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Yesterday I was listening to my favorite morning radio talk show "Ronn Owens" on KGO 810am in the Bay area.  Ronn's guest was Patrick Lashinsky owner of Zip Realty.  Patrick made a negative comment that appraisers are "killing deals" by coming in below the contract price on homes for sale.  He gave an example of a house with "20 offers" and the appraisal came in below the contract price.  His point was, if there are 20 offers on a house then the contract price should be the market price.  Well, my blood began to boil.  I had to drive home quickly in order to get on the phone and call in to Ronn.

I got on the air and set Patrick straight.  Appraisers don't set the market!  We measure it.  Contract prices don't set the market!  Closed/Sold prices set the market.  I remained calm and made several points to Patrick:

1) Appraisers work in the past, not the future.  (OK, sometimes we work in the future, but those are special circumstances and special appraisals).

Every lender I work with now has requirements that two sale comps must be within the past 90 days and the third must be within the past 6 months.  Due to the market conditions there are very few exceptions to this requirement nowdays.  In addition, every lender requires two listings or pendings that support the final value opinion.

2) The price a home sells for becomes the market price of that home after it closes.  It's not the contract price while it's pending close of escrow.  If the contract price of a home is $500,000, but the highest sale in the neighborhood is $490,000, guess what?  The appraiser is going to come in at $490,000.  If the appraiser cannot support a value of $500,000 with closed sales, the appraisal will be rejected by the underwriter.  There are very few exceptions to this and I rarely have seen it work.  It certainly won't work in this kind of market.

A borrower is always welcome to offer more money than what a house appraises for, this is America afterall!  But, it doesn't mean a lender has to lend on that higher price.

Recap:  Appraisers don't set the market, we measure it.  If the contract price cannot be supported by two recent sales in the neighborhood, and at least one listing or pending, don't be disappointed when the appraisal comes in lower than the contract price.

This is a very interesting and trying time for all of us and most appraisers work very hard at their jobs (for less and less pay by the way).

Peace.

(Next Appraisal is a residential appraisal service company covering the Alameda county cities of San Leandro, San Lorenzo, Hayward, Union City, Livermore and many others.)