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Sign of the Times? A new experience for this real estate veteran

By
Real Estate Broker/Owner with Austin Texas Homes, LLC 453249

I have been selling homes full-time in Austin, Texas for over 11 years, and I had an experience this week that is a first for me.  I thought I should share it here in an effort to inform others who might have this happen soon.

Before I get to the jist of this post, let me explain that I have had deals that didn't work out for a myriad of different reasons during my career, including:

  •  
    • Too many repair items (i.e. bad inspection)
    • Buyer lost job
    • Buyer got cold feet
    • Buyer got sued
    • Buyer got caught money laundering
    • Seller died two days before the closing
    • Buyer had money stolen from his entertainment manager who fled the country

As you can see, I have had my share of losses, so the idea of losing a sale is not completely novel to me anymore.

However, I have NEVER lost out on a potential sale because of an appraisal issue.  Unfortunately, I may be able to add this to my list very soon.

I have a home under contract with some past clients who wanted to upgrade to a newer, larger home over the summer.  We looked at quite a few places, because they are relatively picky, and we landed on a terrific home on 1.3 acres with over 3800 square feet.  It was built a few years ago by a very reputable builder and it had plenty of upgrades.  The contract sales price was $377,000. 

The initial third-party appraisal came in at $380,000, and everything was moving along nicely with regard to the financing.  Everything was submitted to the underwriter, and we thought we would be closing in a couple of days from that point.

Not so fast, Jason.

Apparently, since the home is located in a "lower density" suburban area, it automatically triggered a desk review of the appraisal, which came in at $325,000. 

This is $55,000 UNDER the original appraisal. 

After looking at the review, it was obvious that the second appraiser used only ONE comparable sale to establish the value of this home.  Additionally, the home that they were using was 715 square feet smaller than the home I am selling. 

They adjusted the square footage difference at $25/s.f., even though every home in the area has sold for $97 - 115/s.f. over the past two years.  This home was thrown out of the original appraisal because it is not similar enough.

How does this make any sense?

The neighborhood is filled with custom homes on small acreage lots, and the comp that the review appraiser chose as "most similar" (his words) sold for just over $100/s.f. with an almost identical finish-out.  However, this home is worth a mere $85/s.f.?

A second desk review was performed, which also came in at the low price.  Everything was submitted to a second investor (bank), and we are waiting on THEIR (third overall) desk review now. 

It peeves me that I have a buyer that is imminently qualified to purchase this home, with 20% down, and we did our due diligence to establish the value.  The home was originally listed at about $390,000 and we felt that was fair based on what is available these days.  Now, we are at the mercy of someone who has likely never even visited the subdivision.

So, the upshot is that I am on the verge of losing a sale with a ready, willing, and able buyer, motivated seller, nice listing agent, solid financing, and six weeks of work all because of a (likely non-local) appraiser's opinion. 

If this home were listed at the review appraisal price, it would likely receive 20+ offers in a matter of days.  The "fire sale" price that they have come up with is simply not an indication of the value.  We are stymied because there are not enough recent sales in that particular neighborhood.  

Our mortgage guy told me that he has only had one review appraisal in the past three years, and THIS MONTH alone he has had 4 or 5 get flagged.

It appears as though we now must be more careful than ever about where we show properties, because of the lack of confidence that banks have adopted.  Even though this community has sales in excess of $550,000, the banks are so skittish about collateral that they will not lend money on this property even when the loan amount is $25,000 less than their review appraisal indicated.

Sorry for the long post - I could go on, but you get the picture.  I will hear the final verdict shortly, and I can find out whether I have lost my very first transaction over an appraisal.  Not like I need the money or anything, right?

Thanks for your time.  I welcome your input below.

Posted by

 

If you're looking for a home in the Austin area, you can also visit my primary website at www.austintexashomes.com.  Thanks!

Comments (90)

Jason Crouch
Austin Texas Homes, LLC - Austin, TX
Broker - Austin Texas Real Estate (512-796-7653)

TO ALL - Thank you for your comments.  I wasn't able to keep up with the comments today on this one.  As a brief update, the new bank wants the appraiser to provide a few more comps within a 5-mile radius (apparently the first bank wanted comps within a mile of the house).  I am waiting to see if the buyers will proceed, as they are concerned about the value now.  With regard to John Novak's question above, I looked up the Zestimate, which is $361,000.  Michael - The tax assessment is $358,000.  I will know in the morning whether or not we are proceeding.  If we do, it should close by Wednesday or Thursday of next week.

Jun 26, 2008 03:31 PM
Karen Monsour
Coldwell Banker Fort Lauderdale Beach - Fort Lauderdale, FL
REALTOR, SSRS - Sells FL Waterfront, Short Sale Expert!

Geeze, 6 week's of work, I feel for you...I've ben working a short sale since last October...the other agent (male) and I are joking that if this finally closes next month...it's our "baby"...

I hope it appraises...next week!

Good luck to you!

Jun 26, 2008 03:31 PM
Michael Creel
InActive Agent - Bellevue, WA

Geeez, they're even lowballing the tax appraisal.

Jun 26, 2008 03:38 PM
Jason Crouch
Austin Texas Homes, LLC - Austin, TX
Broker - Austin Texas Real Estate (512-796-7653)

Michael - Lowballing by over $30,000!

Jun 26, 2008 03:39 PM
Terry & Bonnie Westbrook
Westbrook Realty Broker-Owner - Grand Rapids, MI
Westbrook Realty - Grand Rapids Forest Hills MI Re

Banks and appraisers are so cautious and concerned about the review some day in the future that they are being overly cautious now Good Luck.

Jun 26, 2008 03:44 PM
John Bucco
Liberty Realty - Hoboken, NJ

If your on the buy side and the home doesn't appraise, you are a longshot to keep the client.  I hope the deal goes through, send a follow-up email.  Good luck

Jun 26, 2008 04:27 PM
Michael Creel
InActive Agent - Bellevue, WA

If I was the seller, I'd feel a bit sick right now.

Jun 26, 2008 05:25 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I have seen appraisal issues on values before. Good luck on getting this worked out with the review appraiser.

Jun 26, 2008 06:45 PM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I have seen appraisal issues on values before. Good luck on getting this worked out with the review appraiser.

Jun 26, 2008 06:45 PM
Jen Olson
First Weber Group Realtors - Marshfield, WI

I was just talking with a lender about the long timeframe from the appraiser going to the property to the lender receiving the completed appraisal.  I guess that I should be thankful for the extra time they are spending, because if they flagged the property that you are working on, I can only imagine what they would do to a first-time homebuyer's file if the appraiser didn't put in the extra time!  I hope all works out for you with this transaction, and thank you for the new appreciation for the pressures the appraisers must be under!

Jun 26, 2008 06:58 PM
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Jason, I believe it must be nationwide. Lenders can no longer chose their appraisers, they go down a list. I have been getting some appraisals come in low and having to be resubmitted. The appraisers are not from Ann Arbor ,they don't know one area of town from another. If you have a home near downtown, or the "arb" it will sell for 200.00 plus a square foot. They don't know or understand the nuances of a local town.

Jun 26, 2008 10:40 PM
- -
- - Bogota, TN

Thanks for yout tasking the time to provide us with this information in the Active Rain network.  AR is the new "cyber backbone" of the industry, and with it's uplink to Localism.com it will transfrom the marketplace. Agents who don't see which way the cyberwind is blowing are going to find themselves at a considerable disadvantage inside of three to five years.

Jun 26, 2008 11:34 PM
Adam Waldman
Westcott Group Real Estate Company - Hauppauge, NY
Realtor - Long Island

JASON - It's amazing that the banks are now headed in the other direction.  There was a time when a pulse was enough to get financing, and now they want your first born.  There has to be a happy medium, otherwise, how is anyone supposed to do any business?

Jun 27, 2008 12:18 AM
Bonner Thomason
Keller Williams Realty - Kernersville, NC
CRS, ABR, GRI, e-Pro

We are hearing more of the appraisal issues coming up. It is getting even more of an problem as the bubble seems to have have every one on edge and protecting themselves against what was the shady deals of a few.

bonner

Jun 27, 2008 12:59 AM
Cheryl Willis
RE/MAX Solutions- OZARK MISSOURI - Mount Vernon, MO
MO Broker - Mt Vernon, Monett, Aurora, Barry & Law

I had one where my buyers had to sell their home in CA and the second appraisal came in lower then the contract price.  their buyer wanted to adjust the sales price of the home 40,000, I suggest they spend the 300 bucks and get a 3rd appraisal.  (turns out the 1st one was bank (came in right at contract $$)  , second one buyer's buddy (wonder why it was low?) and the 3rd one was independent but favored the seller-  Deal finally went through but messed up our closings here for about 10 days.  sorry to hear you had a problem.  cw

Jun 27, 2008 05:25 AM
Jeff&Grace Safrin
F.C.Tucker 1st Team Real Estate - Valparaiso, IN
SpousesSellingHousesTM

We had this happen last month - but there was only a 5K discrepancy which was able to be worked out by re-negotiating - yours seems very far off -

 In our state most of the time the assessed value is less than the appraised value!

Keep us posted to the outcome Jason -hopefully it will be a positive one and we can all benefit from your experience 

Sincerely,

Grace

Jun 28, 2008 02:21 AM
Pat Haddad, ABR, CRS, ePRO, GRI
Keller Williams Indianapolis Metro NE - Carmel, IN
Carmel, Fishers, Westfield IN Real Estate Expert

Unbelievable.  How can there possibly be such a descrepancy between appraisal values?  Current underwriting requirements could certainly be a topic all on its own.  Good luck Jason!

Jun 29, 2008 05:23 AM
Joshua & Kathy Schmidt
ERA Henley Real Estate - Cabot, AR

Jason,

     I am blown away by this.  Please let us know how everything went down in a new blog.  I wish you the best and hope it all works out okay.  Good luck!

Jun 29, 2008 07:09 AM
Deb Brooks
Brooks Prime Properties Wichita Falls Texas - Wichita Falls, TX

Jason, I lost a biggie just like this about three months ago. I spent the whole first quarter of the year working it hard.

and, BAM. Down the tubes.

I'm so sorry to hear about this. The bank turned us down flat and said...sorry, it doesn't comply with FHA guidelines....tough.

Made no difference the assets of the buyer or the true value of the property.

I hope this doesn't become a habit...

Again, I'm sorry this happened to you. I was the one over the toilet.

BTW, I'm so glad you are our Texas leader...I shall always be proud to follow!

Later in the rain~Deb

Jun 29, 2008 08:57 AM
Diane Bell, Hilton Head Real Estate, Bluffton
Charter 1 Real Estate, Hilton Head, Bluffton, SC - Hilton Head Island, SC

We are definitely in an environment where appraisal issues will be affecting our transactions.  Actually, it this had happened several years ago, we might not be in the position we are now.  There were m any honest appraisers who just couldn't get work because they wouldn't inflate the values. 

Jun 29, 2008 11:31 PM