could this happen to housing in DC? is happenning already?
When the Numbers Don't MatchBy WILLIAM NEUMAN
AS real estate prices have soared in recent months, some buyers have found that the apartments they've agreed to purchase were appraised for less than the sale price - with often knotty consequences.
Sometimes, the collision of inflated prices and deflated expectations so unnerves buyers that they look for ways to get out of a deal. Other times, they still want to go ahead but are forced to find more cash or more creative financing, because a low appraisal means they can't borrow as much in the form of a traditional mortgage.
A bank that is financing a home purchase uses an appraisal to make sure the price being paid reflects the market value of the property, so that it could recoup its capital if the borrower defaults. In setting a value for a property, appraisers rely primarily on data from comparable closed sales, known as "comps."
But in areas where prices have been rising rapidly, closed sales may represent an outdated snapshot of a market, taken several months earlier when prices may have been significantly lower. According to a market report prepared by Halstead Property, the average price for all Manhattan apartment sales that closed in April was 17 percent higher than the average for December. In many parts of the city, prices have climbed even more rapidly, and, especially in those areas, the prices on contracts being signed today can be expected to be significantly higher than recent closings. Chris Peters, an executive vice president at Prudential Douglas Elliman, who manages the firm's Chelsea office, said that when he decided to sell an investment property he owns in Astoria, Queens, he thought he'd have no difficulty conducting the sale himself. He signed a contract in April with a buyer who agreed to pay $850,000 for the three-family house at 31-32 42nd Street. But when the appraisal came in at $720,000 and his buyer walked away, he realized he needed help. He dropped the price to $799,000 and asked Virgil Cannatella, an Elliman broker in the neighborhood, to handle the sale. He reasoned that a local broker would know where to look for comparable sales to satisfy an appraiser, something he hadn't been able to do.
Read the rest of the article@ NYT