According to the National Association of Realtors, low appraisals for financed sales are one of the hurdles hampering the housing recovery.
Lenders employ licensed appraisers to value properties they've been asked to finance. As part of their methodology, known as the Uniform Standards of Professional Appraisal Practice, or USPAP, the appraisers look for recent sales of comparable properties and judge what a typical buyer would be willing to pay for the property. That's what they're paid to do; nothing personal.
In established communities like Greenwich, there's a wide diversity of properties and the number of recent sales has been low. This makes it more difficult to find good comparable properties to conduct valuations, especially for out-of-town appraisers who aren't as familiar with our local sales.
Additionally, some of the sold properties have been distressed properties -- foreclosures, short sales, auctions and bank-owned real estate. Added to the mix are estate sales which are sold by heirs to cash out the estate of their relatives. Both distressed properties and estate sales typically sell at a discount. That adds a layer of complexity for the appraiser since they need to adjust their valuations upward to account for these variables.
To be relevant, an appraisal needs to only include comparable sales that have recently occurred. In a housing recovery when prices have been dragged down, here in Greenwich by as much as 30 percent, the recent comparable sales base pulls appraisal valuations down. This factor holds back our price recovery.
Recommendations for sellers include having an appraisal done by a local appraiser at the beginning of the sales process and keeping it in your hip pocket to instantly challenge any appraisals that in your mind undervalue your property. Not only does the seller lose when this happens, but the buyer and their Realtors also lose. I feel so strongly about this that I've included the cost of an appraisal as part of my commission expense.
Starting with an appraisal that you control, it's easier to select an asking price that makes sense in today's market. If you combine this appraisal, which will give a range of prices, with local Realtor expertise, you have a better chance of being successful in the end.
Having overpriced your home leads to two problems for sellers. With no offers, the seller typically lowers the asking price one or more times until offers start to be made. Buyers, watching this from the sidelines, feel the sellers will come down again if they wait long enough.
Second, as properties sit on the market for a long time, they get stale. Realtors who have shown them have moved on to new listings and tag the home as "overpriced" to their buyers, even after a price reduction. New listings get a lot of attention and you don't want to stub your toe on entry to the market. Overpricing does just that.
According to RealyTrac, U.S. foreclosure filings in September fell 7 percent from August totals, 16 percent lower than a year ago. These filings include notices of default, scheduled auctions and bank repossessions. That's good news for a housing recovery since distressed sales have driven valuations "under water." That's a term that's used when the balance of the mortgage loan is higher than the fair market value of the property.
Here in Greenwich we currently have 11 properties in pre-foreclosure, two listed for auction and seven bank-owned properties, according to RealtyTrac.
That's significantly lower than it was a year ago and may ultimately help to restore prices for our inventory, which is quite thin with 555 single-family, 137 co-op and condo units and 38 multi-family houses listed for sale.
After a yearlong investigation, federal agents have charged 530 people for allegedly defrauding more than 73,000 homeowners who were in default on their mortgages. U.S. Attorney General Eric Holder explained at a news conference that fraudulent claims were made by these scammers to rescue homeowners from losing their homes in foreclosure.
Scammers typically asserted that if paid hefty fees they'd have third party investors buy the mortgage or they'd renegotiate the loan with the existing lender on behalf of the owner. According to the FBI, two years ago foreclosure scams accounted for about 4 percent of the mortgage fraud cases they saw. Now it's almost 20 percent of the cases.
This Week's Success Quote
"If it sounds too good to be true, it probably is."
-- Late 20th century anonymous maxim
Ken Edwards is the principal Broker for Edwards & Associates and has lived in town since 1974. All opinions expressed in this column are entirely his own and not those of this publisher. Comments, questions and suggestions may be sent to K_W_Edwards@Yahoo.com or call or text him at 203-918-4444. Questions of general interest will be addressed in this column while others will receive individual responses.