Appraisals on new condos

If the bank wants to make the loan, the appraiser (who is hired by the bank) must be really dumb to appraise below the contract price.

Why would a bank want to make a "risky" loan in today's environment?

Wouldn't they want an accurate appraisal so they can be sure the buyer has an appropriate amount of skin in the game as well?

I was also told that the regulations changed and the bank/lender no longer picks the appraiser, so the appraiser is more independent.

You are making two assumptions: 1) the appraisers are good at what they do and 2) banks actaully give a damn about what appraisers have to say as opposed to their own business decision. If both were true we probably woulnd't be in this mess.

If the bank finds it too risky to make the loan, the loan will be rejected before an appraiser is hired.

For new constructions that have been continuously closing, many appraisers look at the units of the same line or similar size that were previously closed (with floor and other adjustments) and also look at recent sales prices in similar buildings located in close proximity. In other words, if the value were deteriorating fast (which I am stating as assumption rather than as fact), those appraisals tend to overvalue the property.

As I see it from the bank side, appraisal values have been coming in at contract price in new developments. Most new developments have other new developments surrounding them to provide comparables. Certainly it will get harder and harder to find comparables as times passes in this declining market.

After years of being generous, or maybe fruadulent depending on who you listen to. Appraisers are under pressure not to over-estimate. The important thing to understand is that this is more art than science. No two appraisers will do it the same, they'll look to "comps" which is always subject to interpretation. And even in the good times, they didn't necessarily go with the last and highest amendment to the offering plan. They also know that not all developrs calculate square footage the same, so that's a part of it, getting their own estimate of unit size..

That's an interesting point, Shong. If they're looking at same-line comps in a single building, most likely the prices will be relatively consistent, right, if the only ones closing are people who bid 12-18 months ago?