Low Inventory = Low Turnover = Fewer Comps = Appraisal Problems?

August 8th, 2012


I have lately had a few appraisal problems that I hope does not turn into a trend. The inventory in the DC Metro area is at the lowest point it has ever been since these sorts of inventory statistics have been tracked, starting 16 years ago. The problem, which is far from alarming at this point, is that little inventory means there are not as many sales as there could be. This means there is not as much turnover as there could be. Less turnover means when a house does sell and the appraiser goes looking for recent comparable sales to support the purchase price, there may be a problem finding enough comps to support the purchase price.

So what exactly does this mean?

Here is an example. On a loan for a downtown DC location in the heart of Logan Circle, there is very little on the market. On a loan I am doing the appraiser actually appraised the property at about 2% more than the contract price. This is good news, right? Not so far. When we sent the loan to the underwriter the underwriter said she did not like the comparable sales the appraiser used. She thinks they are not comparable enough.

So here is the problem. The appraiser is pushing back saying there is very little inventory, and he used the best data he could find. He used a few 3-bedroom homes to compare to the subject property which is a 2-bedroom home. The appraiser used a comparable sale from a neighboring neighborhood, but not the exact same neighborhood. The appraiser also used a comp that did not have a basement, and the subject property does. I could go on, but you get the point.

The marketplace is not giving us exact data and perfect comparables to work with

The appraiser has taken this imperfect data and made what he sees to be necessary adjustments up or down, for the pluses and minuses the subject property has or does not have when compared to the imperfect comps. But the underwriter is not happy.

So what happens next?

I went back to the appraiser and asked if there are better comparables sales. He did indeed find one better comparable sale that had not sold and settled at the time of his appraisal inspection. So he could not use it because at the time it was still on the market as a listing. I also asked the appraiser to make some comments, explain the lack of inventory, and the need to use imperfect data. Hopefully we can defend the appraised value, and go to settlement on time. We will see!

In the meantime, everyone should be aware that with little inventory it might get harder to find the data needed to appraise your home for what it is actually worth.

To contact me to discuss your local housing market, mortgage rates, or other mortgage questions, click here to schedule a call or you can email me directly.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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