IN White Plains recently, 16 couples attended an open house at a wood-frame colonial with four bedrooms and two and a half baths listed for $799,000.
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What was surprising, said Gary Leogrande, the lead broker for the Leogrande Team at Keller Williams NY Realty, was not the number of people interested in the house — he had already noted an increase in real estate activity this spring — but rather that several of those attending the open house were already in contract to buy other houses.
“At first I couldn’t imagine what was going on,” recalled Mr. Leogrande, the president of the Empire Access Multiple Listing Service. “Why were they here at this open house if they had signed a contract on another?”
When he inquired, the buyers explained that at the last minute, as they had approached the finish line, approved mortgages in hand, the appraisals on the houses they had hoped to buy came in lower than expected.
When that happens, the signed contract is no longer binding. According to Mr. Leogrande and other brokers, this situation has been occurring more frequently as the market tries to rebound but is still unstable.
Possible compromise solutions in such cases: the seller can come down in price to reduce the amount of the mortgage; the potential buyer can increase the down payment; or the two parties can meet somewhere in between. But in some cases, frustrated buyers choose to wash their hands of the deal altogether, and like those at the open house, they explore other options.
“We’re at a point in the market where prices are finally trending upward,” said Michael Marciano, a broker with Keller Williams NY, “but banks are still wary of another surge, and they don’t want to be left holding the bag again.”
Mark Logue, the president of Thoroughbred Mortgage, an affiliate of Wells Fargo and Houlihan Lawrence, said that in the aftermath of the real estate market crash, appraisers felt pressure from skittish lenders to value homes conservatively.
Another factor complicating appraisers’ lives these days is that stricter state and federal laws require them to base their comparisons on at least six recent similar sales, which after a slow sales period is sometimes hard to do, Mr. Logue said.
The appraisers might also be strangers to the neighborhood where they are working — which is not always conducive to making accurate appraisals.
Federal and state code-of-conduct laws passed in the last several years require the bank to choose an appraiser through an intermediary company rather than directly. The goal is to avoid conflicts of interest by preventing lenders, borrowers and brokers from exerting pressure on appraisers. But, said Ted Holmes, Prudential Douglas Elliman’s director of operations for Westchester, the law sometimes results in the hiring of appraisers from out of the area, who have no knowledge of a local market and do not factor in critical variables.
That can prove problematic in a county like Westchester, where there are many municipalities with overlapping school districts and ZIP codes. For example, a home with a Scarsdale address might actually be in the low-performing Yonkers school district. Or conversely, a modest house may be in a sought-after school district, which assessors unfamiliar with an area may not factor into their reports.
The laws governing appraisals, taken together with the persistent uncertainty in the housing market, have added perils to the process of getting a house from listing to closing, said Sally Slater, a broker with Prudential Douglas Elliman in Bedford.
Ms. Slater cited a recent $815,000 listing in Bedford for a ranch with three bedrooms and two and a half baths on two acres with an in-ground pool. Buyer and seller signed a contract for $785,000 and were set to close in 30 days. It was at that point, she recalled, that the appraisal came in at only $700,000.
“My first response was, ‘Something is clearly wrong here!’ ” Ms. Slater said. “Let’s try another bank. Let’s get another mortgage.” They did, and when the second appraisal came in at $785,000, the sale moved forward.
The broker described the clients as first-time buyers, already worried about making such a large investment. The last-minute snag, she said, almost scuttled the deal. (As did other buyers and sellers caught in similar predicaments, the buyers requested that their names not be used.)
In another case, Ms. Slater said, an appraiser from the Midwest was sent to place a value on 105 acres of undeveloped land in Bedford for sale at $1.8 million. He appraised the property at $600,000. Ms. Slater sought an independent appraisal from someone familiar with local property values, who valued the land at its asking price.
In such cases, buyers are sometimes willing to make up the difference, even if it is substantial. Take for example a century-old three-bedroom center-hall colonial on five acres that Mr. Logue cited in Yorktown. The listing was for $975,000, and the buyer and seller signed a contract for $899,000, only to have the appraisal come in at $815,000.
In this case, there were not enough comparable properties in the area to request another appraisal, Mr. Logue said, explaining that the two parties are renegotiating.
“These buyers are not backing out,” he said. “They’re convinced that the view of the countryside from the top of their hill and the charm of the antique house are worth more than whatever some appraiser says.”
Westchester – When the Appraisal Sinks the Deal | South Salem NY Real Estate
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