Figures from the National Association of Realtors show that residential sales increased 2.4% in May, the third monthly increase this year.
About one out of every three properties sold was a foreclosure or distressed sale and that has dragged down the median price to $173,000, some 16.8% below a year ago. Falling prices coupled with new rules for property appraisers have caused many transactions to fall apart or be delayed.
'We have just been flooded with e-mails, telephone calls on the appraisal problems. It means thousands of delayed or cancelled transactions,' said Lawrence Yun, the Realtors' chief economist.
New guidelines introduced in May require lenders to order valuations through third-party vendors called appraisal management companies that increase costs to prospective home buyers have led to more conservative valuations by many appraisers and a slowdown in lending, according to John Brennan, research director at the Appraisal Foundation, a Washington-based trade group. A low appraisal is one that comes in under the price a prospective buyer has agreed to pay for a property.
Appraisal management companies hire valuators who use automated systems and work at a discount, instead of experienced appraisers who have knowledge of neighborhoods and include factors that can increase a property's value, such as home improvements or proximity to schools.
Many real estate brokers are reporting in increase in deals falling through. Universal Mortgage Incorporation in Brooklyn, New York said that at least 15 sales fell apart due to appraisals that came in below the agreed upon price.
Broker Isaac Shalom said he has at least four deals that have collapsed. He said one buyer who wanted to buy a home at $850,000, delayed the purchase after an appraisal came in at $750,000.
Detroit real estate broker Vince Saragosa had an $185,000 offer for a three-bedroom home in Royal Oak, Michigan. An appraiser valued the property at $128,000 and the deal fell through. 'It's almost like appraisers are interfering with the market,' he said.
'March and April contracts suggested that we should be seeing higher levels of sales than we're seeing,' said Walter Molony of the NAR.
But appraiser say that lower valuations reflect what is happening in the market. 'When home values come in below the sales price, that's not the appraiser's fault, it's a reflection of the market,' said the Appraisal Institute, a Chicago-based professional group that represents more than 25,000 appraisers.
