The Appraisal – Owners and Real Estate Appraisers

The Appraisal

No, this is not the title to my next major motion picture, however, it is a topic of much concern to the real estate industry.  In addition to being a required element in a real estate transaction with loan, it oftentimes is the factor that makes or breaks the transactions.

Back in 2006, at the height of the real estate market in the United States, real estate appraisals were footloose and fancy-free.  Everyone had their appraisers provide high appraisals and the home values became, in the words of Dr. Phil, “Out of Control!”   Once the real estate market dove deep and the Great Recession set in, the government and the lenders made a concerted effort to keep appraisers more honest and the opinions tied to reality.  It was only after the real estate crash that owners and appraisers did not see values the same way again.

Now, in 2014, several years after the initial crisis, appraisals continue to be just as important as they were before, but now the discrepancy between appraisers’ and home owners’ opinions of home values has begun narrowing. According to Quicken Loan’s Home Price Perception Index, in November, appraisers valued homes 1.56 percent higher than home owners, according to Quicken Loans’ Home Price Perception Index.

“Mortgage financing often hinges on whether the appraised value coincides with the home values agreed upon by the home buyer and seller in the case of a home purchase, and the home owner’s estimated value in the case of a refinance,” says Quicken Loans Chief Economist Bob Walters. “It is reassuring to see the gap between appraiser opinions and home owner opinions narrow, and if we had to choose a side of the fence, it makes for a much smoother mortgage process if appraisers are valuing homes above home owners’ estimates like we’re seeing, as compared to the opposite.”

Quicken Loans recently analyzed metro areas over the past three quarters and found that appraiser opinions were higher than home-owner estimates. Even within the various metro areas, the difference varies widely. For example, in San Jose, California, appraisers valued homes 6 percent higher than home owners on average, while in San Francisco, appraisers valued homes 4.35 percent higher. In Dallas, Texas, there was a 4.22 percent difference.

There were differences that resulted in lower opinions.  For example, in Kansas City, Missouri, appraisers’ opinions were found to be 2.53 percent lower than home owners’.

Nationwide, however, real estate professionals are reporting much fewer appraisal issues as the deal breaker.  These indicators are what gives buyers, investors and sellers the confidence they need to put their toes back into the water!

Khila L. Khani, Esq.