. 30-day escrows are proving very difficult to hit with the current market conditions, so if you have a lender or buyer claiming that they can close quicker than 30 days, I'd be very suspicious.
- Refi's will take even longer. Banks will prioritize new purchases over refinances, because there is a contractual deadline on a new purchase that doesn't apply for a refinance. So as long as this market stays busy, refi's will get pushed to the bottom.
- Review your appraisal report. If you're surprised by the valuation that you get in your appraisal, review the report in detail. Look especially closely at the homes they chose as comparable sales.
Most banks have a review process to appeal an appraisal valuation. As a homeowner, you have the right to get at a fair appraisal done on your home. Don't hesitate to get your loan agent or your Realtor involved if you feel that your appraisal is way off the mark. Appraising is not an exact science, but a certainly level of accuracy is to be expected.
Got any appraisal horror stories? Feel free to share them in the comments below.