Don’t Call the Movers Yet!

Since the beginning of the year, I’ve written stories of how hot the real estate market has become. Sellers are receiving multiple offers on the first day of a listing – and most, if not all, above the listing price. There’s also a real scarcity of properties for sale.

As we move through our 4th month of “crazy” some parts of the world of mortgage financing are starting to break down. Chiefly it’s the appraisal process. Appraisers are overwhelmed with orders. Appraisers are not only busy with purchases, but for the still busy refinance arena, more and more transactions are failing to receive an appraisal waiver – requiring an appraisal.

A quick moment on appraisal waivers. There has been a technological push over the past few years to capture as much data as possible from appraisal reports. The promise was to eventually obtain enough data that an appraisal would not be required. In 2019 I wrote of appraisal waivers for purchase transactions and asked you if that was a good idea or not. What’s odd I’ve noticed over the past few months is that we are seeing less appraisal waivers than previous periods. A good recent example for one of my clients was the system requiring an appraisal on an owner-occupant home worth $1,300,000 and the borrowers were refinancing a $300,000 mortgage. Even if the tax assessed value was way off, there’s so much equity it doesn’t make sense that an appraisal was required.

Add to the appraisers list all those purchases plus the refinances, and you’ll see that today the system has crashed. Appraisals in some areas with limited appraisers are taking 7-8 weeks. That’s right, not 7-8 days, but 7-8 weeks! Even in Honolulu with the largest pool of appraisers, we are seeing 4-5 weeks for an appraisal to be completed.

Now let’s pour some fuel on an already explosive situation. Sellers are demanding tighter (shorter) closing schedules. I’ve heard from several agents that represent buyers that if they didn’t accept the quicker close, the seller would have sold to someone else. Buyers are scared they’ll lose the property and sellers are upset because deadlines are being missed.

What we need in our industry right now is communication and education to both buyer and seller. The likelihood of closing quickly is slim. Not to say it still isn’t happening, but it is becoming the exception – not the rule. Closing early is almost out of the question. Everyone needs to understand the system is at capacity. I wrote recently to think of mortgages like a factory putting out a product. Unless you expand the factory, there’s a finite amount of product that can be produced. If a supplier can’t supply all the pieces needed to make the product, the plant will operate slower. That’s where we are right now with appraisals and the mortgage process.

I had a client write me today “isn’t the bank going to honor my closing schedule?” I had to respond tactfully by saying it was not the bank’s choice. Of course, they would love to complete as many transactions as possible, but that just isn’t the case. Do they care? Yes! But in most cases, there’s nothing they can do to speed up the process.

Thousands of real estate agents read this publication each week. You need to be the front line to address this issue. Sellers need to be educated that unless they have a full-cash offer, any amount of financing will require an appraisal and underwriting. It doesn’t matter the percentage of down payment. If financing is required, it will take longer than usual to close. It will do no good to enter into a contract that will only require an extension to closing along the way. If fact, going back to the seller in the middle of the transaction to ask for an extension is worse. Their first reaction is going to be “is there something wrong with the buyer’s qualification?” Who wants to be in that situation?

Don’t call the movers or buy your airline tickets based on your presumption of the closing date. A better approach is to have an ongoing discussion with the mortgage originator as to how the timing of all the elements of the transaction are coming along. For those outside the industry I want to share some insight. Real estate agents, mortgage professionals, appraisers, and title and escrow officers are stressed to the max right now. It would be best for everyone to just recognize the situation we are in and take a chill pill. Real Estate agents, it all starts with you. Educated your clients of realistic time schedules so everyone has a clear understanding from the beginning what is about to transpire. That will eliminate a lot of the stress.