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.