House Discouragement

We received some frustrating news today about the house we're in the process of purchasing.  Everything is fine on our end, on the seller's end, and with our lender... but the mortgage insurance company came back today (2 days before our closing date, by the way) and said that the appraisal on our house is too high and the process won't continue until we get another appraisal done and it comes in lower.

Our lender tried to get them to tell him where they think the price should be since they don't think the price is correct as it is, but they gave some b.s. answer like, "Oh, we're not allowed to divulge that information," or some crap like that.  But will they send out their own appraiser?  No.  They just want us to get another appraisal that's lower.  I would love to yell at them.  There is nothing wrong with the price of our house; I think the house is worth its current listing price and we are very willing to pay that much.  But there have been appraisal issues all over the state in 2012 so this isn't a unique situation; we likely would run into this issue with any house we try to buy.

Mc explained it to some friends of ours in an email and here's what he said:

"Back in the years 2005-2007, a housing bubble expanded.  Prices rose which silver-lined the pockets of brokers, banks, and appraisers alike.  This was capitalism and greed at its finest.  Why were house prices rising so fast?  Well, it was a self-feeding cycle in which people thought prices would continue to go up, so they were willing to pay more to obtain a house which they KNEW would appreciate.  

"Appraisers bought into this hype and appraised house values higher and higher.  Since they use 'comparable sales' as their baseline, it seemed to make sense.  A house that sold last week for $270K and then 3 months later for $300K must indicate prices are rising, so they would appraise the houses in accordance with the trends.  

"In reality, it was a bubble.  It burst in 2008 and banks would not loan and people would not buy houses and appraisers were slapped on the wrist.  Many banks and lenders, now saddled with a lot of bad mortgages, decided appraisers could not be trusted and required more stringent scrutiny.  

"Fast-forward to today and you have appraisers who are more conservative and banks/lenders who feel they cannot rely on the third-party, independent analysis of appraisers.  So, they will always ask for additional comparable sales and then, if they don't agree, reject the appraisal.  The market in Phoenix is appreciating.  Houses are disappearing very quickly (we know, we've been looking).  However, the values have not been allowed to appreciate because of this appraisal issue.  Despite the fact that we are completely credit-worthy, they won't lend us the money because they feel the house is not worth as much as it was appraised for."

What I'm worried about is that the seller has significantly lowered the asking price for us once already.  The appraiser determined that the house was originally overpriced by about $20,000 and the seller agreed to reduce the asking price down to the appraiser's price.  Now the mortgage company is saying they'll have to lower it again, and I'm worried that the seller will chose to cancel the contract rather than reduce the price again.

Our realtor has been wonderful and he's working hard to try to get this deal to go through.  I really hope things will work out.  I don't want another house, I want this house; it has everything I wanted in a house and yard and I will be so sad and frustrated if I have to start a house search all over again.

Even if things do end up working out, we'll be stuck in this apartment for at least a few more weeks, and I am NOT looking forward to that.