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Appraisals can hold key to closing a home sale; Even an accepted offer is not the bottom line

Peg and Don Cordes spent $30,000 to upgrade their Mahwah condo before putting it up for sale, hoping to stand out in a tough market. They updated the kitchen and baths, installed hardwood floors, had the interior painted and replaced the heating and air conditioning.

Just weeks after the condo hit the market, they accepted an offer of $375,000. But then the appraiser for the buyer's mortgage lender valued the place at only $365,000 -- which, according to Peg Cordes, didn't take into account all the improvements.

Eager to move to Florida, the couple reluctantly cut their price.

"When your back's against the wall, you have no choice," said Peg Cordes, a retired customer-service employee.

As the Cordeses discovered, even when a buyer and seller agree on a price, appraisers often take a more skeptical look at values -- especially since the housing bust left many lenders stuck with mortgages larger than the value of the homes they cover. Real estate agents say lower appraisals often jeopardize deals.

"You hold your breath until the appraisal comes in," said Phyllis Hoffer, a Re/Max agent who represented the Cordeses.

Some agents say the appraisals are short-circuiting any potential rise in prices.

"Since the appraisers are being super-ultraconservative, the appraisal process is actually stopping properties from appreciating," said John Reilly of Century 21 Van Der Wende Associates in Little Falls. "They are making no allowance for the fact that part of the value of anything is what a buyer is willing to pay and what a seller is willing to accept."

But appraisers say they're just echoing the reality of the housing bust, in which home prices have declined about 35 percent from their peaks nationwide, according to the Standard & Poor's/Case-Shiller index. The most recent Case-Shiller numbers show prices are still trending lower.

"Appraisers don't set the real estate market; they reflect what's happening in the market," said a recent statement from the Appraisal Institute in Chicago. "Think of the appraiser as a mirror, reflecting the market -- and the market is depressed, as home prices have fallen far below values of a few years ago."

"As an appraiser, you have to make sense of an imperfect market," said Scott Zotollo of Zots Appraisal Services in Rochelle Park. He said that since the housing bust, mortgage underwriters have been asking for more documentation to back up appraisals.

Ken Chitester, a spokesman for the Appraisal Institute, said he has heard the same thing from other appraisers.

"If lenders are being more cautious today, can you blame them, given the losses on their books?" Chitester said.

A weak job market, a sluggish economy and the high level of foreclosure properties headed to market all point to uncertainty about the future path of home prices, said Keith Gumbinger, a vice president at, a Pompton Plains company that tracks the mortgage market.

"If you're an appraiser, you have to work from a cautious standpoint," he said.

When an appraiser comes in below the contract price, sellers and buyers have a few choices. Most often, real estate agents say, sellers lower their price to the appraised amount, as Peg and Don Cordes did.

That can be a windfall for buyers like Cheryl and Cagdas Ozturk, who just bought a two-family house in Carlstadt. After they agreed on a price in the $300,000s, the appraisal came in almost $23,000 lower. The seller took a couple of weeks to think it over, as the Ozturks waited nervously.

"I thought the whole deal would collapse," recalled Cheryl Ozturk. But the seller ultimately decided to cut the price to allow the sale to go forward, saving the Ozturks almost $23,000.

"It was very fortunate for us," Cheryl Ozturk said.

In other cases, the seller and buyer split the difference, and the buyer comes up with more money for the down payment. Sometimes the buyer goes to a different mortgage lender and pays for another appraisal. And sometimes the home sale just falls through.

Antoinette Gangi, a Re/Max agent in Woodcliff Lake, said she recently worked with a seller who accepted the lower of two offers because he believed the higher offer wouldn't fly with an appraiser.