Selling your home & buying a new one is not the easiest process but it should not threaten to leave your family homeless with all your stuff in storage, the buyer of your house with no place to go, and the Seller of your new home stranded in Denver having to put their house back on the market for the 3rd time! Yet that was the scene 5 days before closing on a transaction involving; 3 homes, 5 clients, 3 agents, 2 lenders, 3 appraisers, 1 underwriter & a dozen other supporting players.  One of the primary reasons I decided to go into real estate was because the field promised to keep me learning.  Almost 9 years into this career one might think I’d have seen almost everything but my most recent, now successfully closed transaction, darn near knocked me (and everyone else involved) out.
To set the stage: When sweet Adelaide (aka kiddo #2) arrived Diana & Jeremy knew they needed more space.  We got their home under contract in 5 days for $5000 over the asking price and promptly found their new home and got it under contract for $5000 under asking price.  We made it through the due diligence process on both sides, their current home appraised at the agreed purchase price and the new home appraised slightly above price.  This was reason to celebrate! The primary potential pitfalls were behind us and my clients would move into a new home with additional equity.
So Diana & Jeremy began to arrange for the big move and I (their agent) began making arrangements for the closings – they would close on the sale of the current house in the morning then apply the proceeds from the sale toward their new home which we’d close in the afternoon. We’d close at the same title company so there’d be no need to drive between closings, etc.  This would be a smooth process for all involved.
And then the s#%t hit the fan.  The Underwriter decided an Appraisal Review was necessary. The reviewer (appraisers must be randomly selected by federal mandate) doesn’t live in Denver, didn’t visit the house and doesn’t know the neighborhood (City Park).  The review appraiser valued the house $63,000 LESS than purchase price!  We got notice of this horror 4 business days before closing.
   What does one DO in a case like this?  Well, if you have an experienced, professional, fierce agent (like me 😉 you swing into action, keep your cool, and trust the professional relationships you’ve built during the process so far!  First step was to see who was on what page.  Fortunately in this case EVERYONE; Sellers, Buyer, Agents, Lenders, original appraiser, even the owner of the appraisal company were all in agreement that the price was supportable.  I’ll spare you the details.  Suffice it to say we were victorious and Monday afternoon successfully closed both transactions.  Special thanks to: Buyer’s agent David Schilichter (Keller Williams) and lender Lou Tornando (First Cal Mortgage), appraiser Jim Brown, Alex Vukovic at American Title Services and fellow YCRE Listing Agent Paula Schein for staying the course.
What is to be learned from all this?  Appraisals are the wildcard in today’s Denver real estate market.  Prices are rising so fast that when appraisers go to pull comps (similar properties sold in the past 6-12 months) they are looking back at lower prices and struggling to support the higher values of the current market.  Yes! A flawed system to say the least.
I’ve seen this market phenominon once before, back in 2008-09 with my fix n’ flip clients.  The market was flooded with highly distressed properties; foreclosed homes & short sales, homes robbed of all copper plumbing & appliances, with holes in the walls, filled with the detritus of lives devastated by the recession.  My clients were buying these homes, putting their sweat & hard earned money into fixing them up and then re-selling.  We’d go under contract, get to the appraisal phase and the only comps to be found (back 6-12 months) were the same distressed homes my guys were fixing.  For ten months the question on everyones’ mind was: “How are we ever going to recover healthier home prices when appraisers can’t increase values because the only comps available are trashed properties?”

I don’t know precisely how, but ultimately and very slowly prices did recover.  What we are seeing in today’s appraisals is the same as what we experienced in 2008-09 but this time its caused by the precise opposite reason.  Back then it was an immobile market flooded with distressed homes, rising un-employment, lack of consumer confidence.  Today’s appraisal debacle is being driven by rising employment & consumer confidence, cheap money, returning prosperity and an acute lack of inventory of homes to buy.Time heals everything. Eventually the appraisal conditions will be more harmonious.  In the meantime, if you’d like to know how to handle an appraisal process check out the list of suggestions in the side bar or give me a call.  I’ve learned the hard way but you don’t have to.

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