With tough loan underwriting guidelines, a market saturated with distressed and bank owned inventory, and reduction in loan programs, selling a home is no walk in the park. Imagine the relief and joy of a homeowner when they do get an offer or even multiple ones? However, the days of celebrating an offer are long over. Homeowners face a new, even bigger problem: the appraiser.

Appraisers are coming in way below purchase price and killing a sale on the spot. Homeowners can do everything right to get the house in shape for the market from remodeling, staging and making sure it is in top resale condition. “Getting a house in prime condition pays off. Buyers will pay for quality. They will pay for a home that needs no repairs and will not need repairs for years to come, ” says James Dainard, a real estate agent that specializes in helping investors buy, fix up and resell properties for top dollar in this market. “I have seven years of experience buying and selling property and know how to get a property in a condition that sells it quickly. We know what upgrades will get buyers drooling over your property.”

“We have had five, yes FIVE, appraisal issues in the last 30 days and over twenty in the past six months. Two of the properties had multiple offers with escalation clauses on the first weekend. My question is this:’ if properties have multiple offers on them the first weekend and the property sells for over list price, isn’t the home worth it?’ I believe that with the amount of inventory on market, buyers are not in the mindset to overpay,” says frustrated James Dainard of Invest Now LLC in Bellevue. (www.investnow.net a full service real estate investment firm)

Basic economics says that the value of anything is what someone is willing to pay for it. How can you explain a situation where a home gets multiple bids the first week on the market and the appraisal comes back significantly lower? This isn’t an isolated situation. In a recent Wall Street Journal survey, 47% of readers who participated said that they had personal experience with a low-ball appraisal.

It’s harder than ever to get approved for a mortgage with stringent credit requirements and a conservative amount required as a down payment. That’s not a bad thing, but the appraisal must be accurate to stabilize the housing market because the bank won’t loan more than the appraiser says the home is worth. This means that the buyer must contribute more cash in addition to the conservative down payment or the seller must significantly lower the price or the deal is dead.

The current economic conditions are a big enough task for sellers in this market but now they have to deal with appraisers just trying to move on to the next task or house to devalue. The irony is that in the past appraisers were blamed for overvaluing homes so that banks could lend more money. There has to be a middle ground, because right now, we are in a buyer’s market. If a home gets an offer, you can bet that the buyer is not paying over market value.

The Federal Reserve Board replaced the Home Valuation Code of Conduct with new requirements that prohibited banks from hiring their own appraisers. Now banks outsource appraisers using an appraisal management company, which are generally units of other banks or finance firms. These management companies take a large cut so appraisers are under the gun and forced to work quickly instead of investigating all of the components of a home thoroughly and accurately. In addition, a large part of this problem stems from appraisers’ lack of knowledge of construction and upgrade costs and what buyers actually want to pay for. They are comparing bank-owned and short sale inventory homes that need substantial amounts of upgrades to homeowners selling well taken care of completely remolded properties—oranges to apples. The management companies are also sending appraisers over too wide of territory so that they don’t even have any knowledge of the area. How can an appraiser give an accurate number if they aren’t familiar with the neighborhood? They are missing the nuances that mean a lot to homebuyers, like the safety of a particular community, or making big mistakes like comparing a lakefront home to a nearby, less affluent home situated on a pond.

In this current down economic climate, we need to come up with solutions to help us recover and get back on track. We will simply not have any recovery in the market with this ongoing issue. Appraisers are absolutely killing home sales.

Has anyone experienced this? Please comment or write me at meredith@heatondainard.com