Appraisals Are Lengthening Closing Time To 40 Days

In June, it took our Southern California clients an average of 40 days to close on their homes, 5 days longer than it did in May. The good news for our clients is that even though it may take a while to close, only three of our Southern California clients’ deals failed to get financing since February.

The main reason closing is taking longer is because on May 1st, the Federal Housing Finance Agency’s Home Valuation Code of Conduct (HVCC) took effect. The HVCC is designed to make home appraisals more reliable by restricting the interaction between mortgage lenders appraisers. Since May 1st, lenders can’t deal directly with appraisers. Instead, lenders schedule appraisals through third-party management companies. This adds a buffer between the lender and appraiser, but it also adds time to the process. You can get all the details in the official statement from the Federal Housing Finance Agency (25K PDF).

“The HVCC is supposed to improve the accuracy of appraisals, but we’re seeing just the opposite,” says Anna Nevares, one of our agents in Southern California. “Many of the appraisers aren’t familiar with the local market and they often appraise home well-below market value. Right now, we’re spending a lot of time disputing appraisals based on bad comparable homes.”

For more numbers, download the spreadsheet with the data on what happened in June at Redfin.

  • Denise

    The HVCC seems like a good idea to me as it presents a checks and balance measure. And reading “many of the appraisers aren’t familiar with the local market”, only reinforces the idea there’s a need for this checks and balance. If they don’t know the market, then the appraisals they’ve been providing in the past are certainly questionable. Perhaps appraisers are now delivering true numbers reflecting reality.

  • Greg

    I recently refinanced to 4.5% (lucky!). They appraised my home nearly $100k below similar old style bungalow homes/lots roughly 1/2 mile away. Why below, no explanation. Our kitchen was nicely upgraded to match original old style cabinetry, etc. But moreover, we live on the more desirable hillside area with slight ocean views (mostly a more open feel than flatlands..) and very closer to the nicest park in town, and closer walk to downtown. Everyone agrees our home has more value, NOT nearly the $100k less appraised! But we simply wanted refinance – so when they ignored our complaint we just let it go.

  • Adam

    No offense to the agent quoted in this post, but I love the bitching coming from real estate professionals right now – who were a key cog in the mechanism that created this bubble in the first place. They certainly weren’t bitching when they were able to influence the appraisal, or when the value of property was increasing by 30% in the span of just several months.. Not knowing the market has nothing to do with the low appraisals – the appraisals are now just actually realistic. And even with these low appraisals, the LA market is still vastly overpriced for the first time home buyer and the middle class.

  • Becky

    The way the new program has been implemented means that local appraisers do not appraise local homes. There is a pool of appraisers that are used. The lender requests an appraisal and the appraiser on the top of the list gets the job even if they have never been to the area. Some appraisers are being sent 50 miles away. There are a lot of things that an out of area appraiser can miss regarding the value including comps that affect the price. Due to the changes there is no discussing the appraisal nor changes due to inaccuracies. Our recent appraisal came in low. It was missing several features (2 fireplaces, bonus room, loft) and the comps were far away (there were many more recent sales closer). Low does not mean accurate. And you get what you get with the appraiser including how qualified they are.

  • Karen

    As an appraiser, I take issue with the real estate agent’s comments. Often times, a comp that a RE agent thinks is justifiable, is not the most desirable comparable to use. It may have not been a standard, arm’s length sale….it could have been a flipped property or distressed sale. Furthermore, sometimes there are not true good comps. The gold standard for appraisals is within a half mile, and if we can’t locate anything then we have to go outside that radius. Sometimes, a home is worth more than can be proved based on the comparables available to us. Upgrades are secondary or even third place, because they are often a personal taste issue. Some buyers may not care to pay more for tile floors versus hardwood floors. They just want a deal on a distressed sale.
    There are many more points to consider:
    1) If the property is flagged as being in a “declining market,” lenders require that we apply a negative time adjustment. Some banks even require a negative time adjustment from the “contract date.”
    2) Market value isn’t just about what a buyer and a seller are willing to set a contract price on, it’s about what the economy will bear and economic trends.
    3) Appraisers are required to have 2 years or 2000 hours of apprentice training before becoming fully licensed, which is more than can be said for real estate agents.
    4) Appraiser’s liability of value stays with the loan package for the life of loan, whereas the agent gets to walk away with their commission and less liability.
    5) Appraiser’s are accountable to lenders, not buyers, sellers, loan officers, or real estate agents.
    I concur with the post made by Adam. Real estate agents and loan officers were part of the problem if not some appraisers who played the “game.”
    Finally, I think too many of these professionals think they understand what appraisers really do-it’s not just about the “comps,” the appraisal has to factor in so many other details.

  • Allen

    Thanks Karen for providing more insight. And I certainly agree with you regarding upgrades – its quite subjective and a lot of times the homeowners that complain about low value or feel they should get more money for certain upgrades tend to come from a very personal point of view, some times even hostile. While they may love what they have done, it may simply mean a complete remodel for someone else.

  • Mark Jones

    I disagree with the appraiser’s dismissal of up-grades as third place in a buyer’s mind. Although I agree all interior decor is down to personal taste, there are strong trends in decor though out the years. I would think it part of an appraiser’s job to decide if a home is generally appealing to a large group of people or has gone too far in someone’s personal taste. Is a brand new $20,000 kitchen appliance installation simply noted the same as a 10 year old low range kitchen appliance ensemble? Or does it get a tiny gold star for simply being new? Is hardwood flooring noted the same as cheap linoleum? Of course someone may prefer linoleum but it does not change the fact that a majority of buyers will pay more for hardwood floors then plastic floors.
    If all upgrades are not really considered they should simply go by square footage and be done with it. If you were offered a Porsche 911 or Honda Civic, I highly doubt you’d say, “well their both 2 seaters so let’s just flip a coin”.
    I also don’t agree that there is a median across the country that can be used as a standard. Someone said a standard of “reality”. In NYC and Los Angeles, you have very different buyers (different spending power etc…) then much of the rest of the country. How can you judge a house in the Hollywood Hills full of designer upgrades (that MANY other people in Los Angeles will pay good money for) in the same manner you judge a home in Dearborn, Michigan? It’s a different reality. It’s just a fact that should be considered.

  • Peter

    I am also a Certified Real Estate Appraiser. In reference to the above comment, it’s about the quality of construction and condition rather then personal tastes. I.E. Cherry is more expensive then maple. Maple is more expensive then oak. There are different levels of granite, hardwood flooring, roofing, etc. An experienced appraiser should know these things. However, I do have to admit from reviewing other appraisers, many do not know these things. There are lot of bad appraisers out there, but there is a handful of of good appraisers out there. The number of years of experience don’t mean nothing. I’ve seen some “well” experienced appraisers put out very bad reports, and vice versa. Many new appraisers have also been taught to become robots, and they merely make a wheel without knowing what they do. Be patient, the bad ones will get weeded out.

  • Karen

    Just to clarify, my intention was not to “dismiss” upgrades. I did mean that in some cases they are second or third place and bringing up the personal taste issue is one of many factors. It depends on the market and neighbhorhood. I have heard of buyers who don’t want stainless steel appliances.
    When a homeowner tries to impress me that they put in 20k for a kitchen appliance installation, I have several questions running in my head: 1) how much of that 20k was for labor? And how many bids did they get or did they just go with the first contractor? Because after all, the next buyer (or bank that may foreclose on them) is unlikely going to give them their 20k back, dollar for dollar. That high end appliance is going to depreciate, like it or not. Much like buying a brand new porsche and driving it off the lot. It is highly unlikely you well get $125,000 back because now it is a USED Porsche.
    Of course, I agree with Peter about quality of construction and condition.
    However, an appraiser can appraise a home at the higher end of the value range for quality, upscale upgrades only to have a reviewer or AVM decide that the appraised value is inflated.

  • Karen

    I was just reading Becky’s comment above. I am on panel of several appraisal management companies and they don’t send me (or other appraisers I know), outside a 50 mile radius. Having said that, I consider myself competent to appraise properties more than 75 miles from my office, because I’ve lived between these two counties for so long and am very familiar with them.
    It does seem like many agents are quick to cry out that the appraiser doesn’t know the area when we don’t hit their number. I didn’t hear that much complaining about geographic competence before the HVCC…when agents/loan officers were pressuring appraisers and having their “favorite,” appraiser from 100 miles away assigned.

  • Marino

    I’m applying for a refinance loan with two different banks. Last month I had two appraisals on the property, one from each bank.
    One came at $375,000 and the other at $475,000.
    So much for objectivity.

  • Jack

    Comments from Karen and other Appraisers are much appreciated. Thank you!

  • Maxx

    I have to echo Marion’s setiments… First appraisal for our equity sale on the condo came in at $325,000 early June; second one came in at $285,000 just today. House next door with an extra half bathroom + 100sq ft(larger 2nd bedroom) was appraised last month for $360k.

    Where is the consistency?

  • Ron

    The new appraisal process is an absoulute nightmare. We received a total of four appraisals (lot split two for each lot) Three appraisers came in within 5% of each other. The last appraiser came in more than 30% less than the other three. This was an appraiser that was not familiar with the area and was hired through the “priceline.com” of appriaising …ie. the lowest bid wins. We have been trying to contest the value, but the banks and others now hide behind the new HVCC. Anyone that is having trouble with an appraisal, I urge you to read the HVCC as the bank does have the ability to request an appraisal review if you can show that the appraisal is “flawed” Certain areas such as beach communities and other high value areas a difference in a block can make a huge difference in value. Something must be done to change this process.

  • Karen

    Appraisal reviews are ordered on EVERY appraisal anyway. Sometimes 2 or 3 of them, a field review, a desk review, a quality control review.
    There might be the high probability that the reviewer DOESN’T agree with the first 3 appraisers. So then who are you going to blame next? Sometimes I do “retrospective reviews,” so then I’m reviewing an appraisal completed 2 years ago. Like I said before, the appraiser’s liabilty stays with the life of the loan. Appraisers going to be held liable, not the agents who are complaining about value.
    For those who ask about objectivity, appraisals are really a value range. The range truly should be within a 5%, meaning a sample of quality appraisal reports would show they were all within 5% of one another (as in Ron’s example.) I sort of compare it to “body weight,” your doctor could tell you that for your age, height, ethnicity, your body weight should be between 150-165 lbs. Then you throw in the quality of food you eat, quantity and quality of exercise, and any physical conditions you may have. The same concept can be applied to appraisals….where is the neighborhood, how are the school districts, quality/condition of upgrades, square feet, etc. That is why no one appraisal is alike, just like any doctor you see for a condition will vary on their diagnostic opinion. Differences greater than 10%, in my opinion, are questionable.

  • Ram

    Karen and other appraisers,

    Is there a difference between FHA loan appraisal and conventional loan appraisal? I gave an offer on a house for 245,000 and the appraisal came in at 230,000. The listing agent claims that, since it is a FHA appraisal, it did not appraise for 245k and that a conventional loan appraisal would come at 245k. How true is that? Please let me know.

  • Lisaloo

    Lucky you. The bank or owner either needs to lower their price to 230k or you have to come up with the 15k difference on your own.

    They will probably come down. Most are.

  • Lisaloo

    Lucky you. The bank or owner either needs to lower their price to 230k or you have to come up with the 15k difference on your own.

    They will probably come down. Most are.

    PS-Dump the agent. He/she is trying to keep the sale from falling thru.

  • Angel

    40 days? My goodness….here is New York state the closings have been 60+ days since we bought our first house nearly 10 years ago, up to now when we are moving into our second home. Wish it only took 40 days. Want to move before snow sets in!