Low Appraisals Stop Quarter of Home Sales

Washington, DC, Jan. 4, 2009--The National Association of Realtors says nearly one in four of its members has reported clients losing a sale due to low appraisals.

The National Association of Home Builders, meanwhile, also said low appraisals were sinking a quarter of all new home sales and argues it's not fair to compare distressed properties to brand-new homes.

Roughly 40 percent of all home sales last year were foreclosures or short sales, meaning the property sold for less than the mortgage. In some markets, like Las Vegas and Phoenix, they've hit more than 50 percent.

Appraisers determine the value of a property by looking at recent sales of comparable homes. They take an apples-to-apples approach, excluding or making adjustments for certain features, such as a swimming pool or finished basement. And generally, a foreclosure isn't used as a comparison for a standard sale.

In some areas, appraisers contend they are only sizing up homes according to the reality of the market, though they concede its becoming increasingly harder pinpoint what a home is worth.

However, an appraiser could determine a home is actually worth less than what some buyers may be willing to pay.

Part of the problem, critics contend, is that many real estate appraisers are now hired under new industry rules. Designed to limit conflicts of interest that can bias an appraisal, the rules bar mortgage brokers from ordering appraisals themselves, forcing them to do so through a mortgage lender.