NEW YORK ― When Sean McGowan signed a contract to buy a New Jersey home in November, he didn’t expect he’d still be living with his parents nearly a year later.
The deal fell through after two appraisals came in tens of thousands of dollars below the contract price, part of a wider trend of differences over property valuations that is compounding the U.S. housing crisis.
“It was very frustrating. We really wanted to move in,” said McGowan, a 31-year-old real estate lawyer.
Many housing experts say low appraisals are yet another headwind for a housing market already suffering from a plunge in prices, high unemployment and tight credit.
Lenders are forced to cap their mortgage loans at the value set by appraisers and buyers and sellers often can’t agree on how to make up the difference with an original deal price.
“It’s hard to talk about any recovery of the housing market and home prices until the appraisal issue is squared away, and that is a broad issue,” said Guy Cecala, publisher of Inside Mortgage Finance, a Maryland-based trade publication.
Sixteen percent of Realtors reported contract cancellations in July, matching June’s level, which was the highest since March 2010, when the National Association of Realtors began collecting data.
Nine percent reported contract delays due to low appraisals, and 13 percent reported a contract was renegotiated to a lower price because an appraisal came in below the original price in the last three months, the NAR said.
Appraisers in the United States have long been used to controversy for their role in the country’s housing market.
The appraisal system has been reformed in recent years to put a stop to the high estimates of property values that even appraisers admit helped inflate the housing bubble.
Many industry watchers argue the new regime has caused the pendulum to swing too far to the other side, inadvertently causing the opposite problem: artificially low appraisals.
“The industry, both from a lending perspective and appraising perspective, has gotten as outrageously conservative now as they were outrageously aggressive a few years ago,” said Rick Sharga, senior vice president of data firm RealtyTrac.