Jethro Tull – “Conundrum”
The good news is our local Portland Metro real estate market has continued to experience a “steady-eddy” recovery since December 2011. Anxious buyers are on the lookout for well-priced, good condition properties and long to take advantage of these historically low, low interest rates. So, other than lack of inventory (a seemingly chronic lack of inventory, I might add), what do Realtors have to whine about now??? It’s the appraisal and underwriting process!!! I wrote about this prior in a January 2012 article and it continues.
“We’ve come a long way, baby” from the drive-by appraisal days. We can appreciate the need for lending reform, but I must say some of the results of the vast pendulum swing are close to ridiculous. The Dodd-Frank Act has put into effect a lot of stipulations that impact both buyers and sellers. I’ve been to two continuing education classes in the last week that dealt with how appraisals and underwriting has changed!! The appraiser CANNOT factor in time-trend adjustments. This means they can’t look at a similar sale that happened a few months ago and add a percentage to it for the obvious appreciation that may have happened in the overall market. They will also rely more on “closer-in-proximity sales” rather than increase the geographical boundaries to get a more recent comparable!! In a market that is repairing and changing, this can create “value” problems, even if the buyer and seller have come to an agreement.
A larger problem that I have personally experienced multiple times is the buyer and seller come to an agreement regarding repairs. Perhaps, the seller opts to credit the buyer “x” amount to complete repairs after close of escrow. Often the underwriters get wind of it either through mention in a repair addendum, asking for a property inspection report or from the physical inspection by the appraiser. Then, even though the buyer and seller are quite comfortable with the “credit at close of escrow arrangement”, the underwriters can demand that certain repairs are completed prior to funding the loan (obviously, upsetting the apple cart).
And, so our saga continues: Realtors chasing prices and appraisers chasing value!!