Foreclosures weigh on home appraisals

LOS ANGELES — It wasn't the first time that Katherine Scheri ruined a real estate agent's day with a low property appraisal.

Scheri, a real estate appraiser, had sized up a three-bedroom, two-bath house in Santa Ana, Calif., for $30,000 less than what the buyers offered to pay. A typical deal-killer for a seller.

The agent urged the lender to force Scheri to consider several other properties that could back up the original $310,000 sale price. Then he tried good old-fashioned guilt, telling Scheri her appraisal was going to ruin the buyers' shot at the American Dream.

"That's what he laid on me," Scheri recalled. "And I said, 'Don't you care they could be potentially spending $30,000 too much for a house?"

Across the country, agents and homebuilders are complaining too many appraisals are coming in low, scuttling deals.

The National Association of Realtors says nearly one in four of its members has reported clients losing a sale due to botched appraisals. The National Association of Home Builders, meanwhile, said low appraisals were sinking a quarter of all new home sales and argues it's not fair to compare distressed properties to brand-new homes.

And that gets to the heart of the problem.

Roughly 40 percent of all home sales this past year were foreclosures or short sales, meaning the property sold for less than the mortgage. In some markets, like Las Vegas and Phoenix, they've hit more than 50 percent.

Appraisers determine the value of a property by looking at recent sales of comparable homes. They take an apples-to-apples approach, excluding or making adjustments for certain features, such as a swimming pool or finished basement. And generally, a foreclosure isn't used as a comparison for a standard sale.

But in some areas, appraisers like Scheri contend they are only sizing up homes according to the reality of the market, though they concede its becoming increasingly harder pinpoint what a home is worth.

Home prices in many large metro areas, including Los Angeles and San Diego, hit bottom earlier this year and are recovering, data last week showed. Yet there are many neighborhoods across the country where foreclosures and other financially distressed sales are still rising.

"It used to be a very infrequent thing that you did an appraisal and the value wasn't supported," says Scheri, who is based in San Diego. "Now, it's more common than not."