Despite complaints from Realtors that low appraisals are disrupting home sales, a new analysis from FNC Inc. argues that valuations have had little impact in the delayed housing recovery.
As home values have made a rapid ascent in the past few years, those on the sales side point to lagging appraisal models as a major hurdle to finalizing transactions. In a 2012 study, the National Association of Realtors found a combined 35 percent of members surveyed reported delayed, renegotiated, or even canceled sales contracts as a result of lower than expected valuations.
In a newly released report, however, FNC maintains that despite anecdotal reports, "there is no strong evidence that low appraisal valuations contributed to mortgages falling through."
Examining a sample of appraisals done this year, the company reported that nearly nine in 10 purchase loan appraisals "provide a value opinion that supports the transaction price," with an estimated 27.6 percent valuing at contract price and 61.4 percent coming in above contract.
Out of those homes appraised at values below contract price, only 10.2 percent have short by 1 percent or more year-to-date—well within the typical 10–12 percent range, the company says.
At the same time, the share of above-contract appraisals valued at more than 1 percent of the home's contract price year-to-date is 40.4 percent—a statistic FNC calls "puzzling."
"If [the] market is relatively efficient in setting prices, below-contract and above-contract appraisals are expected to occur with similar frequencies," the firm said in its report.
In other findings, FNC reported results were consistent across all price tiers, with approximately 90 percent of purchase loans appraised at or above contract all-around.
Breaking down the results, however, low-tier properties appear much more likely to be appraised significantly above contract, with nearly one-third of homes priced at $150,000 or lower appraised above contract by 3 percent or more compared with only 13.3 percent of properties priced above $500,000.