Well, last weekend we lost a sale, not over our customer’s financing, not over problems with a home inspection, not over the contract price of the house. The house did not close because we chose not to reduce our price to match a poor appraisal that was based on distressed properties when other properties were available. I wish that I could say that this is the first time that has happened this year, but it isn’t.

            It’s not good for us, we need sales to pay the bills, and so that we can get another construction loan and keep people working. It’s not a good for the customer who was going to move in last weekend and is eligible for the first time home buyer credit (which, by the way, may be extended into next spring). It’s not good for you if a rash of poor appraisals influence the value of your home, because it will cost you money should you decide to sell.  

            So, what has happened to values in the area? What is the difference between a good and poor appraisal? And why do we fight a poor appraisal, and how can you do the same?

            Home values have remained stable here, and while there is not a large increase in home prices, there also has not been a big decline. Fayetteville was recognized as one of the leading cities in the U.S. in home price growth earlier this year, which means that demand has stayed constant. Locally we get some benefit from the Fayetteville market.

            Appraisers rely on data, which in most markets is provided by the Board of Realtors in their Multiple Listing Service (MLS) data. While most people think of the MLS as a tool to find a home of their choice, real estate professionals also enter information on houses as they are sold to provide data for appraisers to use in evaluating the relative value of different properties. For instance, it denotes what the asking price and the contract price were, if there were any seller concessions such as closing costs, appliances or furniture. Also it shows the commission split the real estate professional is getting which could also be adjusted to make the sale take place.   

            The appraisal process attempts to place an actual (real market) value on houses despite their differences. No two houses are exactly alike. Even if they are, they can’t be built on the same lot. The same house plan may have different options selected. So appraisers are tasked with taking all the permutations of the many homes in an area and coming up with a value that corroborates the sales price, to protect the buyer and the lender.

            One of the things that real estate agents are supposed to do these days is to document a distressed sale in the closed notes. If a home owner is behind on their payments, they may take a sale below market value rather than face foreclosure. Sometimes the lender will also accept less than is owed to avoid a foreclosure. This is known as a “short” sale, because the sale does not generate enough revenue to pay off the lender. This loss, however, may be preferable to a full blown foreclosure.   

            If an appraiser finds that there are no sales, or that the vast majority of sales are distressed, we would expect those sales to be used in determining value. If, on the other hand, the vast majority of sales have been normal, there should be plenty of market value comparables from which to choose, and that is where we found ourselves last week.

            Let me tell you that the problems I have had are with appraisers who are not from Sanford, do the vast majority of their work in other areas (mostly Raleigh and Fayetteville) and simply don’t have as much local knowledge, or access to as much data. Right now, it seems that most lenders want a full appraisal done before we start a home to protect their interests. So to finish a house in five months and have a new appraisal that is $7,000 less raises a few eyebrows. 

            If you are selling your home, it may behoove you to spend the $350-$400 to get an appraisal done before you begin. Normally people don’t go to that expense.  They just ask an agent to provide a broker price opinion, or BPO for short. In these times, that money may be well spent to arm yourself against a poor appraisal.   

For the past 40 years the staff at The Groce Companies has helped consumers in central North Carolina design, build and secure financing to build or buy their homes.  If you need assistance, please call (919) 775-1497 and visit our web site, www.grocecompanies.com where we will be posting this entire series of helpful hints.