The Real Deal Miami

Appraisals and lending thwarting closings

By Rachel Gomez | July 29, 2009 03:29PM

Getting to closing day is nothing less than an obstacle course even for seasoned realtors in South Florida. Though multiple factors and circumstances contribute to whether or not a deal closes, the battered market has made a done deal harder to achieve.

Realtors say complicating factors compound themselves as property values plunge and credit vanishes. The Real Deal talked over the biggest hurdles with some seasoned veterans. Here’s what they had to say:

Financing

Realtors say financing is the number one reason a closing will fall through. Credit requirements are more stringent, and many banks are taking a conservative stance especially when it comes to condominium loans. “There are very few loans for people who want to buy a condominium,” said Adam Greenberg, managing director at BayBridge Real Estate Group LLC. “The 50 percent cash buyers are the ones that have been able to buy.”

On top of tougher, broad credit requirements, certain new condo towers come with additional restrictions. About 85 percent of new condo projects in South Florida don’t have FHA or Fannie approval, meaning buyers can’t secure traditional mortgages. 

“I would say about 10 percent of our deals fall apart because of property values and project problems like failure to meet Fannie and Freddie restrictions,” says Richard Hanley, senior vice president of residential lending at Stonegate Bank. 

Banks cut back sharply on condominium loans as bank loan-to-value (LTV) ratios increased amid plunging prices. If a condo goes into foreclosure, the increased LTV makes it harder for banks to sell the property at a price where they don’t take a loss. Lending on single-family homes is a different story. “Credit has to be clean, but there is lending out there for single-family homes,” Greenberg said. “Also there are very few stated income loans available and the ones that are available require all this documentation.” 

Those in the bankers’ camp deny that the fundamental requirements for lending have changed, but said lenders are more careful when it comes to proving a buyer’s salary and other factors. “It’s not really any tougher to get lending, we’ve just eliminated the portion that wasn’t sustainable,” Hanley said. “People have to prove income and have to have money to close.” 

Appraisals

With 80 percent of sales being foreclosures and short sales, appraisers don’t have many “normal” sales to use as a reference. This is driving down appraised values across the board, making appraisals very conservative compared to the liberal values seen a few years ago.

“Homes are not coming in at value,” said Michael Suarez, a realtor-associate and previews property specialist at Coldwell Banker Residential Real Estate in Key Biscayne. “A lot of time the only properties that appraise are foreclosures.” 

Appraisers give almost no value for architectural style or other details, a change from past practices. “Some of these appraisals are completely inaccurate,” Greenberg said. “We just had to throw one out because it was just ridiculous.” 

Taxes

Though prices are low, taxes can put a property out of reach for buyers who would otherwise qualify for the loan. “I’ve had buyers qualify for a certain amount, but then we realize the taxes on the property are really high and they don’t qualify because now it’s a few more hundred dollars a month,” Suarez said. 

Job Market

What are the chances a buyer loses their job in the midst of a closing? Turns out it’s not all that unusual nowadays. Though the pace has slowed, unemployment is steadily increasing in South Florida. “I’ve had a couple buying and one loses their job in the midst of the transaction and then they don’t qualify,” Suarez said. “It’s not like every other transaction, but it’s happened a few times.”

The Meeting of the Minds

The buyer and seller not coming to an agreement on a sale price is an age-old problem, but not as bad as it used to be. “Sellers aren’t much of an issue anymore,” Greenberg said. “I think they realize they’re definitely not going to sell something for more than it’s worth.”