When Sean McGowan signed a contract to buy a New Jersey home in November, he didn’t expect he’d still be living with his parents nearly a year later.
The deal fell through after two appraisals came in tens of thousands of dollars below the contract price, part of a wider trend of differences over property valuations that is compounding the U.S. housing crisis.
“It was very frustrating. We really wanted to move in,” said McGowan, a 31-year-old real estate lawyer.
Many housing experts say low appraisals are yet another headwind for a housing market already suffering from a plunge in prices, high unemployment and tight credit.
Lenders are forced to cap their mortgage loans at the value set by appraisers and buyers and sellers often can’t agree on how to make up the difference with an original deal price.
“It’s hard to talk about any recovery of the housing market and home prices until the appraisal issue is squared away, and that is a broad issue,” said Guy Cecala, publisher of Inside Mortgage Finance, a Maryland-based trade publication.
Sixteen percent of Realtors reported contract cancellations in July, matching June’s level, which was the highest since March 2010, when the National Association of Realtors began collecting data.
Nine percent reported contract delays due to low appraisals, and 13 percent reported a contract was renegotiated to a lower price because an appraisal came in below the original price in the last three months, the NAR said.