Total Mortgage President and founder John Walsh wrote a byline article for National Mortgage Professional Magazine detailing the difficulties that many homeowners are having getting acceptable appraisal values on their homes.
The problem lies primarily with the huge number of foreclosed and distressed properties on the market and the way in which appraisals are conducted. The main way that an appraiser determines the value of a home is to look at like homes within one mile of the target property that have sold within the last six months. The problem is that a large percentage of home sales are distressed homes or short sales. These homes typically sell for a fraction of what they would sell for in a more normal market. The predominance of these distressed properties puts downward pressure on appraised values.
In some cases there is even a total lack of comparable data due to the low volume of home sales in many areas. In these cases the appraiser uses a variety of methods to extrapolate the value of the home, but this is an inexact science at best.
Many times when an appraised price comes in below the expected amount, it creates problems with financing. It may raise the loan to value ratio of a mortgage and force a lender to purchase mortgage insurance, or it could cause a lender to decline financing altogether, putting the kibosh on the deal.
I highly recommend clicking through to the article to read the whole thing, especially if you are a prospective home buyer or seller.
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