Lower Prices Mean Lower Appraisals
Home sales in Moore County have dropped each of the last three years, while the average number of days on the market has increased — so buyers believe that they are in the driver’s seat.
“But a seller shouldn’t be penalized for pricing their home right,” says Bill Sahadi, owner of Fore Properties in Southern Pines.
That is why the appraisal has become the most important part of the process.
“It must meet or exceed the agreed-upon selling price,” Sahadi says.
Unfortunately, in a down market, lower selling prices are leading to lower comparables, which result in lower appraisals.
“It’s hard enough to get a buyer and seller to agree (on a price) in the first place in this market,” says Tim Venjohn, a partner at Rhodes & Co. in Southern Pines. “Appraisals have been ridiculous lately, so the market is not setting the price anymore.”
For example, Venjohn recently had a house under contract in Whispering Pines for $412,500 and the appraisal came in at $385,000.
“It was already a great deal at contract price, but the seller had to sell at the appraised price,” Venjohn says. “We appealed the appraisal, but it took three weeks to get the new one back. A real estate transaction is time-sensitive. We can’t wait that long for a second opinion.”
Now that transaction has created a comparable that is affecting another of Venjohn’s deals. The contract price is $450,000, but the appraisal came back at $430,000.
“Appraisers’ opinions are setting market prices and it’s artificially deflating the market,” he says. “The free market is supposed to establish prices.”
Venjohn adds that too many appraisals are being done by out-of-county appraisers sent by appraisal management companies.
“We’ve got appraisers coming in from Raleigh, Charlotte, Fayetteville and Sanford,” he says. “They don’t know our market, which is unique. I may be licensed to sell real estate throughout North Carolina, but I’m not going to try and sell it in Raleigh because I don’t know that market.”
Jim Myrick, owner of Myrick Appraisal Services in Southern Pines, says appraisals are becoming more difficult to do because of a lack of good comparables and increased scrutiny of appraisals by lenders.
“The lenders have increased the guidelines to the point that they are picking appraisals apart,” Myrick says.”
One of the newer guidelines, which was instituted Sept. 1, requires appraisers to include interior photographs of the home. The bottom line is that Myrick’s reports are now 20 to 25 pages long rather than the typical 15 pages of five years ago.
“I feel the pain for the Realtors, but I don’t think everybody understands the amount of restrictions and requirements that lenders have placed on appraisers,” he says. “If my appraisal does not meet their underwriting standards, the sale cannot close.
“In some circumstances, it’s impossible to prepare a report that’s going to satisfy everybody.”
For example, Myrick is currently working on an appraisal for a waterfront townhouse in Moore County.
“It has no comps,” he says.
Myrick adds that he only does appraisals in Moore County because he is a native and has been in business for 23 years.
“The appraisal management companies are following the lead of the Veteran’s Administration by assigning work on a rotational basis,” Myrick says. “And everything is done by e-mail, so we really talk to nobody. You wonder how anything gets done.
“The days of the local appraisers working with the local lenders are gone.”
Don Rodgers, executive director of the North Carolina Appraisal Board, says his group has heard anecdotally that appraisals coming in under the contract price is an issue statewide and possibly nationwide.
“But we have no statistics verifying that this is happening in a majority of appraisals,” Rodgers says. “We also do not have any way of knowing the actual reason why this is happening.”
Commercial appraisals are also coming in lower than they were before the October 2008 stock market crash, says Susan Clift Brown, owner of Clift Commercial in Southern Pines.
“Income-producing properties in this market are being appraised at 10 percent to 15 percent below their real value,” Brown says. “Appreciation is not happening due to the appraisals. It puts a lot of financial pressure on the small business owner in this county.”
Contact Ted M. Natt Jr. at email@example.com.
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