Search
All
Economics
Politics

Don’t Miss a Post. Subscribe now.

Home Sales are Falling Apart As Appraisals Are Under the Agreed Price

•

•

25 comments on Home Sales are Falling Apart As Appraisals Are Under the Agreed Price

•

Upended Sales

The Wall Street Journal reports Soaring Home Prices Are Roiling Appraisals and Upending Sales

“I don’t remember any time where the frequency of buyers being willing to pay so much more than the market data was this high,” said Shawn Telford, chief appraiser at CoreLogic.

Jason and Talitha Brooks listed their house in Orange Park, Fla., in June at $320,000. After receiving multiple bids, the couple accepted an offer at $335,000. But the appraiser, hired by the buyer’s lender, valued the home at only $305,000. The Brookses and the buyer couldn’t agree on a new purchase price, and the deal fell through. “This whole appraisal process, it’s just so subjective,” Mr. Brooks said.

An unusually high number of homes across the country are being appraised below their agreed-upon sales prices, causing a number of deals to collapse.

Mortgage lenders will typically lend only enough to cover the appraised value of a home. So when an appraisal comes in below the contract price, the buyer has to make up the difference, renegotiate the price or let the deal fall through.

Many buyers are plunking down payments of just 5% to 10% because they need extra cash available in case the house is appraised below the sales price, said Nicole Dudley, a real-estate agent in the Phoenix area.

A survey by the National Association of Realtors showed that 12% of contracts that were closed or terminated faced appraisal issues that month, up from 9% in August 2019, before the Covid-19 pandemic sparked a housing boom.

Appraisal Gap

20% of sales are above the appraised value. That figure is from the July Corelogic article Appraisal Gap Increases in “Hot” Markets

Many buyers just don’t care, especially all cash buyers.

I believe we have seen this behavior before. But at least lenders seem to care this time. 

Of course, it’s ridiculously easy money by the Fed that is fostering these buyer attitudes.

How the Fed Props Up an Overheated Housing Market in Three Pictures

Recall my post How the Fed Props Up an Overheated Housing Market in Three Pictures

Thanks For Tuning In!

Like these reports? If so, please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen.

Read the ones you like and you can unsubscribe at any time.If you have subscribed and do not get email alerts, please check your spam folder.

Mish

Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

This post originated on MishTalk.Com

Thanks for Tuning In!

Mish

Mike Shedlock

Recommended Articles

Comments to this post are now closed.

25 Comments
Newest
Oldest Most Voted
RonJ
RonJ
4 years ago
“I don’t remember any time where the frequency of buyers being willing
to pay so much more than the market data was this high,” said Shawn
Telford, chief appraiser at CoreLogic.
People have such short memories.
There was a housing development under construction in Lancaster, that went bust and was used in one of the Lethal Weapon movies. That was from the SoCal 1990 bust. Lots of homes were being built in Palmdale, leading into that. 
0
0
Casual_Observer2020
Casual_Observer2020
4 years ago
Of course, it’s ridiculously easy money by the Fed that is fostering these buyer attitudes.
—
And they would rather have this problem than have a retirement and pension crisis. High asset values are bad for no one.
0
0
Tony Bennett
Tony Bennett
4 years ago
Reply to  Casual_Observer2020
“High asset values are bad for no one.”
…
So sez the top 10%er asset holder.
I beg to differ.  MIghtily.
0
0
RonJ
RonJ
4 years ago
Reply to  Casual_Observer2020
“High asset values are bad for no one.”
The problem is, maintaining them. Something always breaks. In 1972, there was the Nifty Fifty. The top fifty stocks that were touted as being the ones everyone had to own and couldn’t go down. In 1973-74, they did.
0
0
Casual_Observer2020
Casual_Observer2020
4 years ago
Killware is probably going to be an issue in some communities soon. This probably is more important than the theoretical price of your home. 
0
0
Tony Bennett
Tony Bennett
4 years ago

“Many buyers just don’t care, especially all cash buyers.

I believe we have seen this behavior before.”

…
but but but … I thought different THIS time …
0
0
shamrock
shamrock
4 years ago
Appraisals are almost entirely based on comp sales, so in a market where values are increasing rapidly the comp sales are going to be out of date.  Same thing happened in the housing bust, people thought they were getting a house at a 10% discount because the appraisal was so high.
0
0
Tony Bennett
Tony Bennett
4 years ago
“Jason and Talitha Brooks listed their house in Orange Park, Fla., in June at $320,000. After receiving multiple bids, the couple accepted an offer at $335,000.”
…
June, July … whatever.  Now is October.  Things can (and will) change FAST.
A big driver of sales last year / earlier this year was from renters fleeing urban areas.  Seen several stories of people returning to urban cores.
“With a large, urgent group of renters looking to move right now, vacancies are disappearing and property managers are having little difficulty filling whatever empty apartments remain. The https://www.apartmentlist.com/research/vacancies_and_rents_2020 between occupancy and price was on display last summer, when elevated vacancy rates rapidly drove down prices in expensive urban centers. This summer the opposite is happening; a resurgence of rental demand has steadily reduced vacancies and provided landlords the opportunity to raise rents.”
0
0
KidHorn
KidHorn
4 years ago
“Many buyers are plunking down payments of just 5% to 10% because they need extra cash available in case the house is appraised below the sales price”
This makes no sense. If the house is appraised too low, wouldn’t they need to put more down?
0
0
Carl_R
Carl_R
4 years ago
Reply to  KidHorn
It makes perfect sense. Say a buyer has $60,000 and wants to buy a $300,000 house. He puts 20% down, and has no cash left. The house appraises for only $290,000. The lender will now lend 80% of $290,000, or $232,000. Add in their $60,000 down, and they are now $8,000 short, and unable to close the deal. Say that instead they agreed to put down 10%. They put up $30,000, and have $30,000 left in cash, so they are still able to close the deal even if the house appraisal comes in low.
0
0
David c52
David c52
4 years ago
I’m a very lucky person at this stage.  My house (under construction) took a long time due to shortages.  I am closing in 2 weeks.  I just received the appraisal which is $180,000 more than the purchase agreement.  The builder has assured me that they worry about their reputation and will honor the original price agreement.  Too many builders are requiring the owners to pay the higher appraisal.  There are some that are honest.
0
0
Tony Bennett
Tony Bennett
4 years ago
Reply to  David c52
“I’m a very lucky person at this stage.”
…
hold that thought when you get your property tax bill …
0
0
Eddie_T
Eddie_T
4 years ago
Part of the problem is that the corporate buyers looking to build a rental deal can easily afford to pay 20% over market and still flow cash…..in most markets. They’re sucking up a lot of inventory in some places.
Their cash flow model is different than a mom&pop landlord. It has to do with them getting 90% LTV. It allows them to flow more cash, sooner. It becomes a front-end loaded deal and favors flipping the property a lot sooner than somebody like me would ever do, too.
0
0
Tony Bennett
Tony Bennett
4 years ago
Reply to  Eddie_T
“Their cash flow model is different than a mom&pop landlord.”
…
Blackrock trying to clean up. 
Talked to a local bankster a few months ago.  Thought things were crazy but prices wouldn’t dip too much since Wall Street looking to buy the dip.  I have my doubts things will work out the way Wall Street expects.  We’ll see.
0
0
thimk
thimk
4 years ago
Interesting nugget of info , may signal a top. It makes me wonder if the all cash purchaser , sans appraisal , paid above market value.   
0
0
Eddie_T
Eddie_T
4 years ago
Low rates yes.
High fees yes. Very high. Appraisal costs, high.
Easy to close, no. I’ve been trying to close 4 refi’s since the 1st week in August. It is supposed to happen today. We’ll see.
0
0
Eddie_T
Eddie_T
4 years ago
Reply to  Eddie_T
Now they’re saying Friday. Gee whiz.
0
0
Doug78
Doug78
4 years ago
Reply to  Eddie_T
Do they usually put it off like that or is it more rare?
0
0
Eddie_T
Eddie_T
4 years ago
Reply to  Doug78
I’ve never taken more than 30 days to close on a mortgage before. On a buy, if you can’t get it done in 30 days, it usually puts you in danger of losing your contract and your earnest money.
Short extensions are usually no big deal , but I think that in a rising interest rate environment, the investors backing my loans this time  have nothing to lose by losing my business….so why not drag their feet?….Maybe I’ll get tired of waiting and they can loan the same money for a half a percent more. Maybe I’ll drop dead….whatever.
If this closes it will have been worth it in the long run, but with all the closing costs, it will take a couple of years for me to break even.
0
0
Doug78
Doug78
4 years ago
Reply to  Eddie_T
Are your backers non-bank? 
0
0
Eddie_T
Eddie_T
4 years ago
Reply to  Doug78
I’m using a mortgage loan company, but they get the money from deep pocket investors who have their own requirements for underwriting.
For instance, the mortgage company made me wait until I got my 2020 taxes done (just completed Friday and filed today)…..but they just told me they aren’t going to show that to the investors after all……because my income for 2020 was down….
Guess they slept through COVID…I made a fourth of what I usually make….did they really think my income was going to be great in 2020? Maybe they just wanted to make sure I wasn’t going fail to file a return, dunno. I never missed a payment on any of my debt service, though. The bailouts saved us.
With a simple residential appraisal now in the $1000 to $1500 range, and a years escrow taken up front for taxes, these loans are costing me more than 10K up front…just to lower four monthly payments by an average of $110 per month.
And of course the escrowed tax money would be paid out eventually anyway, so it isn’t quite as bad as that makes it sound. I also do expect to  get some escrowed money back from the prior lenders. I always do escrows for taxes and insurance.
But it’s a savings of nearly 40K in payments over the life of the loans. Worth it if I hang in for a long time
I will be a bag holder though, if I decide to sell sometime soon.
Generally speaking, until you get to the end of the disclosure process and see the actual closing documents, you really can’t see for sure whether the whole onerous process was worth it. My preliminary estimates looked better than what the reality turned out to be this time.
0
0
Eddie_T
Eddie_T
4 years ago
Reply to  Eddie_T
On the plus side, I paid normal amounts for my 2020 quarterlies, so I’m getting my first tax refund in about 30 years..and this years taxes are paid in full already too.
0
0
Doug78
Doug78
4 years ago
Reply to  Eddie_T
Could be that the morgage company’s investors want to hold off a bit to appraise the market. It’s hard to judge. Is there a sign that they are concentrating on your better properties? If so then it’s ok. There still is money. However when  spooked backers put everything on hold. You know your market so much better than me. What is your gut telling you?
0
0
Eddie_T
Eddie_T
4 years ago
Reply to  Doug78
I’m told we will close on Friday and it’s a done deal. I do expect to get it done.
0
0
Doug78
Doug78
4 years ago
Reply to  Eddie_T
Then it will get done.
0
0

Decorate Your Walls with Mish Fine Art Images

Click each image to view details or purchase in the store.

Stay Informed

Subscribe to MishTalk

You will receive all messages from this feed and they will be delivered by email.