Appraising the appraisal process

A home appraisal is a vital part of a real estate transaction. Appraisals help sellers list their homes appropriately and assure lenders and buyers of a home's worth. Unfortunately, Realtors across the country are reporting unusually low home appraisals, including some homes estimated to be worth less than replacement construction costs.Many have even experienced delayed and lost sales due to poor appraisals conducted by inexperienced appraisers not familiar with the area. These reports seemed to intensify after the new Home Valuation Code of Conduct was implemented on May 1. The HVCC establishes standards for solicitation, selection, compensation, conflicts of interest and appraiser independence. In many cases however, the HVCC has slowed the appraisal process and increased the use of out-of-area appraisers who may not be familiar with the local real estate market. According to the Downey Association of Realtors, determining correct property value is a difficult task in today's market. "Buyers are purchasing more foreclosed homes and short sales that typically sell for 20 percent less than traditional homes in the same area," said Anthony Mendez, president of the Downey Association of Realtors. "This makes it challenging for appraisers to identify comparable homes and make appropriate value adjustments." Appraisers are also concerned about the issue. According to a recent survey by the National Association of Realtors, 70 percent of appraisers have noticed an increase in the amount of fees paid by consumers. It doesn't stop there. A reported 36 percent saw a severe decrease in appraisal quality. Although the reason for this decrease has yet to be identified, it is essential that appraisers are fully qualified and experienced with the areas in which they work. They must also be independent of any outside influences that would improperly influence the appraisal procedure. Mendez says there are certain measures that can strengthen the process. "Allowing other parties involved in the transaction to ask the appraiser to consider additional property information and provide further detail can help isolate the appraiser from improper influence," Mendez said. "In addition, buyers and sellers should discuss the unique conditions of a home and its neighborhood with the appraiser if he or she is not familiar with the area." The Federal Housing Finance Agency recently took a step forward in dealing with the issue when mortgage giants Fannie Mae and Freddie Mac clarified two important guidelines. The government-sponsored enterprises stated that lenders should use appraisers with clear experience in the geographic area they are appraising and explained that appraisers are not prohibited from talking to real estate agents. "Realtors share unparalleled knowledge of local markets," Mendez said, "They are a trusted and valuable resource for consumers and are ready to help appraisers determine accurate property values." While pleased with this first step, Mendez believes Congress and the FHFA need to do more. "The Downey Association of Realtors supports the implementation of an 18-month moratorium on the new HVCC rules for further inspection for unintended consequences," he said. "We don't want the appraisal process preventing families from the achieving the dream of homeownership.

********** Published: September 11, 2009 - Volume 8 - Issue 21