More Deals Falling Through Due To Appraisal Issues

Appraisals coming in lower than the agreed-upon sales price continue to cause more real estate deals to be cancelled, recent surveys show.

In December, a third of real estate professionals reported they had a real estate contract fall through, up from 9 percent a year earlier.

The National Association of REALTORS®, along with other housing industry groups, point to low appraisals and rejected mortgage applications from a stringent lending environment as the main forces behind the high number of transaction cancellations in recent months.

Too often, foreclosures sales — which tend to be sold at big discounts — are being weighted into valuations, experts argue.

The National Association of Home Builders’ chairman Bob Nielsen has called the use of distressed and foreclosure sales in comparables in appraisals “inappropriate” and “needlessly driving down home prices.”
Sixty percent of builders say they are seeing problems from appraisals coming in below their contract sales price.

“This is not only unfair and unreasonable, but it perpetuates the cycle of declining home values, drives more home owners underwater, harms local economic activity and acts as an obstacle to the recovery of the housing market,” Nielsen said in a statement in December about appraisals.

But the lending environment also needs to change for the housing market to recover and for fewer deals to stop falling through, housing experts say.

“If we simply return to the normal credit standards, verifying income and looking at the creditworthiness of an individual to stay in a property long term, we think sales will be 15 percent to 20 percent above where they are,” NAR spokesman Walt Molony told Investor’s Business Daily. “There are more people trying to buy homes than are succeeding today.”