Who's Holding Down the Real Estate Market?

In a market full of distressed properties, you'd think that the general market conditions and low balling investors are keeping prices stagnant. This is somewhat true, when it comes to homes in disrepair where cash or renovation loans are the only option for buyers, but what happens when a buyer uses a mortgage to acquire a move in ready home to be their primary residence? 
Let me explain the scenario. I listed a short sale, single family home in north St. Petersburg for $80,000, fair market value from what I could see from the comps for a 3/2 1500sft block home. I was wrong.  The International Valuation Standards defines market value as "the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion." 
So this would mean that the fair market value would be whatever a willing buyer was prepared to pay for the house.
Within the 1st week of the house being on the MLS, we had 3 offers submitted, and all were owner occupants with FHA financing. Two of the offers were in excess of the asking price, and one offer was the clear successful offer at $88,000 plus seller paid closing costs at 3%, so an actual dollar amount offer of $85,360. As the sale was a short sale, we sent the offer over to the bank for their review and approval. The lender ordered their BPO (Broker Price Opinion), collated all of the sellers hardship package, and reviewed the file. On August 2nd 2011, we received the bank approval that they would accept the offer and collect $75k to satisfy the loan, rather than the approximately $190k that was owed on the house. At this stage, everyone is happy and we move forward to a successful closing. Or so you'd think.
The buyers lender ordered the appraisal for their underwriting and as the listing agent, I was to meet her at the property to grant her access. I was about 1 minute late as I pulled into the street and received a phone call from the appraiser asking where I was, at this point I realized that she is swamped with appraisal appointments and time was of the essence. I opened up the house and stepped aside so that she could do her job. As she was leaving she remembered that she needed to review the attic. I showed her the attic hatch, and as she didn't have a ladder, she stated that she'd just take a picture of the access hatch. 'No big deal' I thought.
About a week later, I received a phone call from the buyers Realtor with the news that the appraisal came in below value. In fact it came in $12,000 below contract value at $76,000. 
We were both confused as to how it came in so low. Both of us agreed that it seemed to be a very low value, but we both knew that we must play the hand we're dealt and relay the full information to our clients for their decisions. I asked the buyers agent to send me a copy of the appraisal so that I could take a look at it - wondering how I was so far off with my valuation of the property.
Upon review of the appraisal I began to notice many inconsistencies and began to dig a little deeper.


Let me prequel this next part by saying that having been in the business for nearly 10 years, I understand that challenging an appraiser is pretty much impossible. You must provide 3 comps that they missed to justify your argument, and most appraisers don't miss substantial comparable properties. Most appraisals are accurate whether you like the result or not and are based upon facts; so you certainly can't challenge them based on your opinions.


Upon reviewing the appraisal on the subject property, I discovered a multitude of errors in the report. Not differences in opinion, actual errors based on facts. Facts that appraiser hang their reputations on. 

• Two of the comps used were valued based on having equal bathrooms to the subject property, so no adjustments were made. In actual fact, they only had one bathroom and should have been adjusted accordingly.  
• One of the comp properties was in disrepair, and had no heating or A/C. The home was to the point of disrepair that no financing options were available to a buyer. The sale was a cash sale. No adjustments were made by the appraiser.
• One comp listed that the seller had contributed $10,000 towards the buyers closing costs. Upon investigation, I discovered that the actual seller contribution was about half of that amount at $5100.
• Two of the comps had pools, the subject does not. One of these comps was adjusted by -$2,000, and the other by -$10,000. This is a large difference in the opinion of value of a pool.

Aside from these errors, and the failure to include a substantial comparable property that would easily have justified the contract price, there was one other major issue with the appraisal report. The appraiser included a photo of the inside of the attic of the subject property. Remember earlier I mentioned how the appraiser did not access the attic, and just took a picture of the access hatch? Well now we have fraudulent documentation in a formal appraisal for a Government backed loan. The photo of the attic interior was not of the subject property, and the appraiser clearly states in the report that it is. 

I took extreme exception to this appraisal. The value is what the value is; I have no problem with that, but at least do the seller, the buyer, the bank losing money on the short sale, and the neighbors of the subject property the courtesy of basing the value on FACT. 

I tried to contact the appraiser by phone - no response. I emailed her with my concerns - no response (I did get a read receipt though). I emailed her again as I had not received a response - no response. The appraiser works for herself, so no way to speak to her boss. I contacted the loan officer for the buyers new loan - nothing he could do. So what do I do? I did the only thing that I should do as a Realtor; I presented all of the facts and information I had to my clients for them to make the decision to either fight the appraisal issues, or to reduce the contract price and resubmit the file to the sellers lender for a new short sale approval. As this was a distressed sale, and my clients wanted to move on with their lives, they opted to reduce the contract price and resubmit for a new approval.

The sellers lender requested a copy of the appraisal and issued a new approval on the short sale. Escrow closed on Friday 14th October 2011, for $74,000. 

The appraiser is yet to acknowledge my calls and emails. 

So, now we have a neighborhood in north St. Petersburg FL, where most keep their yards nice and take pride in their homes; where one 'For Sale' sign generated about 30 calls in 2 weeks; where a home in move in condition procured multiple offers above listing price within a week of being on the market; that will show a large depreciation of value across the board. This sale of my listing sickens me. This sale will now be a comparable property for the next appraiser hired to value a home in the neighborhood, and will subsequently reduce its value.


Who actually determines the value of a home, and subsequently depreciates entire neighborhoods? You decide.

Bank of America offers up to $20,000 to entice short sales

By Mark Puente, Times Staff Writer

Bank of America hopes the incentives will keep some homes out of foreclosure.

Bank of America is offering up to $20,000 to select Florida homeowners willing to agree to a short sale instead of entering foreclosure.
To sweeten the deal further, the nation's largest lender will consider waiving the deficiency on the loan, which allows homeowners to sell the house for less then they owe without having to make up the difference to the bank. It can save homeowners thousands of dollars.
Not every Bank of America customer in Florida will be eligible for the program, which pays a minimum cash incentive of $5,000. It's targeted toward home­owners who cannot afford their mortgages.
To quality, the short sales must be submitted for bank approval by Nov. 30 and must close by Aug. 31. Sales already under contract are not eligible; neither are properties outside of Florida.
This is a "test-and-learn" program being rolled out only in Florida because of the higher foreclosure rates than other parts of the country, said Christina Beyer Toth, a Tampa-based spokeswoman.
Florida is seen as a viable market to gauge short-sale response when presenting home­owners with relocation assistance, she said. If successful, the plan could expand to other states.
The bank notified select Florida real estate agents this week about the offer.
"It will get a lot of people off the fence about wanting to sell their home," said Steve Capen of Keller Williams Realty in St. Petersburg. "This makes sense."
What's in it for Bank of America? It saves attorney fees, court costs and property taxes by avoiding foreclosure. It also speeds the process of getting bad loans off its books and gets the properties back on the market faster.
Capen, who specializes in short sales, plans to heavily market the offer to clients. But he cautioned that homeowners shouldn't get overly excited because many of these plans have restrictions.
"It will only help a fraction of the people," he said.
Homeowners get the cash after the short-sale deal closes. A caveat: Homeowners might have to pay income taxes related to the deficiency waiver and the cash payout.
The cash payouts give home­owners a reason not to trash their homes or strip them bare before moving out. When houses enter foreclosure, home­owners can essentially live for free until banks take possession at the end of the court process, which takes an average of nearly two years in Florida.
Attorney Chris Boss of Yesner & Boss said the deficiency waiver will enable homeowners to buy a house without filing bankruptcy or waiting three years from when foreclosures become final.
"It's a chance to get away from the house with some money in your pocket," Boss said. "This is good for the economy."
Other national lenders started similar programs.
Late last year, JPMorgan Chase began giving homeowners $10,000 to $20,000 and waived losses on the mortgage. The bank still suffers a loss in the process, but generally speaking, sale prices on short-sale homes are higher than foreclosed homes.
Real estate experts and economists have said the housing market cannot fully recover until the millions of distressed mortgages are removed from the system.
Mark Puente can be reached at mpuente@sptimes.com or (727) 893-8459. Follow him at Twitter at twitter.com/markpuente.
.FAST FACTS
How it works
Here are details on Bank of America's "Short Sale Relocation Assistance" program:
. To determine eligibility, call a bank short-sale specialist at (877) 459-2852 between 8 a.m. and 10 p.m. Monday through Friday or Saturday from 9 a.m. to 5:30 p.m.
. The plan excludes loans backed by the Federal Housing Administration, Veterans Administration, U.S. Department of Agriculture and Ginnie Mae. Short sales initiated with offers are excluded.
. The specific amount of the payout will be based on the unpaid principal balance. The payoff assistance can be used to pay off other liens on the properties.
Source: Bank of America