Low appraisals result in cancelled sales contracts for new homes

AnnaMaria Andriotis published an article recently at Smart Money highlighting the discrepancy between new home sales prices and appraisals. According to a report released by the Commerce Department, one out of three builders lost sales due to low appraisals.

Individuals who do try to purchase a new home often hit a roadblock once the appraisal is conducted, experts say. Appraisers determine the value of a home largely by reviewing the prices at which similar homes nearby sold for in recent months. Because few homes are selling, appraisers say they sometimes have to use homes that aren’t similar like foreclosures or short sales. That means homes with brand new appliances and fixtures could be compared to houses that are vacant and whose kitchens and bathrooms have been ripped out.

Ken Chitester, a spokesman for the Appraisal Institute, an association of real estate appraisers, says they take such inconsistencies into account and consider what those properties would have sold for if they weren’t distressed. But he adds that what it costs to build a home doesn’t necessarily equal its value. “Appraisers are doing the same thorough research and thoughtful analysis they always have,” he says. “If home values are lower than some people might like them to be that’s because the market is down.”

Via Smart Money