At the end of last year, 11.3 million U.S. households, or about 24 percent, had mortgages on which the amount owed was more than the houses were worth, according to First American CoreLogic of Santa Ana, Calif., which tracks such data.
Although most of these "underwater" households were in the Sun Belt and the Midwest, determining home values has become a major problem for the whole country.
The Philadelphia region hasn't escaped it, and everyone - homeowner, appraiser, real estate agent - sometimes has trouble coming up with the right numbers.
Noelle Barbone, manager of Weichert Realtors' Media office, says appraisers are sticking to the "six-month rule." That is, for every 30 days a house is on the market, the appraisal can change as a new month's worth of comparables are factored in.
"As short sales close, they become the new statistic - the appraiser must use, at the least, one short sale in the mix, if the comparable area contains them," she said. (A short sale occurs when the lender accepts less than the amount owed on the mortgage, which allows the homeowner to avoid foreclosure.)
If an appraisal comes in lower, agents, buyers, and sellers usually try to find a way for the numbers to work.
Randy Krauss, of Long & Foster Real Estate in Haverford, said that when a recent appraisal came in $9,000 below the $274,000 list price, "the buyer was given a $2,500 credit" to help close the gap.
Steve Madonna, of Weichert Financial, said that, "in the past, this issue usually caused a lot of uproar, from sellers, Realtors, and buyers."
"Most agents are aware that the banks are making the rules," Madonna said. "They know that there really is no appeal process to the appraiser for a low value.
"In the vast majority of the cases, the sale price is lowered to the appraised value," he said. "We amend the agreement of sale and move forward to closing."
Charles Malley of Doylestown was trying to refinance when the appraisal on his house came in lower than his reading of neighborhood property values. He discovered that a sheriff's sale had been used as a comparable and appealed to the appraiser, who declined to make an adjustment.
Malley says he contacted two other lenders. The appraisers for both came in "almost a third higher than the first" and "1 percent apart from each other."
So he filed a complaint with the licensing board in the Pennsylvania Attorney General's Office.
"They reviewed for compliance with the Uniform Standards of Professional Appraisal Practice," Malley said, and found " 'that the circumstances in this case do not permit formal prosecution' " and closed the matter.
His issue was with use of the sheriff's sale as a comparable by the first appraiser. Sheriff's sales are usually not used as comparables unless they are becoming "typical" in a neighborhood, Barbone said. A check of Fannie Mae rules showed they agree.
Using a RealtyTrac interactive map to track distressed houses within a five-mile radius of Malley's house, I came up with 10 that either had a foreclosure filing or now are owned by a bank. Not a large number, in my view. Perhaps the first appraiser had a compelling reason to use the sheriff's sale as a comp; the other two appraisers did not use it.
That refi is now a done deal. But from what Madonna and Krauss say, there still appears to be a gap between what sellers believe their houses are worth and reality - and that is often reflected in the list price.
"If agents are pricing based on the past, without projecting the future, they will have more problems with appraisals," Barbone said, "because pricing to a 60-day future will be the past once an appraisal happens."
Inquirer real estate writer Alan J. Heavens is the author of "Remodeling on the Money" (Kaplan Publishing). His home improvement column appears Fridays in Home & Design. "On the House" appears Sundays in The Inquirer. Contact Alan J. Heavens at 215-854-2472 or firstname.lastname@example.org.