Ben Beesley

What do you do when the appraisal on the dream home you want to buy comes in below the price in the offer the seller has accepted—even as much as 10 to 20 percent below?

Chances are that raising the cash for your down payment and closing cost has tapped you out. Finding thousands more to make up the difference between the appraised value and the contracted amount is out of the question.

You’re not the only buyer who has hit the low appraisal snag. This past June and July, 16 percent of real estate pros reported a cancelation in a sale, mostly due to a large number of low appraisals.

However, you don’t have to walk away. In fact, some real estate professionals and economists say that low-ball appraisals are pushing home values down and undermining the housing recovery.

You can fight back. You have options, and chances are you can find a way to make the deal work without increasing your down payment.

Appraisals are largely based on prices recently paid for comparable local properties. Over the past decade, finding “comps” that accurately reflect values has been a challenge as values rose quickly during the boom and fell just as fast during the bust. Discounts paid for foreclosures and short sales have created a dual price structure between “normal” and distress sales.

Finally, today many buyers rely on popular online valuation tools, called AVMs or automated valuation models, instead of a comparable market analysis from a real estate professional. AVMs give fast property value estimates, but they often differ greatly from appraised values because they are determined by algorithms using available local price data, not actual inspections of the property. During this time of record low home values, it’s no wonder that more and more appraisals are coming in below prices that buyers and sellers have agreed on.

It may seem ironic that buyers would want the homes they want to buy to appraise for as much or more than they are willing to pay. Remember, the purpose of the appraisal is not to help you get a better price, but to protect your lender should you default. The lender wants assurance that your home will be worth enough to recoup their investment.

Even if you have a great job, sterling credit, an adequate down payment and money in the bank, your lender will still want a conservative appraisal. In light of losses they have taken on the millions of foreclosures in recent years and the tough times many banks have had on Wall Street, lenders are taking no chances these days. They are more interested in protecting themselves from a loss than they are in giving you a loan.

Here are five steps you can take to save your dream home:

1. Get the seller to lower the price. By far, this is the easiest solution, especially if your appraisal comes in less than 10 percent of the contract price. Obviously, a lower price is a great idea for the buyer, but why would a seller go along? In July, 2011 the average home in America took about 88 days to sell. Demand is soft and time is money. Your seller, particularly if they are selling to buy another home, could be in a real bind if you are forced to back out and they have to put the house on the market again. After all, there is no guarantee that if you walk away, the seller won’t receive a low or even lower appraisal from the next buyer’s lender. Today, many buyers are offering incentives to sellers, such as payment of some or all closing costs. Lowering the price might be a cheaper option for the seller in order to get the deal done on time. Sometimes a bird in the hand is best.

2. Ask the seller to offer to carry a second mortgage for the difference. This solution doesn’t cost the seller anything but the buyer incurs greater debt. If the buyer really wants the home but cannot come up with the difference in cash, making payments or a lump sum payment at a later date to the seller is an option. After the escrow closes, sellers often retain the right to discount the second mortgage, and can sell it for less than face value to an investor.

3. Do your research and dispute the appraisal. Is the contract sales price a fair assessment of the property value based on a well-prepared comparable market analysis (CMA) from your real estate agent as opposed to an online AVM? Was the appraisal done by an appraisal management company that may have used a less-than-expert or out-of-town appraiser?

Disputing the appraisal may sound a little aggressive but you might be the victim of a poorly prepared appraisal. Do some research first and go to war if you have the ammunition.

You have the right to get a copy of the appraisal from your lender and to find out who did it. What is the appraiser’s reputation? Have any complaints been filed with your state appraisal licensing agency? Where is the appraiser based? Did they perform an appraisal in a housing market that they may not know well? Did the appraiser have adequate information about the subject property? If your appraisal was conducted by an out-of-town appraiser unfamiliar with your market, you have every right to demand a new appraisal.

What comparables did they use? Ask your agent and the seller’s agent to put together a list of recent comparable sales that justify the agreed-to sales price. Submit that list to the underwriter and ask for a review of the appraisal. Also, ask the agents to call the listing agents of pending sales to try to find out the actual sales price of those properties. Listing agents do not have to disclose the sales price, but many are happy to help because they could find themselves in the same situation. Pending sales are more current and are not closed, so the original appraiser would not have access to them.

The key to a successful dispute is data. You will need as much data you can get to back up your dispute.

4. Ask the lender for a new appraisal. Should you find that you have a good case that the appraisal wasn’t fair or accurate, ask your lender for a new appraisal, which you may be charged for.

Another strategy is to get two additional, unbiased appraisals and use the average of all three to arrive at a fair price. This is a risky strategy, in light of the fact that another appraisal might not come in higher than your first; it might even be lower if values have fallen.

Depending on how convincing your argument is, your lender has the ability to override the appraisal estimate, which is unlikely, or to order a new appraisal, which is more likely. If a new appraisal is ordered, talk with your agent about somehow splitting the cost with the seller. Perhaps the listing agent and selling agent will split the fee so the buyer does not have to incur additional costs associated with the transaction. Appraisals cost around $400 or so.

5. Get your own, independent appraisal. If you order your own appraisal and your loan is an FHA loan, ask the lender for a list of approved appraisers. Usually the bank will review your appraisal and ask the previous appraiser if they agree or disagree with the newly submitted one.

If the first appraiser disputes your appraisal, the bank may request a third appraisal done by another appraiser, or they may just reject your appraisal.

However, if the first appraiser agrees with the disputes you present, they may adjust their original appraisal and you may get a better price.

If these tactics fail and you cannot make up the shortfall in the appraised value, you may find yourself moving on. If so, be sure that you were protected by a contingency clause in the sales contract, stating that the transaction can be terminated if the home doesn’t appraise at, or above, the sales price.

Source: Written by Steve Cook(http://rismedia.com/2011-09-07/five-ways-to-fight-a-low-appraisal/) 9.13.11

The value of taxable property in California has increased after two straight years of drops, the state Board of Equalization said this week.

The gain -- which accounts for properties taxed by both the state and counties -- was 0.3 percent, rising to $4.382 trillion for 2011-2012 from the previous year, according to a release from the agency on Tuesday.

A by-the-numbers breakdown, using information from the report:

-- Values of county-assessed properties, involving mainly real estate,inched up 0.1 percent.

-- Values of state-assessed property, which include railroads and privately owned public utilities, rose 8 percent.

-- Twenty counties saw year-over-year bumps in property values, "although most of the increases were modest."

-- Thirty-eight counties saw year-over-year drops in property values.

-- The Central Valley had an "especially concentrated" amount of assessed value declines.

-- Assessed values in the state's 15 coastal counties, which make up 60 percent of the total tax roll, rose 0.9 percent. Values in 43 inland counties fell 0.6 percent.

-- Assessed values in Southern California increased 0.7 percent.

-- Seven of 12 counties with tax rolls valued at more than $100 billion saw increases in taxable value, including San Diego.

Source: Written by Lily Leung(http://www.signonsandiego.com/news/2011/sep/07/state-sees-1st-bump-property-assessments-3-years/) 9-8-11

Washington, August 26, 2011

As homeowners across the East Coast brace for Hurricane Irene and the heavy rains that are expected to fall over the next few days, the current threat underscores the importance of flood insurance, which is the only way for homeowners to financially protect their property or businesses from flood damages.

Hurricane damage from water is only covered by flood insurance, which must be purchased separately through the National Flood Insurance Program (NFIP), and if Congress doesn’t act soon this critical program will expire on September 30, 2011, putting millions of homeowners at risk.

“As the leading advocate for homeownership and housing issues, NAR believes that the NFIP is essential to a properly functioning real estate market, ensuring access to affordable flood insurance for millions of homeowners,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “Realtors® support any and every effort to extend the program for as long as legislatively possible, so that American families won’t have to go without essential flood protection.”

Floods are also not just a coastal issue and are not only caused by hurricanes. Floods claimed more lives and property than any other natural disaster in the U.S. over the past century and have been declared in every state, along rivers and anywhere rain falls or snow melts.

The NFIP is set to expire on September 30 for the tenth time in three years, and NAR urges Congress to reauthorize the program for five years, before it expires. The NFIP ensures access to affordable flood insurance for more than 5.6 million home and business owners in 21,000 communities across the nation.

“We strongly urge Congress to speed passage of legislation to reauthorize the NFIP for the long term and end the current stopgap approach that has already led to numerous extensions and lapses of program authority in the past two years,” said Phipps.

NAR also calls on Congress to develop a proactive national policy to reduce natural disaster risk beyond floods, so that homeowners have access to affordable, comprehensive property insurance for a full range of natural disasters, and taxpayers no longer have to fund rebuilding efforts through federal disaster assistance.

“Whether it’s a tornado, flood, hurricane, or earthquakes like those that hit Colorado and the Eastern U.S. this week, virtually every region of the country is susceptible to nature’s unexpected fury,” said Phipps. “Our thoughts are with all Americans who may be affected by this impending hurricane, and we will continue to work with public policymakers on these important issues.”

Source: Written by Sara Wiskerchen (http://www.realtor.org/press_room/news_releases/2011/08/hurricane_irene) 08-29-11

So I looked this morning at the amount of inventory in Monterey County knowing this time last year, we had 17 months of inventory (the amount of time to sell every listing at the current rate if no new listings came on board). Well, to my surprise, we were down to just three months! How is that possible? Well, we currently have just as many listings as we did a year ago which is just under 3000...with properties moving at a rate five times faster than a year ago, the amount of inventory is down to three months!

That being said, additional bank owned properties will continue to hit the market. With interest rates as low as they are and with government incentives for first time home buyers and home prices at 20 year lows, I predict the activity to contine to be very active!