Market Wise Q&A: Low Appraisals Slows Recovery

Pat Kapowich for the San Jose Mercury News Q: We recently were involved in a multiple-offer situation to purchase a very nice home. After a little negotiating on the price, we were awarded the property. However, the bank appraised the home too low on the first appraisal, which was explained to us as an exterior only. Our loan officer then requested a full appraisal that ended up even lower than the first! Plus, our loan officer noted a major mistake in the original appraisal. What is going on? What options remain for us at this point a third appraisal?

A: The good news is the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation adopted the Home Valuation Code of Conduct (HVCC). Unfortunately, that is also the bad news. The move was clearly intended to clean up the real estate industry by ordering arm's-length appraisals from pool appraisers, all of whom remain unknown to the parties involved. However, lenders ordering through a clearinghouse for the first-responding and/or cheapest appraiser have sparked actions to repeal this new regulation.The least expensive and/or out-of-area appraisers are just what a recovering real estate market does not need. Now that HVCC raises the cost of an appraisal by $150, one would think the consumer would receive the most qualified appraiser available. Not so. The lender gets to pocket the extra cost of both your appraisals.

You now have first-hand experience of what is going on across the country. The sales price, once the gold standard axiom, is history. Therefore, the boastful competing number of multiple offers is now also moot. Low appraisals are traditionally associated with sellers' markets, where prices are leapfrogging upward. Just as in those cases, renegotiating is necessary. Either the seller reduces the sales price, the buyer increases the down payment or the seller and buyer split the difference. Otherwise, you'll be shopping for another fine home and the seller will have to replace a good buyer.


Pat Kapowich,, owns Kapowich Real Estate in Cupertino. Send questions to