Low appraisals are on the rise and they're killing real estate deals right and left.The problem stems from a combination of short sales and foreclosures. Both are contributing to difficulties accurately pricing homes, according to MSNBC.
Roughly 40 percent of all home sales last year were foreclosures and short sales, meaning the property sold for less than the remaining mortgage. The National Association of Realtors reports that nearly one in four Realtors report losing a sale due to lower-than-expected appraisals. The National Association of Home Builders reports low appraisals sinking overall valuation.
Here's how it could spell trouble for you...
Generally, foreclosures are not used as a comparison for a standard sale. But among areas hard hit by the bubble - such as Las Vegas and Phoenix, which have seen drops in value of 50 percent - it's becoming more common.
This means that if you're trying to sell your house and you live in a neighborhood suffering from foreclosures, an appraiser could conclude your house is worth less - even significantly less - than expected.
It could also spell disaster if you're trying to buy a home and cannot get funding based on disputed home value.
Critics point to new industry standards for appraisals. Meant to prevent conflicts of interest that can bias an appraisal, the rules bar mortgage brokers from doing the appraisals themselves. Now, appraisals are made through a mortgage lender. This can result in appraisers hired by outside firms that may not be familiar with the hyper-local knowledge necessary to accurately determine a home's value.
The MSNBC article states that The Joint Center for Housing Studies examined home sales over a period of 20 years in Massachusetts and discovered that a foreclosure within less than 100 yards of a home lowers the price of that home by 1 percent.
This means there's lots of "wiggle room" in determining your home's value... which may make you feel as if you're tied up above hot coals, wiggling to free yourself.
