Close to one out of every five appraisals on home purchase transactions come up short of the home's contract price, according to a new study.
According to Platinum Data Solutions, a collateral valuation technology provider, more than 17 percent of appraisals on purchase transactions report a value less than that of the contract price.
Platinum Data CEO Phil Huff said the findings point to two possibilities.
"[I]t could mean that buyers are paying more than a property is actually worth, possibly because the market is starting to stabilize," he said. "On the other hand, it could indicate that appraisers are being more conservative in valuing properties, which—given the regulations they're facing—would be understandable."
Whatever the cause, returned appraisals can be a burden for both lenders and appraisers, who are forced to correct or clarify errors in their reports. The company says the process involved can cause long delays and reduce profitability for everyone involved.
"Lenders and investors would be wise to keep their eyes on trends like this," Huff said. "If frequent lower appraised values are reflective of a stabilizing or declining market, that could present a major impediment to the quality of loans they're transacting, selling and buying."
Platinum Data's statistics are based on data collected from FreeAppraisalReview.com, the company's Web-based automated appraisal quality technology.