Special Report: What's a home worth? Pick a number, any number
By Linda Stern
WASHINGTON (Reuters) - Aaron and Beth Stiner are renters, but not by choice and not because they can't afford to buy a house. They had a move-up home in Phoenix selected and good credit scores. They even had buyers lined up for the home they were selling. Then they entered appraisal hell.
The first appraisal on their chosen home came in at $295,000, a figure that both the Stiners and the sellers agreed upon. The lender didn't like it, and ordered up a second appraisal. Based on comparable homes that were in a different neighborhood, the new appraisal came in $25,000 lower -- too low to allow the loan to go through.
They switched lenders and got another appraisal that, at $290,000, would have allowed the deal to go through. Their new lender was skeptical, and ordered up another appraisal. At the same time, the home they were selling was appraised three times, with each subsequent valuation falling.
Four months later, the Stiners and their buyer both gave up. Together, they were out $1,600 for seven appraisals. "As a result, we are now renting our home out, and renting the home we wanted to buy," says Beth. "We were frustrated and we weren't going to keep doling out cash for new appraisals. It felt like a game."
But not a fun game. There are problems in appraisal land that transcend weak housing markets and debt-ridden borrowers, and that are causing home buyers and would-be refinancers to miss out on low rates and dream houses.
"There's been a pendulum swing in appraisals comparable to the one we've seen in mortgage credit, from foolishly lax to overly restrictive," said Walt Molony of the National Association of Realtors. He reported that as recently as October, one in 10 member agents said they'd had a contract canceled as a result of a low appraisal, 13 percent said they'd had a contract delayed, and 16 percent said they'd had a contract negotiated to a lower sales price as a result of a low appraisal.
"We haven't seen anything like what we are facing today," said Mark Linne of Appraisal World, a company that provides automated valuation software and services to appraisal companies and lenders.
New and proposed federal rules governing appraisals, changes in the way appraisals are conducted, and a still uncertain housing market have hit the appraisal part of the process in a way that is adding to housing market instability. Continued...