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The pendulum regarding real estate appraisals has swung to the opposite extreme compared with the lax attitude that was rampant a couple of years ago. First, it is important to understand that appraisals are just “quesstimates” and the process is not an “exact science”, even though the process is guided by strict guidelines. In fact appraisal is not a science at all; it is more like accounting, which looks backward rather than projecting forward to where the market is headed. Looking backward may mean that the only available “comps” in the past 90 days are “distressed” sales, and these do not fairly represent values in a normal market.
Even though “double appraisals” are now commonly required by banks, just having two groups use the same bad data may still come up with a poor valuation. Keep in mind that appraisers are now restricted from having direct contact with lenders and real estate agents, who probably understand a local resale market better than someone who may be from outside the area. As a result, nobody truly knowledgeable is there to argue the case why a distressed sale is not representative of true market value. Home shoppers know more than appraisers what a property should sell for.
Unless both the buyer and seller and their respective real estate agents understand this phenomenon, it will be very difficult to hold deals together past the contingency period. It is good for buyers and sellers to discuss a “plan B” to restructure loan assumptions even prior to contract acceptance, assuming appraisal(s) very likely will come in low.
Both buyers agents’ and sellers’ agents need to educate their clients so they are not surprised by a low appraisal, and so they can work together to get through this “rough stretch” by working cooperatively to make the deal happen. The goal of good real estate agents should to “guide the airplane in for a safe landing even though there may be turbulence along the way.”