A new study by KC Conway, using thousands of securitized real estate bonds of properties that were foreclosed and liquidated, shows a wide discrepancy between the appraisal values and eventual sales prices of properties. According to The New York Times, in general, appraisals overvalue properties. Of the 2,076 properties examined in the study, 64% were appraised at values that exceeded the sales price, by a total of $1.4 billion, where 35.5% were appraised at less than the sales price, by a total of $661 million.
Inaccuracy with appraisals could have serious implications across the entire commercial real estate market, particularly for banks. Over the next four years, $1.7 trillion in real estate debt will come due, about half of which is owned by banks. If appraisals remain inaccurate and appraisers continue with the mantra that 'close is good enough', it could be assumed that the values of the real estate loans that banks are holding are similarly off the mark.
To read the full article from The New York Times, click here.