Preconstruction Appraisal Process

PalmBeach:

Thanks for your input. Which projects are you aware of where developers are trying to unload units due to contracts falling through? Also, from your perspective, do the developers drop the prices of existing units once folks back out, or do they hold steady? I'm wondering if new units could be purchased at a discount from list price given your comment about the developers with extra inventory on hand.

Thanks
Little Fish

Shelly:

Very interesting article. I have no worries about carrying my mortgage and have no need to get out of my contract. I am closing shortly and am excited about finally owning in the area. I simply thought it was interesting that in a declining market, all units appraised for the original contract prices. If my unit appraised for much less than contract price, then I would be concerned about having to put up more cash.

All is good.

Little Fish

There should be no problems as long as your lender is willing to go along with a high appraisal or if you are paying with cash. However, lenders are starting to question high appraisals now; many have identified Florida as a declining market and are questioning the numbers--others have pulled out of the Florida condo market completely.

You're obviously feeling in your gut that something may not be quite right.....you wrote, "'According to my realtor,' all units had appraisals that came in at, or above, initial contract prices."----Now, I ask you, what is wrong with that phrase?


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Shelly:

"You're obviously feeling in your gut that something may not be quite right.....you wrote, "'According to my realtor,' all units had appraisals that came in at, or above, initial contract prices."----Now, I ask you, what is wrong with that phrase?"

I am not worried about anything being wrong. I quoted my realtor only to show what was going on in our building in PCB. Since all buyers (less one) had appraisals that came in at (or above) 2005 contract prices, appraisers validated 2005 pricing in the current market. This fact conflicts with the first post on this thread where John Smith received an appraisal at 60% of the preconstruction value in the Origin building.

This could be good news for potential buyers in PCB since it is not as difficult as one might imagine to purchase units in this market.

Little Fish

PalmBeach:

Thanks for your input. Which projects are you aware of where developers are trying to unload units due to contracts falling through? Also, from your perspective, do the developers drop the prices of existing units once folks back out, or do they hold steady? I'm wondering if new units could be purchased at a discount from list price given your comment about the developers with extra inventory on hand.

Thanks
Little Fish

I can't comment on specific projects. I do not know the developers plans. I only report to the bank the current value of the units based on actual closed sales (adjusted appropriately). I then estimate a projected sellout period based on an analysis of the current and expected absorption rate and the amount of current and expected inventory. The value is then discounted for typical holding costs, selling costs, and discounted by an appropriate rate for current value of future income from sales.

My point was that a significant amount of appraisal fraud has taken place, and continues, to close preconstruction units. It will eventually hurt the lenders, and shock the buyers when they try to resell and find that the unit is worth less than they paid. Reputable lenders are relying on the appraisers to be accurate. They have enough bad loans. Pressure usually comes from mortgage brokers and real estate agents.

An appraisal story from Sunday's Dallas Star-Telegram:

Time to reappraise system that's all too open to abuse
By Mitchell SchnurmanStar-Telegram Staff Writer

Real estate appraisers get paid $400, tops, for their role in a transaction that generates tens of thousands of dollars in fees. And they're supposed to hold the line and say no?

Little wonder that things got so out of whack in residential real estate.

In the past few months, as elected officials and regulators examine the meltdown in housing, more are focusing on appraisals. These independent assessments of a home's value are required for every mortgage, and they set the parameters on a loan.

Lawsuits have been filed recently against major lenders, alleging that they pressured appraisers to trump up home values so borrowers could get bigger loans. And appraisers are accusing lenders, home builders, mortgage brokers and real estate agents -- the major parties who rake in most of the fee income -- of threatening to blacklist them if they don't play ball.

California and Florida get most of the attention, because home prices grew by double-digit rates for several years and are now plummeting. But prices have been falling nationwide, too, and many fear that deeper declines are ahead. Last week, the Federal Reserve cited the housing market when it again cut interest rates................
http://www.star-telegram.com/business/story/449898.html



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