Buyers, sellers paying closer attention to appraisals - SanTan Sun News SanTan Sun News

Buyers, sellers paying closer attention to appraisals

March 25th, 2021 SanTan Sun News
Buyers, sellers paying closer attention to appraisals

By Ben Gottlieb
Arizonan Guest Writer

One impetus for the housing debacle that triggered the Great Recession over a decade ago was the ease of obtaining financing to purchase a home.

It was easy to have an appraiser support the contract price of a home – thereby enabling the buyer to obtain his or her loan needed to purchase the home – with minimal out-of-pocket cash needed to make the purchase.

All of that changed after the Great Recession.

Among other things, the Home Valuation Code of Conduct enacted rules to make the home appraisal process more neutral and objective for conforming loans backed by Fannie Mae and Freddie Mac – lenders or third-party companies contact and compensate appraisers.

In today’s real estate climate, this has resulted in many appraisal reports not supporting the contract price.

Amid the COVID-19 pandemic, housing prices in Arizona – and elsewhere – have soared.

Most people have likely heard or read by now the reasons provided by housing experts and economists for the rapid ascent: (1) record low interest rates; (2) extremely low inventory; (3) unique conditions caused by the pandemic forcing homeowners to spend more time in their homes; (4) expansive fiscal stimulus; and (5) an overall rising stock market.

Federal Reserve Chairman Jerome Powell has recently stated that he expects housing prices to continue to inflate in the short-term but views any inflation as a temporary condition primarily caused by the COVID-19 pandemic.

In the current real estate climate, a bad appraisal can mean the difference between buying your dream home or staying put.

Many housing transactions involve “bidding wars” among various prospective buyers – with some buyers willing to offer a “premium” in order to win the contract. In today’s real estate world, appraisers do not care whether there was a bidding war, or whether the buyer – knowingly or unknowingly – offered a premium for the home.

Instead, the appraiser will focus on similar recent home sales in close proximity to the subject home.

On occasion, the appraiser will introduce a subject element into his or her appraisal report – i.e., the value the appraiser tacks on for a desired view or pool or landscape.

Thus, the conditions in today’s housing market are ripe for home transactions that “do not appraise” – meaning, the appraisal comes up short of the contract price.

This can present a significant issue for the buyer, as the lender is only willing to lend up to a certain amount based on the appraised value.

If the appraised value comes up short, that means the buyer must come out of pocket for the additional funds to compensate for having qualified for a lesser loan amount.

Many buyers do not have the extra funds needed to make up the shortfall.

Under the standard Arizona Association of Realtors’ purchase contract in Arizona, the buyer has five days after notice of the appraised value to cancel the contract and receive back a refund of the earnest money.

In today’s market, the seller may insist that the buyer waive the contingency provision at the outset.

This means that the buyer would forfeit the earnest money if the home did not appraise and the buyer was forced to cancel the contract.

It is also worth noting that the buyer and seller may have other options after receiving an appraisal report that the buyer or seller disagrees with. First, the parties can ask the appraiser to reconsider – for instance, perhaps the appraiser missed something important such as an expensive and valuable upgrade or made a mistake on the square footage of the property.

Second, the parties can request that the lender obtain a second appraisal. Third, the parties can negotiate a new sales price during the five-day period set forth in the appraisal contingency clause.

In all cases, it is important to consult with a qualified real estate professional about your options.

Chandler resident Ben Gottlieb and Ahwatukee resident Patrick MacQueen are partners and co-founders of MacQueen and Gottlieb PLC, the state’s top real estate law firm. Reach Ben at 602-533-2840   or   email him  at