[30%+ Deal Death] Low Appraisals, Tight Credit and “Other”
Posted by Jonathan J. Miller -Friday, March 2, 2012, 5:48 PM
6 Comments
[click to open Business Insider post]
Joe Weisenthal at BI posts a subtle headline: This Is The Trend That Could Asphyxiate The Housing Recovery based on a NAR/Nomura chart that shows that about 1/3 of all real estate professionals are experiencing blown deals. Of the 1/3:
- Low appraisal ±5% – It’s good to see my profession not responsible for all the world’s problems and the least of the “blown deal” phenomenon.
- Tight credit ±10% – Surprised it’s not higher although this accounts for people who applied for a mortgage. One of the big issues today is potential buyers staying on sidelines because they don’t think they would qualify. In other words tight credit is a much large issue than illustrated.
- “Other” ±20% – The largest category by far, the dreaded “other” is the bane of our economic existence. My mother always told me to look both ways when crossing the street or “Other” might clip you in a large sedan. I’ve got to think that the lion’s share of “Other” is made up of buyer cold feet and some sort of appraisal/credit combo.
Is NAR under some influence? That is not the party line we’ve all been taught.
Assuming the statistics are correctly analyzed and reported, is it possible to put unrealistic expectations of the selling agents in both the low appraisal and other problems categories? Or maybe the answer, as Jonathan observes, is that the chart fails to recognize that there are more market forces at work than low-ball appraisers and tight lenders.
I still haven’t discovered an answer to the question, low appraisal as compared to what?
Anyway, congratualtions to NAR for coming clean on the popular issue of low appraisals. The chart clearly illustrates that was an overblown complaint. Indeed, the chart indicates it is a waste of time to measure it. There is twice as much reported as other as there is in the other two categories combined. Maybe, as Jonathan suggests, more than anything the chart tells us it is time for additional analysis.
“I still haven’t discovered an answer to the question, low appraisal as compared to what?” The implication of this complaint is usually low appraisal compared to market value, but the fact is, most buyers and sellers and many real estate professionals never confront the idea of what market value might be until the appraisal comes back. The true answer to Edd’s question is: low appraisal compared to whatever amount it might take to make this specific deal regardless of what the market value of the property might be.
[...] I agree with appraiser Jonathan Miller that appraisals are not the factor they’re made out to be on purchase [...]
One factor could be that the seller INSISTED on an unrealistic price to begin with, and the buyer was not educated to the fact that it was overpriced. Perhaps the realtor never looked at the sold Comps. It’s not unusual for this to happen, then blame the appraiser….
Due to easy loan programs, and buyers with cash-ready in hand, it has made high-priced closed sales achievable in the past. When these over-priced closed sales became the MAJORITY available comparables in the RE market, they became the indicators as the market value. Appraisers relied on credible indicators (majority should be a credible source) to give their opinion of value.
Until appraisal is an exact science (no assumption, nor extra-ordinary assumption allowed), they should not blame on the appraisers for such opinions (exclude some bad appraisers).
Need more information. Are the deals owner occupied, % of cash deals, etc..
What about all the cash investors that come in high to “hold” a property. This gives them additional time to analyze the property during the contingency waiting period. If the numbers do not make sense they simply let it go.