Inspections & Appraisals…Gotta Love Em

I have to admit that I’ve been on a great roll lately. Most of my deals have been going fairly smoothly, one listing backed out within days, a few buyers got cold feet, one short sale closed within 2 weeks of our original closing date and two more short sales are looking like they may actually sell too. 

But just when you think things are going a little too smoothly… yep, they are. Last Friday I had two deals fall apart, one because of an inspection and one because of an appraisal. Ugh, really? Both on the same day? And of course when I’m trying to take a couple days off.

First, a very ugly inspection. I am a huge proponent of home inspections for buyers. Its the best $250 (approx) you’ll ever spend. A home inspector will crawl all over a house, up on the roof, in the basement & crawl spaces, take the electrical box apart, check the furnace & a/c, open all the windows, look for mold & mildew, crawl thru the attic, check for leaks, etc. When he’s done the buyer gets a big, long report with pictures and explanations. We try not to make it a to-do list for the sellers, we’re just looking for major mechanical, structural or safety issues. If you find any of those… then you re-negotiate the deal. You might get things repaired or replaced, or you might get an allowance for those items, or… the deal might fall apart.

I can usually spot the obvious items – needs a roof, 40 year old furnace, still has fuses, major cracks in the foundation, etc but last week I was pretty shocked. Cute house, older but seemed to be in decent to good shape for its age, nothing really screamed out at me. A 39 page inspection report later told me I was really wrong. Upon getting on the roof the inspector said it felt like a sponge & he was afraid he may fall thru, the boiler was 57 years old and vented into an unlined chimney that’s deteriorating, major cracks & water damage in the crawl spaces (where I couldn’t see!),not enough supports in the basement, the home filled with sewer smell upon running the washing machine, knob & tube wiring hidden under the insulation in the attic, numerous double-taps in the breaker box, no main water shut off, several windows that wouldn’t open and that was just the beginning. Needless to say my buyers were shocked & scared and the seller didn’t want to do all of that stuff. We were done… and now we are back to looking for a house.

Second, a bad appraisal. In the last few years I’d say appraisals are the scariest, hardest part of my business. I have no control of them & can’t predict what they’ll come in at. Because there were a lot of bad people out there in the mortgage & appraisal businesses, the government has really, really cracked down on them. So, you find a house and you pick a lender, then its out of your hands. Lenders now have to have a list of numerous appraisers that they use and they have to rotate thru them, they can’t just pick the most appropriate one. Many times to minimize their liability, lenders will hire an outside 3rd party company to pick & rotate their appraisers. The appraisal itself is complicated, only properties that have sold (not been refinanced) within 6 months, within close range and are structurally comparable can be used to determine value. Many times there are just a lack of suitable, comparable properties, sometimes that foreclosure down the street that sold for half price is used as a comparable, occasionally you get a “bad” appraiser…by “bad” I mean not the right appraiser for the property, on the right day with the right outlook on making the right thing happen. 

Now imagine a fairly dated but sound, older home, on an acreage, on a gravel road outside a very small town and throw in a crabby, out of the area, city appraiser and you have a nightmare. This acreage was listed & sold in 7 days for near asking price, I helped set the price after looking at comparable sales & homes on the market, the buyers had looked at other properties, they along with their Realtor thought the property was the best deal they’d seen and then… the appraisal came in 29% below the proposed sales price. We can’t get another appraisal, we can’t talk to the appraiser or suggest comparables, the sellers and I still feel the property is worth what we were asking and the buyers don’t want to/can’t make up the difference in cash, this means the deal is dead in the water. Three weeks have been lost, the buyers have spent money on a home inspection and an appraisal, my sellers are devastated and now we all start over. 

Don’t get me wrong, both inspections and appraisals are there to protect buyers, sellers and lenders all in their own way. I get that. Its just some days you can’t win for losing!