Today’s ratio of homes for sale to under contract is 4 to 1; early in the year it was in double digits.  Last spring Bergen County was classified by the mortgage industry as an “area in decline” meaning that values were falling.  Appraisers were deducting 1% per month of value; if a home appraised at $200,000 and was closing 2 months later, the appraisal was fixed at  $196,000.  Bergen County’s housing market is no longer classified as “in decline” and a Valley National Bank appraiser on Monday told me that price depreciation has ended.

Jeff Otteau in his latest real estate newsletter termed the NJ real estate market’s performance “remarkable” and forecast continued improvement.  The monthly Credit Suisse agent survey said that for the first time in a long time a majority of agents reported positive home buyer traffic and houses selling quicker.

With all time low interest rates, prices no longer dropping and falling inventory levels, there should be no surprise to find stability in the Bergen County real estate market.

Why is this so important? Because the mortgage bank and the home buyer rely on an appraiser’s determination of value; a lot of abuse and fraud has been uncovered. If, for example, an appraiser sets a home value to fit the sales price, that’s obviously wrong.

I just had a short sale listing close; the bank took nearly a 50% loss on a $1.8 million loan. The homeowner had been building a new home for himself. When he gave me his loan amount, I was stunned. There was no way to justify that mortgage loan and yet it happened.

To comply, banks no longer have their own appraisers; they use real estate appraisal services with pools of appraisers from which appraisers are randomly selected. This creates an added expense for the mortgage process and increasingly results in appraisers valuing homes who’ve never been to the area before and aren’t members of the local MLS. Recently my office experienced this.

An office listing had an appraisal that was ridiculously low. Both buyer and seller knew this but the bank, which had to use the appraisal, could no longer justify the mortgage. The appraiser had never been to the area before and used the wrong MLS. Bergen County homes are listed in the New Jersey MLS; the appraiser used the Garden State MLS which has only a few Bergen County listings. Without expert knowledge of the local inventory and no access to all the data, he wasn’t able to do a correct valuation.

Eventually things will straighten out but until it does, there will be higher costs to obtaining a mortgage for home buyers and for both buyers and sellers, there will be appraisals that unfairly cancel mortgages.