Hot seat in a hot market

Appraisers in a bind as many properties sell above list price

Underwriters edgy

May 23, 1999|By Robert Nusgart | Robert Nusgart,SUN REAL ESTATE EDITOR

Although the Baltimore housing market has been on the fast track, appraisers are having a tough time keeping pace and increasingly have difficulty gathering information to justify sales that are going beyond list price.

"The typical appraisal time is between seven and 10 days. And appraisers are taking between two and three weeks," said Jack May, an appraiser for 17 years and president of JEM Appraisal Services. "It's a very difficult market for the typical appraiser."

One of the key causes for the slowdown comes from not being able to quickly find comparable sales on a house that has sold higher than others in its neighborhood. That is forcing appraisers to commit more time in finding other methods for submitting accurate appraisals to underwriters who approve loans for mortgage companies.

"In some cases it is taking longer, and in some cases it is a little more expensive to do it, because it is taking us longer," said Jan Ramsay, president of Ramsay, Williams and Associates, an appraisal firm in Canton, one of the most sought-after areas in the city.

"[Underwriters] are looking for more support. If all of your sales are less than the current subject sales price, three comparables are not enough. They want four, five and in some cases six, and they want clear explanations as to why you feel that all the settled sales are less, yet the subject property is appraising for a higher number."

Getting that justification has been difficult in some cases.

On most loans, an appraisal is ordered by the borrower's lender so that the loan-to-value is accurate and it establishes the market value of a property. A lender is required to use the lower of either the sales price or the appraised value in determining the loan amount.

According to Tom Champion, manager of Norwest Mortgage in Lutherville, if a borrower is putting down 20 percent on a $150,000 home and it appraises for $150,000, the lender will lend the borrower $120,000. If an appraisal does not meet the sales price, the loan amount will be less and then either the sales price must be reduced or the buyer must increase the down payment for the deal to work.

Anxious buyers

But, in many cases in this hot market, buyers are bidding over list price. "People are going in knowing that they are overbuying," Champion said. "But they don't have a choice, they want to get the house."

Such was the case with a property in the Towson community of Stoneleigh that sold in June for $310,500, $15,500 higher than its list price. In that case, according to the appraiser, the property appraised below the list price and the buyer had to add cash to complete the transaction.

Kathleen F. Beadell, an agent for Long & Foster Real Estate Inc., sometimes has to warn her customers they are "being overzealous and are going to have to sweat the appraisal."

One case that caught Champion's attention was a sales contract on a home that carried an addendum that the property had to appraise for at least the list price.

"The [buyer's] agent's belief was that it was overpriced to start off with," Champion said. "But because of the feeding frenzy, with blood in the water, you had to pay $5,000 over the list price to get it. And she thought that it could never be supported."

Correct prediction

The agent, according to Champion, predicted correctly, the appraisal didn't meet the list price and the contract was voided.

"This is a lot of work for an appraiser in this kind of market because it is not just what is on the books, he is out looking at things that are pending, that are going to settle prior to his settlement," Champion said. "The appraisers are under a lot of pressure right now."

Consequently, appraisers are looking at a variety of ways to satisfy underwriters, especially where prices are rapidly rising in areas such as Roland Park, Guilford, Homeland, Federal Hill and Canton, which is "absolutely crazy," according to May.

"Five years ago, you could pick a townhouse up there for $60,000, and now the same house is $95,000," he said.

"In Canton, we were very lucky, because we said the market is going up. At first, the underwriters were very apprehensive, saying we want to see something. And we said this is something that you are going to have to trust us on. It's going to take off."

May said he and other appraisers are relying more on days on the market, pending sales and active listings in fast-moving neighborhoods in an effort to compensate for a lack of actual settled homes to use as comparables.

Anxious appraiser

"That is where you run into a problem when you are the first one in and you have that sale that sold way above everything else in the neighborhood, and you gulp and ask, `What am I going to do here?' " May said.

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