Lower Prices Mean Lower Appraisals

Realtor Tim Venjohn shows a house in Whispering Pines to a prospective buyer, Dr. Kelly Ennix-King. Glenn M. Sides

As of Tuesday, October 12, 2010

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 ted.natt@gmail.com.

More like this story

fugitiveguy 2 years, 7 months ago

I guess any day now we will be reading that the county tax assessor has lowered property valuations to reflect the realities of the market and the economy. BTW in the picture, wouldn't it be prospective buyer or is perspective correct?

Hunter_Chase 2 years, 7 months ago

@fugitiveguy Thanks for pointing out the mistake. It has been corrected.

Hunter Chase Online Editor The Pilot

fugitiveguy 2 years, 7 months ago

That is a nice looking home from the picture. If I had to do it all over again, more windows! Of course a few kids and a couple of pets can reduce it to rubble in just a few years.

CC85 2 years, 7 months ago

My understanding is that banks and/or lenders can no longer "select" who the appraiser will be for a particular client. In the past year, I had my home appraised and the primary comp. sale that was used on the appraisal was from a house that sold in Lee County! I understand the appraisers' are in a tough position too, but at the very least, I think they should remain in the same County when identifying comp. sales.

Zoey 2 years, 7 months ago

Banks, Developers, Contractors, Realtors, (and the list goes on) sopped up the gravy during the misguided housing boom, and the first time their ladle doesn't overrun, they cry Malnutrition !

“We also do not have any way of knowing the actual reason why this is happening.”

Could it be the "foreclosure" sign looming nextdoor ?

CNMT 2 years, 7 months ago

I would recommend that people also check their tax appraisal to be sure it is accurate. The square footage could be reported wrong. My son and his wife are buying a house in Texas and the list price was based on the tax appraisal square footage - which was off by 100 square feet! The appraisal came in lower than the contract price. The seller did come down on price to match the appraisal and sell the property - which was a good deal for my son and daughter-in-law! Not such a good deal for the seller. Double check before taking any ones word for the square footage!

TooHot 2 years, 7 months ago

Yes Tim, the market should determine the value of a real estate transaction - for a cash sale. But once you want to borrow money to buy a home, you get a lender involved, and the lender's only idea of the market value is what the appraiser is telling them.

So once again, the looming foreclosure elephant (where almost EVERY sale is for cash) puts the kaibosh on real estate markets and their transactions.

Bflat 2 years, 7 months ago

Foreclosures go through an appraisal process and broker price opinions are obtained. Usually list price is at or below appraisal. Sales are not necessarily for cash as lenders offer attractive financing at low or competitive rates along with paying some or all of the closing costs. Those properties often have an advantage of much instant equity if purchased under appraisal valuation. Huge numbers of foreclosures can negatively affect other valuations and sales in a neighborhood.

The appraisal process has become more complex as new guidelines are put into place and keep in mind that when a loan is involved, the appraiser is working for the lender, not the buyer or seller. A cash buyer can hire an appraiser. Sometimes a seller will get an appraisal prior to putting a house on the market. If a buyer comes along 6 months or more after that appraisal, there may be a different value based on the marketplace as well as whether the buyer is obtaining a loan with lender requiring a new appraisal.

A higher rate of foreclosures can be expected in Moore County as the economy is still in a serious downturn, though the media is not suggesting that. Earlier in the year, holds were put on foreclosures and programs were put in place to allow homeowners to restructure their mortgage. However, many complain that they met requirements but the lender sat on it too long, did nothing, and the homes were foreclosed anyway. Next, we hear news of reviews of the foreclosure proceedings by the major lenders.