‘Under-appraisals’ an issue only when home seekers not well counseled
By Jim Parker
CTW Features
Booming markets with escalating property listings expose cases in which appraisals compute values that are noticeably lower than buyer offers on the table, according to industry observers.
That can be a problem if so-called ‘under-appraisals’ leave the potential acquirer bidding above their means. But representation from veteran agents can keep clients from asking too much.
“I think it’s an issue, especially if somebody doesn’t have (an agent) on their side,” said David Kent, owner and broker-in-charge of The Real Buyers Agent in Mount Pleasant, S.C. Kent hasn’t had an under-appraisal case, but believes they’re possible in any hot market.
His comments follow the National Association of Exclusive Buyer Agents’ late summer survey among its members on under-appraisals and Current Market Analyses (CMAs).
Survey results show that 87 percent of agents who exclusively represent buyers haven’t had issues with customers’ homes under-appraising. But nearly 39 percent contend that under-appraisals are typically an issue in their area. Another 44 percent say they weren’t sure if it was an issue, according to the agent association.
“It appears that the problem with appraisals is a result of an emotional home buyer who offers far too much money for a property because of his or her fear or being outbid and not having a buyer agent willing to explain that the house just isn’t worth that much money,” said Richard Rosa, of Buyers Brokers Only in Haverhill, Mass.
A vast share of members, 94 percent, say they complete the market analyses for their buyers to assist with a purchase offer, according to the Avondale, Ariz.-based association, formed in 1995 for companies set up to represent only real estate buyers.
According to the exclusive buyer group, the newest and least experienced agents of traditional brokerages typically are buyers’ agents. More experienced associates handle listings. The surveyed Exclusive Buyer Agents note that 53 percent of buyer agents in their area are the newest agents in the brokerage.
“Since working with buyers tends to be more time intensive, it is very common to see brokerages give that work to the least experienced agents in the office,” said Jon Boyd, an association member of The Home Buyer’s Agent of Ann Arbor, Mich. “When we view properties with buyers, we actively help evaluate the homes while we are there. An inexperienced agent can’t provide that service.”
Exclusive Buyer Agents argue that the way to fix the problem is to form teams.
“Our office has very experienced long-time agents,” said Melanie Wilson, association member of A Buyer’s Best Choice Realty in Johnson City, Tenn. “New agents are forming teams with experienced agents and doing buyer agency that way.”
For more, go to www.naeba.org.
The appraisal can play a key role in house sales, particularly when the transaction involves a mortgage rather than an all-cash deal.
One thing to note: The appraiser’s valuation an opinion – albeit an educated one – of what the property is worth. It doesn’t matter what the buyer is willing to pay or what the seller is willing to accept, Lew Sidelman, a housing and real estate columnist, wrote in syndicated column in 2015.
“If the appraisal comes in too low for the lender to accept the buyer’s application for a mortgage, the seller will have to lower the price or the buyer will have to come up with more cash to make the deal work,” he said.
According to Dan Melson, who describes himself as a realtor and loan officer in California, buyers have options with lenders if the appraisal comes in low. They can walk away from the loan, they can make up the price difference in cash or they can renegotiate the deal with the seller, he wrote in a blog earlier this year.
In a Realtor confidence survey Nov. 2016-Jan. 2017, the National Association of Realtors (NAR) found that 22 percent of respondents faced appraisal issues.
Among the reasons why appraisals come in low: artificially inflated prices resulting from multiple offers, the NAR says, according to an article on the balance.com.
One of the reasons that appraisals don’t always match up with the agreed-to price is that buyers and sellers agents are looking at the transaction from two different sides, according to Kent.
“Listing agents are forward [looking], checking what the home value would be four months from now,” he said. “I’m always looking back, what it [last] sold for.”
© CTW Features
