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Home buyers and sellers face appraisal problems
In today's real estate market, it's not what the buyer and seller agree to that matters - it's what the lender requires that counts. Home buyers and sellers, and their real estate agents, are finding that their hands are tied when it comes to the buyer's lender - specifically the appraisal - and it's creating many difficult situations.

In the typical residential real estate sale, the home buyer and seller reach an agreement on the purchase. Common contingencies of the sale are the buyer's inspection contingency, appraisal contingency and the loan contingency.

Today's real estate transactions are running into trouble with the appraisal contingency. The buyer and seller have agreed on a price, and the appraisal for the buyer's loan must support that price (unless otherwise agreed in the contract). Buyers, sellers and agents are holding their breath until the appraisal is completed and the appraiser issues their report on the property value. Why? Because many properties are not appraising for the sales price. They are appraising for a lower value.

How did this evolve? Well, first came the melt down of the real estate market. Then, in May of 2009 Fannie Mae and Freddie Mac changed the appraisal guidelines with the Home Valuation Code of Conduct (HVCC), designed to create an independence between the appraiser and the other parties in the transaction. In the process, however, it has created upset in real estate transactions.

Under the HVCC, a property appraisal is assigned to an appraiser from a pool of appraisers (we will not go into the specifics of how this pool is set up in this article). What has happened is that an appraiser assigned to the job may not have extensive local market knowledge, and/or may not be familiar with the comparable properties. Many real estate agents report having "appraisal problems" generally meaning that the property is not appraising for the sales price.

What happens if the property appraises for less than the sales price? Solutions are varied. Some sales cancel due to the appraisal. Others find a solution to the differing sales price and appraisal value. All parties find it upsetting to have to deal with this situation after the negotiation of the sale price between buyer and seller has already taken place.

There are many examples of how appraisals are affecting the current real estate market. Please share your stories and comments below.
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