BluefoxToday blog : Mortgage approval hinges on an acceptable appraisal more than ever

Mortgage approval hinges on an acceptable appraisal more than ever

As if there already weren't enough roadblocks to qualify for a home loan. Most of the past mortgage programs have vanished into thin air in the aftermath of this still percolating real estate meltdown. Besides, down payment requirements have increased, FICO score standards are higher, PMI firms are pulling out of markets and so it goes.

Then there is the all-important appraisal. It's hard to get an accurate one when there are very few, if any, comparables in the immediate neighborhood to use. Homes are just not selling like they once were and this is the most reliable yardstick appraisers have to assess price. That is the marketplace where buyers and sellers establish value.

Equally crucial is the sales price itself that is available for comparison. They have dropped steadily over the last few years and appear to have some more room to go. Take Las Vegas for instance. Prices may be stabilizing a little in the lower half of the housing market here, as they have sunk so low already, but the upper half still is vulnerable to wild fluctuations. The erosion percentage in Sin City in the recent past has been around 2 to 3% per month. So, reaching an appraisal figure one day can easily be challenged by the underwriter because by the closing date a month away it could be out of line by said 2 to 3%. And that can quickly cancel an otherwise well-structured home purchase. Or a legitimate refinance.

Appraisers are becoming creative, and they should, to make things work. Introducing "negative time adjustment" is one of them. Using the above Las Vegas example they first look at the figure based on the comps and then cleave off the appropriate percentage, in this case 2 to 3% per month, from it to arrive at the actual assessment. This seems to be the best way to handle the thorny issue and is often acceptable to lenders. That's pretty much it. How else can it be accurately established?  

The AVM, or automated valuation model, applies a mathematical metric to reach real estate value, but is barely used because of its inaccuracy. Studying contract prices agreed to between buyer and seller has gained little support since so many of them fail to close.

The hurdles are many and the market has to work all the angles to make things happen.


Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 6 commentsEsko Kiuru • March 14 2009 06:43PM


Esko I have not run into this problem yet around here, but these days with almost every buyer asking for Seller Paid Cost, and we all know that they just get added to the selling price, I end up holding my breath until the appraisal comes in.  Most of them are just barely squeaking in because of this, and if what you are experiencing starts to happen around here, well let's just say there are going to be a lot of unhappy Buyers and Sellers.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 11 years ago

Hi Esko - In this market (generally nationwide) it is absolutely expected to use sales date adjustments for appraisers.  If we don't we are scrutinized by underwriters.  When necessary, I used to make positive sales date adjustments in rising markets (underwriters were not so keen on that tactic).  I also add three active listings that are not supported in the weighted values of the market approach, however, if it is obvious that those listings are below the final estimate of value I will re-check and reconcile my sales date adjustments if necessary.  Believe me, it makes the appraisal part of the loan process much smoother for everyone in the end. 

Posted by Sara Goodwin, Portland, Oregon Appraiser (Ashcroft & Associates) over 11 years ago


In markets like Las Vegas it's a serious challenge.

Posted by Esko Kiuru over 11 years ago


Thanks for giving us some nice insider information on how you guys work.

Posted by Esko Kiuru over 11 years ago

It is sad that the problem has gotten so bad that appraisers are basically price guessing. The banks don't want to put themselves at risk, but the old model may not work and they have to think outside the box.


Posted by Todd Clark, Principle Broker Oregon (eXp Realty LLC) over 11 years ago


True, lenders could become more realistic as to how to find proper value.

Posted by Esko Kiuru over 11 years ago