Could Inaccurate Appraising Make Conventional Mortgages A Thing Of The Past?
As home prices in the Bronx and Queens catch fire, many appraisers are out of touch, slowing or blowing deals.
Gentrification in the Bronx and Queens has caused previous war zones to become coveted “up and coming” neighborhoods. Drug dealers are moving out and hipsters moving in, creating highly changeable areas from block to block. Only those with a nuanced understanding of what’s going on can understand how prices can fluctuate from one street to the next. Unfortunately for many hopeful buyers, dependent on a bank appraisal to justify their purchase price, appraisers don’t always comprehend the neighborhoods. The aftermath—deals falling apart and movers staying put.
“Our appraiser didn’t know Jackson Heights,” one buyer told DNAInfo. “He didn’t take any of [the neighborhood details] into account. He looked at square footage and that it had a kitchen.”
Part of the problem, as MarketWatch reported in 2015, has been leveled at the increasing reliance on technology to assist appraisers. It doesn’t factor in human conditions such as crime, which can severely impact one block to the next. Another factor also addressed in the article is the increasing age of appraisers—most are over 50—and the apparent lack of younger trainees willing to take on the job, due to the relatively low pay. It means that qualified appraisers have to cover neighborhoods they are unfamiliar with, doing research online, which leads to inaccurate numbers.
The issue of appraisals is particularly problematic in a competitive market like New York City. Squabbling with a bank can delay closing, making everyone nervous. Sellers don’t care that an appraiser has come in low—they just want their house sold. And so the fairly recent phenomenon of all-cash offers, to secure a quick closing without a bank’s involvement, has taken root. Once a property has been purchased, refinancing and pulling cash out is much easier than securing a first time loan, as The New York Times reported.
After the financial crash of 2008, regulatory laws demanded stricter control over appraisers, some of whom had been in cahoots with mortgage and real estate brokers to ensure deals closed. Now, a hot market in the outer boroughs is once again causing a buying frenzy. Greater regulation has come at a cost for the lending and appraisal industry. Mortgage contingent deals are failing to close and sellers are entertaining all cash offers only. It begs the question: Could alternative financing options make conventional mortgages—and the appraisers who verify them—a thing of the past in NYC?
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