Are Appraisals Preventing a Housing Recovery?

Over 40 % of homes in Palm Beach County are currently under water with the mortgage balance being higher than the market value. It is more important than ever to start selling the properties that buyers want to buy! Unfortunately overly conservative banks and their appraisers are squashing these real estate transactions with lower and lower appraisals.

Recently I had a property under contract for $425,000 with a local doctor. It was only on the market for six weeks, shown to three prospective buyers and two of them made offers. The second buyer's offer came in as high as $405,000 and was rejected.

I became a little concerned after reviewing the most recent sales and prepared my seller and buyer that there could be an appraisal problem. Had it been just four months earlier, I explained, we would have had the sales comparables to justify our contract price. More on this later.

After speaking with many of our local Palm Beach County Realtors, I am alarmed to find out many deals are falling apart from appraisals coming in below the contract price. The only option available under this scenario is for the buyer and seller to come to a new “meeting of the minds” Which means the buyer could bring more money to the closing table or the seller could accept less money than the contracted sales price. One agent recently confessed "if a buyer wasn't cash, it would be difficult to make a deal happen!"

These low appraisals are having an impact on Palm Beach County real estate sales. Although the appraiser has no vested interest in the outcome of the appraisal and is supposed to be objective and impartial, it almost seems as if they are in cahoots with the banks to bring in a low valuation thus reducing the banks risk. Market value is supposed to be based on what a willing buyer likely would pay a willing seller for a particular property, with neither being under pressure to buy or sell. 

So why would two educated professionals, one being a doctor and the other an attorney, after looking at multiple properties in the area , both make offers over what is considered fair market value? After all they both lived locally and had plenty of time to look at other properties before making their decision! To be continued…