Realtors: Low Appraisals Hurting Sales of Foreclosure Homes

Several real estate agents are blaming home appraisers for dampening sales of foreclosure homes with their low-ball appraisals.

The realtors claim that the appraisers are adjusting values of foreclosure homes much below their market levels. Others are contending that some appraisers are overreacting to the criticism of the appraisal industry when appraisals during the housing boom were inflated, prompting banks to provide inflated loan amounts.

Mark Stark, founder of Prudential Americana, stated that appraisers are covering themselves from liabilities because they are too conservative. He said they are making estimates on the basis of projections and not on current values.

Stark said about one-fourth of home sales are not closed because of problems with appraisals. He illustrated his statement with an example of an individual seller who has already cut down his home price significantly from $300,000 to $220,000.

If his home is appraised at $205,000 and the bank will only loan the appraised amount, the buyer needs to raise another $15,000. When the buyer is not able to find the money, the sale does not push through.

Mark Madsen, an executive of Raintree Mortgage Services, even charged that appraisers are scared of getting blacklisted by banks if they make high appraisals.

In response to criticism of appraisers, Julie Burkart of Las Vegas-based Southwest Appraisal Service explained that they are not covering themselves and they are using gathered data to make their appraisals. Burkart said that many homeowners incorrectly think that their houses are not affected by the price declines of foreclosure homes.

Low-ball appraisals have also been an ongoing problem for home builders. Monica Caruso, spokesperson of the Southern Nevada Home Builders Association, said that appraisers do not even give value to a property’s solar energy features.

Stark also explained that low appraisals create problems for buyers of bank-owned foreclosure homes. Since most banks typically want to dispose of their foreclosed property inventories as quickly as possible, they sell their foreclosure homes to buyers who have cash even if their bids are lower than those offered by others without cash because of the low-ball appraisals.

Another explanation comes from Nancy Tucker, an agent working for Coldwell Banker Premier. She explained that banks list their foreclosure homes at prices below their market value to generate interest and multiple offers.

When the seller accepts the highest bid, the buyer soon finds out that the appraisal is lower than his bid.

Another development that has been affecting home sales is the mandated third-party appraisal. Realtors and appraisers claim that low appraisals and the use of third-party appraisals are hurting sales of foreclosure homes, new homes and non-foreclosed houses.