If it's a buyer's market in real estate, how come so many Americans are having trouble closing on a home?
One big factor is appraisals. Under tough new rules instituted in May, estimates of home values are coming in so low that deals are falling through. Often, sellers aren't willing to sell for such prices. Even when sellers and buyers do settle on a price, appraisals sometimes come in too low to support the value and lenders won't finance the deal.
"There's definitely a groundswell of frustration that's building right now," said Lawrence Yun, chief economist of the National Association of Realtors, in a telephone interview. In the past month, the NAR has received hundreds of calls and many more emails from agents who have had appraisals torpedo deals. "We don't know if this is a major issue or a minor bump. But ... this is just highly unusual the level of [complaints] that we are receiving."
Individuals are also seeing appraisal-related problems.
"Everybody says it's just a great buyer's market," said Katie Callow-Wright, associate dean of students at the University of Chicago, in a telephone interview. But "the negotiating and the process is much more arduous than I expected."
Since March, she and her husband have looked at more than 70 homes in the Chicago suburbs of Oak Park and La Grange and put down offers on six. The first five deals fell through, in most cases because the sellers wouldn't reduce their price below what they bought the properties for a few years ago. The sixth one is under contract and the home inspection took place Tuesday.
Three of Ms. Callow-Wright's friends have had deals fall through because the appraisals came in too low. Will that happen to her and her husband's current offer? "We really hope not because we're dying to get in a house," she said.
The biggest factor behind the stingier appraisals is falling real estate prices, appraisers counter.
"We're seeing this because of the circumstances in the market today," said Bill Garber, director of government and external relations at the Appraisal Institute, in a telephone interview. The new rules may be having their intended effect of producing more honest valuations, he adds. "How does a consumer benefit from being upside down on their house on the very first day?"
The rules, known as the Home Valuation Code of Conduct, are intended to insulate appraisers from being pressured by real estate agents or mortgage brokers to come up with a valuation that will clinch the sale. With these rules, mortgage-backer Freddie Mac, the Federal Housing Finance Agency, and the New York State attorney general were aiming to protect consumers from unfairly high appraisals, which were a problem during the housing bubble.
While it supports the new rules, the Appraisal Institute is concerned that they reward the cheapest and/or fastest appraisers rather than necessarily the most accurate ones, Mr. Garber said. Many lenders are outsourcing the business to appraisal management companies, who sometimes hire appraisers unfamiliar with a local area because they work for less or can quickly turn around the job.
Until home prices stabilize, as they are showing signs of doing, such problems may continue.
"We have six weeks to get this all figured out," Callow-Wright said. Otherwise, she adds, she and her husband and two children will keep renting the university housing they now have.
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