NAR(National Association of Realtors) is at the center of the latest blame game on real estate recovery. It started with the July release by NAR, June Existing-Home Sales Slip on Contract Cancellations, but Prices Stabilize.
NAR’s chief economist Lawrence Yun is quoted saying, “Home sales had been trending up without a tax stimulus, but a variety of issues are weighing on the market including an unusual spike in contract cancellations in the past month,” he said. “The underlying reason for elevated cancellations is unclear, but with problems including tight credit and low appraisals, 16 percent of NAR members report a sales contract was cancelled in June, up from 4 percent in May, which stands out in contrast with the pattern over the past year.”
This mention of the low appraisals sparked an article by the WSJ, Judgement Call: Appraisals Weigh Down Housing Sales. Last I checked there were 195 comments and counting.
The story is all very simple really. There has been no economic or housing recovery. The overall opinion is that there will be no economic recovery until there is a real estate recovery.
For those that actually have jobs and may wish to buy homes, most are dependent on getting a mortgage. According to NAR 16% of the homes under contract in June fell out, citing problems with tight credit and low appraisals. I don’t think these are mutual exclusive, but he mentions them both.
The real rub is that both sellers and buyers are blaming the appraisers if the property doesn’t appraise for contract value. Isn’t the value of the property what someone is willing to pay for it? Of course it is worth what someone is willing to pay for it, but that doesn’t mean that a bank needs to be willing to lend on what two other parties agree to on property value. This is the real issue.
The bank is lending money to the buyer so the home can be purchased and probably pay off another bank. Maybe the seller gets some equity, but probability of that is low in the current market.
Note to everyone in the real estate game: You can complain about the appraisers not knowing the market or cheap fees are causing bad appraisals. You can complain about a mirad of items regarding the appraisers. However, the reality is that there really isn’t anything that can be done about the appraisal system. Much like our banking system……
At the end of the day, an appraisal is not really what a home is worth, it is the value in which a bank will lend money against. Of course the banks are being more careful – They are still stuck with a ton of bad loans post-Lehman and taking the majority of the heat for the real estate bust.
I am no fan of the banks, but at the end of the day it is their money being lent. If the sellers and buyers want to transact, then there are a number of steps that can be taken:
1. The buyer can put up more of a downpayment. The buyer can pay whatever they want – The appraisal will determine how much they can borrow.
2. If the buyer can’t put more down, then the seller can take less. (If they can actually afford to take less…)
3. The Realtor, buyer, and seller can contest the appraisal. Everything I have dealt with or read about says that this is near impossible, but I have heard stories of people being able to do it.
The road to real estate recovery will be extremely long. During this time there will be a lot of blame to go around. If you want to buy or sell real estate in the current market the reality is that you need to be patient, because there is no quick fix.
