I recently met with a couple who wanted to sell their house but could not list it. Why? Because a year ago they had refinanced for $20,000 more than any house in their neighborhood had sold for and the appraisal had valued their home at $50,000 more than any house in their neighborhood had sold for. Susan Pruden's blog talks about this phenomena when she described 9 mistakes sellers should avoid. She graciously does not call this fraud. I am more skeptical and wonder if this practice is legal. Since I am not an appraiser, I do not know the appraisal regulations, but valuing a house for 25% more than it's market value is scary. Professionals in the industry are noticing this more frequently. Sellers are literally upside down when they're caught in this dilemma. Some will say, "Well, they got their equity out and spent it so now they have to stay in the house until it reaches a high enough value to sell." Others cry fraud and in reality, this scenario is currently being investigated in the mortgage industry. But, conjecture does not solve this sellers problem.
We spent some time discussing possible solutions. They could rent the house until it reaches a market value high enough to sell it. They could let it go into foreclosure. They could add bedrooms and a basement family room to increase the value. They could continue to live there until it appreciates. None of the scenarios is perfect, but helping to generate solutions is an important part of my job. I may not get the sale today, but I will certainly get referrals and the listing in several years. Most importantly for me, this is the part of my job I like. Problem solving with people who don't think they have options is very rewarding.
As I shook hands to leave, this couple thanked me for my time and said the other agent spent 5 minutes and left because there was nothing he could do for them. I hadn't known there was another agent. I guess Susan Pruden's mistake #9 covers the other agent in this couple's experience.
March 29, 2006 - High refinance appraisals
Bonnie, I sure wish that appraisers were held to their values when they're too high, but lenders sure have a hand in it too. And I agree, there sure may be fraud involved. So far, overvaluing properties is not illegal where I am, but I would not be surprised to see some lawsuits over it. It's happened before in markets like this.
And your clients are lucky to have you. It sounds like the other agent only knows how to work in an "easy" market. Knowing the options for dealing with difficult situations is a mark of an experienced agent.
Posted by: Susan Pruden | December 31, 2006 at 10:59 PM