Tight inventories, rising home prices complicate appraisals

Resourceful agents can dig up information to support valuations

Recent surveys by the National Association of Realtors found that about one in three Realtors have experienced contract problems related to home appraisals during the last three months.

The surveys showed 15 percent of Realtors had a contract renegotiated to a lower sales price as a result of a low valuation, while 11 percent said they had a contract cancelled because a home's appraised value came in below the negotiated price. Another 9 percent reported that a contract was delayed by a low valuation.

Good news about improving housing markets had made the appraiser's job even more difficult. The S&P/Case-Shiller Home Price Indices posted a fifth consecutive month of gains in August, with a 20-city composite index showing home prices up 2 percent from a year ago.

Lenders want to see comparable sales of homes similar to the one being appraised that sold and closed within the prior three months. When sales were declining, even 3-month-old comparables were out of date.

Lenders asked appraisers to look at the current list prices of comparable homes to see if they were listed for less than was the case three months before. If so, this indicates a declining market. Lenders were conservative, sometimes marking the appraiser's evaluation down to a lower price.

Now we have the opposite situation where, in some places, current sale prices are higher than they were three months ago. The low inventory of homes for sale has created bidding wars in some high-demand niche markets. This situation can often drive prices higher than indicated by comparable sales from the previous several months.

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An aggravating factor is that low inventory can reduce the number of comparables because there are fewer sales. In this case, an appraiser might need to look at comparable sales from neighboring areas to get a sense of current market value.

HOUSE HUNTING TIP: Make sure you work with a resourceful real estate agent who will do the homework necessary to help the appraiser do an accurate job. Agents should not tell appraisers how to do their business, or what price to put on the appraisal. But, it's useful to the appraiser to have detailed information on comparables your agent thinks are the most valid given the current market.

Some homes sell off-market. Appraisers usually pull the information they use for appraisals from the local multiple listing service (MLS). But, some sellers receive offers before their home goes on the MLS. Your agent should make the buyer's agent and the appraiser aware of any recent comparable sales that would be useful in appraising the home for the price the buyer has agreed to pay even if the sales didn't make it to the MLS.

Lenders often require documentation to support that work to a home was done with required building permits if the public record differs from the actual configuration of the house.

The public record is often wrong. One Piedmont, Calif., seller discovered that the public record showed that her house was missing a bedroom and bath. The previous seller gave her the permits for the master bedroom and bath addition completed during his ownership. The permits were given a final approval by the city building inspector. The current owner took the permits to the city and the public record was corrected to show the addition.

It's important that a real estate agent meet the appraiser at the property. This is particularly so if the appraiser is from out of the area. The agent should go armed with approved permits, a list of improvements, selling features and comparable sales information from the MLS, and any off-market comparable sales.

The agent should educate the appraiser about current market conditions and let the appraiser know if there were multiple offers on the property.

THE CLOSING: Homeowners who are refinancing can ask the agent who sold them their home to provide comparable sales information. Most agents should be happy to provide this service in exchange for your referral and repeat business.

Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide."

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