Sign of the Times? A new experience for this real estate veteran

I have been selling homes full-time in Austin, Texas for over 11 years, and I had an experience this week that is a first for me.  I thought I should share it here in an effort to inform others who might have this happen soon.

Before I get to the jist of this post, let me explain that I have had deals that didn't work out for a myriad of different reasons during my career, including:

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  • Too many repair items (i.e. bad inspection)
    
  • Buyer lost job
    
  • Buyer got cold feet
    
  • Buyer got sued
    
  • Buyer got caught money laundering
    
  • Seller died two days before the closing
    
  • Buyer had money stolen from his entertainment manager who fled the country
    
  
  
  

As you can see, I have had my share of losses, so the idea of losing a sale is not completely novel to me anymore.

However, I have NEVER lost out on a potential sale because of an appraisal issue.  Unfortunately, I may be able to add this to my list very soon.

I have a home under contract with some past clients who wanted to upgrade to a newer, larger home over the summer.  We looked at quite a few places, because they are relatively picky, and we landed on a terrific home on 1.3 acres with over 3800 square feet.  It was built a few years ago by a very reputable builder and it had plenty of upgrades.  The contract sales price was $377,000. 

The initial third-party appraisal came in at $380,000, and everything was moving along nicely with regard to the financing.  Everything was submitted to the underwriter, and we thought we would be closing in a couple of days from that point.

Not so fast, Jason.

Apparently, since the home is located in a "lower density" suburban area, it automatically triggered a desk review of the appraisal, which came in at $325,000. 

This is $55,000 UNDER the original appraisal. 

After looking at the review, it was obvious that the second appraiser used only ONE comparable sale to establish the value of this home.  Additionally, the home that they were using was 715 square feet smaller than the home I am selling. 

They adjusted the square footage difference at $25/s.f., even though every home in the area has sold for $97 - 115/s.f. over the past two years.  This home was thrown out of the original appraisal because it is not similar enough.

How does this make any sense?

The neighborhood is filled with custom homes on small acreage lots, and the comp that the review appraiser chose as "most similar" (his words) sold for just over $100/s.f. with an almost identical finish-out.  However, this home is worth a mere $85/s.f.?

A second desk review was performed, which also came in at the low price.  Everything was submitted to a second investor (bank), and we are waiting on THEIR (third overall) desk review now. 

It peeves me that I have a buyer that is imminently qualified to purchase this home, with 20% down, and we did our due diligence to establish the value.  The home was originally listed at about $390,000 and we felt that was fair based on what is available these days.  Now, we are at the mercy of someone who has likely never even visited the subdivision.

So, the upshot is that I am on the verge of losing a sale with a ready, willing, and able buyer, motivated seller, nice listing agent, solid financing, and six weeks of work all because of a (likely non-local) appraiser's opinion. 

If this home were listed at the review appraisal price, it would likely receive 20+ offers in a matter of days.  The "fire sale" price that they have come up with is simply not an indication of the value.  We are stymied because there are not enough recent sales in that particular neighborhood.  

Our mortgage guy told me that he has only had one review appraisal in the past three years, and THIS MONTH alone he has had 4 or 5 get flagged.

It appears as though we now must be more careful than ever about where we show properties, because of the lack of confidence that banks have adopted.  Even though this community has sales in excess of $550,000, the banks are so skittish about collateral that they will not lend money on this property even when the loan amount is $25,000 less than their review appraisal indicated.

Sorry for the long post - I could go on, but you get the picture.  I will hear the final verdict shortly, and I can find out whether I have lost my very first transaction over an appraisal.  Not like I need the money or anything, right?

Thanks for your time.  I welcome your input below.