Appraisals Too Low For Orlando Buyers
In Orlando, the web site for WESH tells us the appraisal issue is starting to cool down the market. "There's a bump in the road for Central Florida's booming real estate market. A local realtor says 70 percent of buyers can't close on a home because of appraisal troubles."
It was bound to happen. "The homes are being appraised for less than the selling price. Banks grant mortgages based on a home's appraised value, so if you don't have extra money to make up the difference, the deal falls through."
One appraiser wants to change the rules. "The appraised value of a home is based on comparable sales. Banks allow appraisers to consider only closed sales, which could be months old. Appraiser Walter Carpenter said it would help if appraisers could also consider the prices of homes under contract."
"'At least with a contract, you may be fortunate enough to find someone who has agreed on a price within the last 30 days or 45 days,' he said."
17 Comments:
who knows when... but one of these days people will finally wake up and ask themselves... man, what was i thinking? i paid $525K for a small 2br./1.5 ba cape... more than 1/2 a million bucks? man, i must've been sick or something...
That's just great - Walter wants to change the rules to make it easier to bogus up an appraisal and bury someone else in a mortgage they ultimately can't afford. What a humanitarian.
In reality, they are not going to default for at least one year. In that time the price can be expected to be (at least) 20% higher so the appraisal should be about 20% above the current value.
Man I should work for the NAR.
I do see a lot of transaction-fall-throughs in the SF Bay Area.
I think the mortgage industry is slowing coming back from REM sleep.
REM (Real Estate Mania?) Sorry couldn't resist. :-)
I too am seeing appraisals coming up short. Here in Sacramento, this is becoming very common, although most buyers end up buying anyway if they can restructure the deal.
bazooka,
How do they restructure the deal?
I just sold one of my rehab properties in South Shore-Chicago for a second time. We have this 2 flat listed for 337k. First time buyer, Chicago Transportation Authority driver, offered 349k with 3% back at the closing ( means full price). Appraiser come up with 325k. We knew we can have that problem , so we could sell it to her for that price with money back on the closing, but she withdrew her offer.
During all this time I held the property on the market with new price of 349k. Someone else came and offered 355 with 3% money back for closing costs at the closing. All legal, part of the contract and lenders accept this. I explain to the buyers realtor that the real asking price is 337k. In result we change the contract. I can imagine how the buyer ( suppossedly investor) has been happy with the new price.
You all know what that means.
Keep your hands close to your ears, because pop can be to loud.
Mike C, Chicago. Renting Realtor and RE Investor.
I sold a rental condo in the Orlando area in 2003. Contract was for $55,000. Appraisal came in at $45,000. Changed the contract price to $45,000 and buyer gave me $10,000 cashier check for difference.
At this very moment I am negotating with a tenant to purchase another rental condo in area. Looks like we will settle on a $50,000 purchase price. I was already concerned about appraisal because 6 month old comps are showing $32,000 and $38,000 for similar but different properties. Now I see this post and am really concerned.
Oh well if doesn't work out I can continue to rent. I only paid $15,000 for the place and can rent for $475 per month (it's a single/studio condo).
Ben,
Usually just by bringing more cash to the table (and thereby reducing the loan amount) the buyer can get the deal to close. Most mortgage brokers will work out a deal on paper based on certain assumptions about the house, but they can easily adjust the deal if it doesn't appraise (as long as it's within 5-8% or so). I've seen several examples of this.
What's sad is that even people that have some money for the down payment are too tempted by the 80/20 or interest-only 100% loans and they are spending their cash on various other things instead of a down payment.
I do see a lot of transaction-fall-throughs in the SF Bay Area.
Do tell us more! Details please!
Mike C -- keep us up to date about the Chicago market. I'm not far from the South Shore area -- renting, of course, for much, much less than buying. We could afford a lot of home pretty easy (i.e. actually have assets to support that amount, not in terms borrowing ability), but we are not interested given the obvious bubble prices -- places going for $500K+ that are still located in what are still basically crime-ridden neighborhoods on the near south side (not South Shore, which is OK by my reckoning).
What was the income to buy price ratio for said CTA driver? I'd bet that would have to pretty high, though knowing how this city works, $150K per yr. bus drivers are not out of the question.
(Amazingly, it doesn't seem to concern the buyers at all that the home's value is not sufficient to support the loan amount requested. The buyer wants to buy anyway.)
People are buying houses now the same way they buy cars or furniture. When most people buy a car, they are thinking one thing: what's the monthly? They don't care about the price of the car---whether it's 30K, 35K, 40K. If they can "afford" the monthly, they "buy" the car. This is because most people assume cars depreciate and they figure they will never pay off the loan, but instead will turn the car back in and "buy" another one.
Americans are fixated on the "monthly".
But homes are different. You will sell the home someday, probably within 5-7 years (avg holding period these days.) So the nominal price of the home is critical. But no one thinks about that because they only care about the "monthly."
Imagine if a car dealer sells you a car, but tells you that, once the loan period end, you will have to pay the difference between what the car is worth and what you paid for it. No one would buy a car under those circumstances. But they are buying homes left and right under the same scenario.
They are either ignoring the downside or they are convinced real estate can't fall in value.
Anyone here from Baltimore,MD? I do see it take longer to sale. There are more than 100 houses currently for sale in Federal Hill alone.
Times, they are a changin... I think we are experiencing the beginning of the end of the real estate bubble.
Heynow:
You nailed it! For many, there is no possible chance of ever retiring their note; simply focus on the monthly payment.
Apparently folks don't quite 'get' the difference between a typical car loan and many of the unique real estate financing 'programs'...at least car payments are fixed with a repayment schedule less than five years.
Maybe I'm looking at this all wrong and GM should roll out an IO car loan to stimulate auto sales.
Bob, weeks ago I was looking at a condo in the Peninsula. I asked why it has been on MLS for weeks. It turns out that the prior sale did not go through.
Also, from conversation with friends, the term sale-fall-through is becoming more and more common.
Also, did you ever wonder why some listings are still active on MLS for weeks on a supposedly sellers' market?
If you take a mental snapshot of an MLS sample (mine is Santa Clara county, <650K, after 1990) every once in a while, you will notice some entries that last a long time, and some that disappear and reappear after a short while.
Why don't we create our own (highly un-scientific) housing inventory indice for the bay area?
We can use craigslist to see the number of entires appear in the search results every day (e.g. peninsula 400K - 500K, s.f. 800K - 900K).
I know that some entries repeats and some are irrelevant, but at least we can get a very board idea of the changes.
Post a Comment
<< Home