Letters to the Editor: Appraisals — It’s an Outrage
New rules make it impossible to correct an appraisal before it is published and it ruins the deal. The pendulum has swung far too far.
I recently had an appraisal for a custom home where the lot was valued at less than 50% of 12 very recent sales in the same subdivision. There were no short sales, no foreclosures, nothing bad — just an appraiser not doing his job and being overly conservative. (The sale price was in the mid-$60s for two acres and the appraisal was in the $30s.) I had already sold the lot and my customer had lot financing from a local bank based on a good local appraisal. He had an 80% lot loan of about $50,000.
It messed up my customer’s construction loan. He was told for the first time at the closing table that he needed another $20,000-plus down. The bank used somebody from 30 or 40 miles away hired by one of the appraisal services. He blew it totally. My customer switched from that national bank to a local organization, which hired a local appraiser, and he got full value for the lot. He is framing now. Trusses should go up any day on a 3,000-plus-square-foot house. But my customer’s construction was delayed for a month while he protested the appraisal and finally threw up his hands and went with a local bank.
Needless to say, the local bank was thrilled with the loan and happy that the national bank’s appraiser had blown it. The local bank knew the history of the deal. Yet it cost my sophisticated customer several thousand dollars to make the switch.
Something is wrong when rules make it that hard to get a loan. Local banks were bidding for it, but the national bank had a great program that was theoretically cheaper. My customer goofed by initially ignoring my advice to go with a local bank instead of the nominally cheaper big bank. He made a rational decision; yet the system really messed him up.
Staying away from the big banks is part of the answer. Unlike many of the big banks, the local banks in my area did not have big real estate losses, with an exception or two.
Going local is part of the answer.
Regarding appraisals: I just read the Freddie Mac bulletin and it states, “For example, we do not require appraisers to use Real Estate Owned (REO), foreclosure or short sales. However, if the appraiser determines that these are representative of the properties available to typical purchasers for the market in which the property is located, appraisers must consider their use.” This unfortunately does not help.
Gary Kret, president
Steuart Kret Homes
White Plains, Md.