Hello, LOs!
Yesterday we talked about the dreaded appraisal gap, and I'd like to return to the subject.
First, thank you to all the LOs, processors and appraisers who took the time to message me. Second, I had a regrettable typo in yesterday's edition of LL – I mistakenly said appraisers were pricing, not valuing homes. Stupid, stupid, stupid. Apologies for that.
Anyway, let's get back to business.
One California-based real estate agent who originates her own loans told me she believes appraisers are being far too conservative in this high-octane market, and are also using bad comps. She had a deal fall apart due to appraisal.
"I disputed the appraisal with three more comps along with receipts of all the upgrades over $25,000 and he still refused to adjust the value," she said. "Actually he was very quick to get out to the house and do the appraisal, so no problem there. It was definitely a rush job! He told me that they have to protect the lender's interest. Wow, since when? He wasted my client's money. So now I'll find another lender and make sure they aren't using that appraisal company."
An LO in Texas told me the competition is intense where he is, and buyers are "doing extraordinary things."
One client had a home under contract for $983,000 and the list/appraised value was just $900,000. "I've seen a house listed at $1.7 million and sell for $2.03 million," he said. "I've also seen homes listed as low as $350,000 sell for $100,000 over ask. My wife and I were thinking about housing up this year and have put that on hold until the market gets some semblance of normalcy."
The LO added that some people get gifts to cover the appraisal gap while others are borrowing from retirement or brokerage accounts they didn't want to touch because of the tax hit.
"I've done a few bridge loans by placing a lien on their departing residence, even in other states," he said. "But the most important thing is educating clients from day one. Set the expectation that they will need to come out of pocket with a substantial amount because the appraisals are slowly getting better, but they've not caught up yet. For many this means reducing the price point they're shopping so they can ensure they'll be more competitive and have the funds to close."
A processor from Southern California shared with me that "almost all of the appraisals lately" for her team's refi and purchase clients "have been low, by a lot."
"For purchase, we have one buyer who is struggling to get an offer accepted," she said. "He just put his third offer in (list price $399,000, he offered $415,000, non-contingent). The seller decided to counter back multiple people at $445,000 + no contingencies. He couldn't go that high (especially knowing it likely wouldn't appraise and he wouldn't be able to negotiate after), so he offered $425,000 as his best & final and lost it. Sellers are surely getting greedy."
An appraiser based in one of the hottest housing markets on planet earth – the front range of Colorado – said the most recent sales in any appraisal is important, as is documenting.
"But making me be the only one responsible (the appraiser) for the value and the loan, makes the appraiser use more caution," he wrote. "If the lenders and agent/brokers had to carry those notes and be personally responsible for five years also, then the mortgage industry would be more cautious also."
In this appraiser's view, lowering interest rates to near zero sparked the race to buy and propelled market FOMO (fear of missing out).
"Just hope all those who bid $30,000 to $80,000 more (yes that really happened along the front range of Colorado) can survive never being able to refinance to their advantage, as interest rates will likely never enter that range again. Remembering that a rise in interest rates from 2.5% to 3.5%, is not just 1% but in reality a 29% increase, 2.5% to 5% (50%) would be awful on a $400,000 home. Guess we will have to wait and see if values double again in the next 10 years in the Northern Colorado market area, but I can't see a person making $45,000 a year making a $800,000 home payment."
There's a major shortage of appraisers out there, and it's hard for any real estate professional to keep pace with a sales market that seems to defy all logic. Appraisers, I'd love to hear from you about how you're adjusting to all the madness. As always, you can email me anonymously at jkleimann@housingwire.com.
Hope you all have a great weekend!
James Kleimann
Managing Editor, HousingWire
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