It’s a potential nightmare scenario for homebuyers, sellers and real estate agents: a deal is reached and the property passes a home inspection, but the bank’s appraisal comes in below the contract price. The financing falls through and with it months of effort and hundreds of dollars in closing costs.
For appraisers, the state-licensed arbiters of real estate value, the pressures and challenges of the job have only increased since prices plunged and market-defining sales became fewer after the housing bubble.
“It has been a challenge, because the values came down and now people are seeing a rebound, but it will be a while before we can see strong sales data,” said Jamie Moore, owner of Jamie Moore Appraisal Service Inc. in Warwick.
Ideally, appraisers ground their valuation of homes - which typically need to at least equal the purchase price for a mortgage - on the most recent past sales of similar properties in the neighborhood.
But for many houses in many neighborhoods, either the most similar or the only similar properties to have changed hands in recent years might have been deeply discounted in foreclosures or short sales. Those distressed sales are generally not compared with conventional sales.
So appraisers are working a little harder, looking further into adjacent neighborhoods, learning more detail about sales nearby and supplementing the statistical record with their own judgment of what a house should be worth.
“You can’t look at just the sales in a vacuum now, so we look in terms of listings in that neighborhood and pending sales that give us a better indicator than eight months ago,” Moore said. “Lenders are kind of aware that we might need to make a positive adjustment.”
Looming over many appraisers is the shadow of the bubble and appraisals they made five years ago on homes that have since sold for a fraction of that value.
It’s made almost all parties more cautious and methodical about the real estate transactions they are considering.
“You can’t be too crazy – you don’t want to just jump on the bandwagon to make sure a sale goes through or we’ll end up having the problems of a few years ago,” Moore said. “So everyone is cautious. We are nowhere near where we were when it was out of control.”
With the market still favoring buyers and prices in Rhode Island reflecting historic affordability, so far brokers and agents report only sporadic instances of sales falling through because of a low appraisal.